We of course welcome President Santos on his visit to the UK. It is a very important opportunity for dialogue, not just on human rights but on other issues of great importance to the relationship between our nations, such as trade, the environment and working together on technology transfer. Yesterday, the President was particularly keen to flag up education, and whether Colombia can learn from and adapt our approach to training and skills in the UK, which is somewhat ironic

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given that the trade union movement has been so involved in pushing that agenda here. As today’s debate has shown however, the human rights situation in Colombia continues to be our gravest concern. I appreciate the President’s willingness to address that issue in a full and frank manner with the all-party group yesterday, and also at the meeting I attended with the Leader of the Opposition and the shadow Foreign Secretary straight afterwards, when we discussed in depth concerns about the continued violence in Colombia and impunity, in particular attacks on human rights defenders and trade unionists.

Jeremy Corbyn (Islington North) (Lab): I am sorry that I missed the early part of the debate; I was in a Select Committee. Does my hon. Friend agree that it is a collective failure by the European Union, the International Labour Organisation and the Inter-American Court of Human Rights that none of the human rights elements in the trade and other international agreements that Colombia has signed up to has been enforced at local level, and that therefore the disappearances of very brave human rights defenders and the abuse of their human rights continue?

Kerry McCarthy: I agree that past attempts to put pressure on Colombian Governments have not been effective. Impunity, at 98% or thereabouts, is a shocking statistic. It is important, and I will ask the Minister about this in a moment, that we use any leverage we have, anything within our power, to try to push that agenda along to ensure that it is not just warm words about human rights but that action is taken on the ground to protect them. President Santos was prepared to meet the non-governmental organisations today. I was not aware yesterday that trade unions would be involved in that meeting, and it is very important that they were. Anything the Minister can do to ensure better dialogue between the people from the trade union movement who have visited Colombia and the Colombian regime is an important step forward.

Anyone who has met human rights campaigners from Colombia cannot fail to be moved by their stories. A week or two ago I met some women who were talking about the shocking rise in gender-based violence and the use of rape in the conflict. President Santos was not able to explain why there has been such a dramatic increase over the past year or two, and the assessments that have been made seem to indicate that the violence is being carried out by the guerrilla movement, paramilitaries in particular, and the security forces, and that women are being targeted across the board. I hope that issue is very much on the Minister’s radar.

Eric Joyce (Falkirk) (Lab): Does my hon. Friend agree that we tend to conflate the issues of drugs and human rights in Colombia but that human rights problems existed long before the country was effectively the centre of the world as far as cocaine production was concerned? Any solution, therefore, must not simply involve killing the likes of Alfonso Cano but have social justice at its core.

Kerry McCarthy: I agree. It is a complex situation, involving drug wars, the political situation, the role of FARC, the land grab and commercial interests. I am not

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suggesting that there is one solution. It is an incredibly complex situation to unravel, but President Santos’s rhetoric is very welcome. Recently, there has been significant progress in tackling some of the violence that has plagued the country over the past 50 years. FARC’s activities have been curtailed, but there is genuine concern that a more fragmented organisation is less likely to come to the negotiating table.

Does the Minister see a particular role for the UK? It has been flagged up a number of times that given our history of negotiating with groups, particularly in Northern Ireland, and given the recent decision by ETA, there might be lessons to be learnt that could help the Colombian Government in their discussions with FARC. President Santos has indicated that he is very willing to pursue such negotiations.

President Santos’s announcement in the past month about disbanding DAS, the administrative department of security, is a very welcome step given the allegations of collusion with paramilitaries, illegal surveillance, corruption and harassment of judges, journalists and politicians. The president has said:

“The country knows why we have decided to take this step,”

and that is, I think, both a tacit admission that the allegations against DAS were well founded, and an important signal that the President wants to restore the integrity of his country’s intelligence services.

Nevertheless, there are understandably still concerns about the human rights situation. In the first year of the Santos Administration 54 human rights defenders were killed, there has been a significant increase in gender-based violence, and there are concerns about the future of indigenous peoples—campesinos and Afro-Colombians—who have been displaced from their land to make way for drug and palm oil plantations and cattle ranching, which the United Nations has described as ethnic cleansing. It is not up there with the human rights abuses involving killings, but displacement is important, as is the question whether the new land and victims law will provide reparation and restitution for those people. What role does the Minister feel Britain has to play, particularly when British commercial interests are involved in such land grabs? How does he think that we can resolve the issue and return land to people?

I know that the Minister has visited Colombia twice and that he met President Santos in Peru as well as this week. He has had a lot of time to get a feel for the new regime. Does he feel that the agenda is moving forward and that we are making progress in pushing Colombia on human rights abuses? In particular, what has he learned from this week’s visit?

12.20 pm

The Minister of State, Foreign and Commonwealth Office (Mr Jeremy Browne): Thank you, Mrs Brooke, for giving me this first opportunity to serve under your chairmanship. I pay tribute to the hon. Member for Paisley and Renfrewshire North (Jim Sheridan) for securing the debate and for his ongoing interest in the subject.

We all agree that we want to do whatever we can to reduce human rights abuses in Colombia. I do not think that I have ever met anybody who believes that British foreign policy should solely be about selling things to

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foreigners, so let us start with the assumption that we all have greater ambitions than that. The question is how to achieve them.

In his Canning House lecture a year ago, the Foreign Secretary set out his vision for a step change in our engagement with Latin America, and we are working to broaden and deepen our relationship with Colombia in a range of areas, including human rights, trade, education, science, innovation and environmental growth. In our bilateral co-operation, respect for human rights remains a core value. I have raised the issue on numerous occasions with the President of Colombia and many Colombian Ministers. Although, inevitably, our meeting was not as long as many would have liked, it is important that the president was willing to have discussions in the Foreign Office this morning with non-governmental organisations, members of which are attending this debate.

The debate has highlighted some of the human rights problems in Colombia, but it is important to remember the historical context. In the 1990s, Colombia was a country on the brink of complete disintegration. Guerrillas, paramilitary groups and the armed forces were all responsible for widespread abuses of human rights and international humanitarian law. Improvements have been made since that time. My hon. Friend the Member for Cheltenham (Martin Horwood) asked how we have tried to contribute in terms of the military. We have programmes specifically designed to use our expertise and insight to normalise and modernise the Colombian military’s behaviour and conduct, but that is inevitably a process. Progress is being made, and a new Colombia is emerging.

Drugs are clearly a problem. I respect the hon. Member for Newport West (Paul Flynn); he made a point about parliamentarians in Britain not daring to raise the issue. I remember the Littleborough and Saddleworth by-election. Given the behaviour of the Labour party, he might choose to reflect on why Labour did not wish to raise the issue after that election.

Chris Bryant: The Minister lets himself down by those last comments. He referred to co-operation between the British military and the Colombian military. Exactly what shape does that take? It is a new policy under his Government. How much is it costing?

Mr Browne: It is not a new policy. We are completely committed to strong human rights in Colombia. We want a normalised military that observes and protects human rights rather than risking or, on occasion, abusing them. We are trying to ensure that the Colombian military has the characteristics that we recognise in our own military rather than those that we do not wish it to have. It is as simple as that. I stand by my previous point. I am in favour of mature debate about drug consumption in the west, but all politicians and all parties must approach that debate with equal maturity.

Paul Flynn: I do not want to mislead the House. The words that I quoted on the cowardice of British politicians were those of a former ambassador. Does the Minister agree with President Santos’s call for a new look at prohibition?

Mr Browne: The point I am making is that that was an example of a politician trying to make a broader point about the consumption and legal status of drugs

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in Britain. I suspect that the way that the politician was attacked in that election provided a disincentive for others to take the same approach.

Eric Joyce: Will the Minister give way?

Mr Browne: I will not, because many points have been made.

There have been improvements in Colombia. Cocaine production has decreased significantly, murder and kidnap rates have declined and Colombia is safer as a result, but more still needs to be done. As Members have said, many candidates were murdered during last month’s local elections, and attacks on human rights defenders increased in 2011. The situation is serious. President Santos has set an ambitious reform and modernisation agenda, including a policy of zero tolerance of human rights abuses. In my meetings with him and other Ministers, he emphasised that powerfully.

The passage of the victims and land restitution law is one of the President’s most important achievements to date and has been commended by the UN. It aims to return land to huge numbers of displaced people and to compensate victims, and we attach great importance to it. The Santos Government have made it clear that civic society has a key role to play in addressing human rights concerns in Colombia. The British Government share that view. To respond to the hon. Member for Shannon, our ambassadors and others are here today, and I will ask our ambassador to raise our concerns directly.

Jim Shannon: I am the hon. Member for Strangford. Shannon is down south; I am up in the north.

Mr Browne: Sorry. I do not know whether I am the first person to have made that mistake, but I apologise unreservedly.

To respond to the hon. Member for Bristol East (Kerry McCarthy), I have met Afro-Colombian groups and raised their concerns, as well as those of indigenous people, directly with President Santos and senior members of Government. I hope that they are fully versed in the British Government’s position.

In March 2011, the Foreign Office’s human rights Command Paper identified a chronic lack of capacity and resources in the judicial system as a key barrier to the enjoyment of human rights in Colombia. It remains a significant concern, but progress has been made. The number of prosecutions for extra-judicial killings has risen sharply, and in September, the former head of the state intelligence agency—DAS—was found guilty of criminal conspiracy for providing right-wing militias with lists of left-wing activists and trade union leaders, some of whom were subsequently imprisoned or killed. I agree completely with the hon. Member for Paisley and Renfrewshire North that the problem is far from being resolved. The Colombian Attorney-General’s office is currently investigating 1,486 human rights violations allegedly committed by members of the armed forces.

Concerns have been raised about British businesses. I want to make it completely clear that our approach is to ensure that British businesses operating in Colombia and elsewhere maintain the highest standards of conduct. I repeat my offer to the hon. Member for Paisley and Renfrewshire North: if he has examples of specific violations, I hope that he will bring them to my attention.

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A point was made about free trade agreements by my predecessor, the hon. Member for Rhondda (Chris Bryant), among others. We support free trade agreements, but for the avoidance of doubt, our view is that the proposed free trade agreement between Colombia and the European Union should be, in the jargon, a mixed competence agreement. In other words, it should include the concerns that have been raised. However, as Members have said, there is a Colombian-American free trade agreement, so I hope that we will make progress, with the conditions that I mentioned.

I believe that Colombia offers great potential. It is the second most populous country in South America, and it has worked closely with Britain on numerous issues of joint concern that I am sure are shared by Ministers and Members as well. However, we take the point that a normalised, strong, healthy relationship with the Colombians requires marked improvements on human rights. That process has been ongoing, and we recognise the progress made, but we wish to work closely with the Colombian Government to ensure that dramatic further progress is made soon.

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Pension Protection Fund

12.30 pm

Jonathan Evans (Cardiff North) (Con): It is a pleasure to serve under your chairmanship, Mrs Brooke. I shall begin by drawing attention to my entry in the Register of Members’ Financial Interests, although I am not aware that any of the companies to which I am connected have any current business associated with any of the issues that I intend to raise. It is, however, important that I draw the entry to Members’ attention.

I am grateful for the opportunity to discuss important and unresolved issues in relation to the operation of the Pension Protection Fund and the financial assistance scheme, and their impact on a group of former employees of Allied Steel and Wire, a number of whom are my constituents. I want to begin by acknowledging the relentless work of Mr John Benson of the Pensions Action Group, and by thanking the chief executive officer of Saga, Ros Altmann, who has been a consistent supporter of the former workers, who have been stripped of their pensions through no fault of their own.

I would also like to thank my parliamentary colleagues, my hon. Friends the Members for Beckenham (Bob Stewart), for Sittingbourne and Sheppey (Gordon Henderson), who also has an ASW interest, for Vale of Glamorgan (Alun Cairns)—John Benson is one of his constituents—and for Montgomeryshire (Glyn Davies), as well as the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) and the hon. Members for Arfon (Hywel Williams) and for Cardiff West (Kevin Brennan), for attending the debate. We have discussed the issues with all of them over time. I should also like to mention the hon. Member for Cardiff Central (Jenny Willott), who is unable to attend the debate because of conflicting public duties, but who has been a consistent supporter of the workers.

Ever since the early part of the 20th century, Parliament has recognised the need to promote proper and adequate pension provision for those in their later years. We have seen the development of the state pension system and its refinement and adjustment in a variety of ways that still continue to this day. Overlaying that, Parliament has rightly encouraged people to make better provision for themselves through occupational or private pension routes. Again, we see that issue at the forefront of parliamentary debate. The Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb), has responsibility for the latest Pensions Bill, which is currently in another place, and there has been legislation on pensions in this House on an almost annual basis in recent years.

On the 30th of this month, we anticipate a major public services strike because of Government plans to adjust the future pensions benefits of public sector workers. The merits of those arguments are matters for another debate, but what is undeniable is that the Minister and his colleagues in Government have been at pains to stress that, irrespective of the outcome of the negotiations, the current accrued pensions rights of all public sector workers will be honoured. The then Government made a similar pledge to Northern Rock workers when the bank was taken into public ownership in 2007, and matched that promise in respect of each of the other banks that have found themselves in the public sector.

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The reason why such pledges are important is that the success of pension saving depends on the maintenance of trust—trust that, if someone makes regular contributions, they will in due course receive nothing less than the sum that has been promised to them. That trust was significantly shaken 20 years ago by revelations that Robert Maxwell had stolen £460 million from the pensions of Mirror Group Newspapers workers, which led to the establishment of the Occupational Pensions Regulatory Authority in 1995. From that time onwards, workers in company pension schemes had every reason to believe that their pensions would be safe. As Ros Altmann put it in a letter to the Financial Times some years ago:

“Members were told that their accrued pension rights were protected in law and that actuaries would calculate contributions, in line with the minimum funding requirement, to ensure adequate funding to pay the promised pensions.”

Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC): I congratulate the hon. Gentleman on securing this debate. He is making a powerful case. I support everything that he is doing and agree with all Members present that justice has to be done for this group of pensioners. I would also like to mention that the hon. Member for Newport West (Paul Flynn) is also present.

Jonathan Evans: I apologise for failing to mention the hon. Member for Newport West (Paul Flynn). He regularly attends all such debates. I had presumed that he was present for the previous debate on Colombia, without realising that he also wished to contribute to this one. I am happy to put the record straight on that and to give credit to the right hon. Member for Dwyfor Meirionnydd and his colleague, the hon. Member for Arfon, for their support for the ASW workers.

Glyn Davies (Montgomeryshire) (Con): Following on from the intervention of the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd), many years ago, I met groups of people from ASW outside the National Assembly for Wales when they were explaining their case to Assembly Members. If we are going to have a successful pensions industry to which people are willing to contribute, we cannot let these things drift on for decades. This is not the only case, and I congratulate my hon. Friend on highlighting the issue.

Jonathan Evans: I am grateful to my hon. Friend for that point and shall now endeavour to make some progress.

Ros Altmann’s letter continued:

“Literature from the government, the Financial Services Authority, the Occupational Pensions Regulatory Authority and everyone else contrasted the safety of final salary schemes with money purchase arrangements, where members’ pensions were not guaranteed”,

as we see from what happens on the stock market almost daily. That was the guarantee that ASW workers believed they had right up until July 2002, when the company went into liquidation. It was then that John Benson and his colleagues discovered that, despite years of parliamentary inquiry, debate and legislation on pensions, they were no better off than the MGN staff, whose pensions had been stolen. As Ros Altmann put it at the time:

“Simply to say it is a tragedy that thousands of people have had their pension expectations reduced is an insult to those who have suffered in this way. This is not an example of life’s unfairness;

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this is more like fraud. Other victims of mis-selling receive compensation. Having contributed their money loyally for 30 or 40 years, with the promise of a secure pension and no risk warning from anyone, many now find not that they will get a reduced pension but that they will get no pension at all.”

She went on to say that

“they would in fact have been better off throwing their contributions away, than putting them into their employer’s schemes. Is it any wonder that people are frightened of pensions and have lost confidence?”

The ASW scandal provoked a major campaign, which, as my hon. Friend has mentioned, began during his time at the Welsh Assembly. There was a call for action in this House and the workers were invited to No. 10 Downing street for tea and sympathy with Tony Blair, but more practical help was demanded by others in the House. I pay credit to the hon. Member for Cardiff West in that regard—he was certainly active on behalf of the pensioners—and to my good friend, the former Member for Eastbourne, Nigel Waterson, who played a leading role in supporting the workers and in highlighting the injustice of the situation. The Minister himself was also active and supportive in that debate. The campaign led to the establishment of the financial assistance scheme under the Pensions Act 2004.

At the time that the scheme was put in place, many believed that the outcome would guarantee 90% of expected pensions benefits for affected workers. I have read the parliamentary debates in which many members of the then Government expressed the joy with which workers would greet the news that 90% of their entitlements were safeguarded. Unfortunately, they were sold a line that was both simplistic and inaccurate.

Although schemes such as that for ASW provided up to 5% inflation proofing, the legislation cut it to 2.5%, less than half of the current level of inflation. Over time, that still further erodes the pension value and is further cut by the switch from RPI to CPI, which the Minister has also applied to the financial assistance scheme.

In parliamentary questions on 29 June 2009, one Member rightly exposed that deceit, although he was too courteous to suggest that the deception was in any way deliberate. He said:

“Does she”—

the then Secretary of State—

“accept that this 90 per cent. figure that she uses is highly misleading…because it is not just capped…there are big issues about the inflation protection? Does she accept that many pensioners will get much less than 90 per cent., and that over the years they will see annual falls in their real pensions? Will she look at those cases again?”—[Official Report, 29 June 2009; Vol. 495, c. 6.]

Of course, the hon. Member who was able to identify all those shortcomings is now the Minister himself. Let me make it clear that I am a strong admirer of the Minister. I believe that he is personally motivated to do all he can to help these cheated pensioners. I know that since the election he has met, on more than one occasion, with the ASW pensioners to examine any ways their plight can be alleviated. We are all aware of the difficult financial circumstances that the Government face. Nevertheless, Mr Benson and my constituents have pointed out to me that, in the run-up to the general election, both coalition parties heavily criticised the previous Labour Government for the shortcomings of this scheme. It was, therefore, a reasonable inference for them to draw that some action might be taken to address these failings if we were successful in the election.

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Lilian Greenwood (Nottingham South) (Lab): The hon. Gentleman is making a very powerful point. Does he agree that these people feel so very angry because their limited indexation is now affected by the change from RPI to CPI, which will see them losing hundreds and thousands of pounds?

Jonathan Evans: I highlighted the point in relation to RPI and CPI. I am endeavouring not to engage in a partisan debate, with the criticisms that I have made of my own side. However, I am bound to say that the fixed 2.5% inflation cap will have a much more marked effect than the CPI-RPI issue, even though I had mentioned it myself.

My constituents highlight the 100% pension protection that has been offered to the workers in the bailed-out banks. They point to the guarantee on accrued pension rights that are to be given to all public sector workers—rightly so—and the recent decision to extend those rights further, so that all workers who are retiring from the public sector in the next decade will see no change whatever in their future entitlements. They argue that, far from their situation improving, their pensions have actually worsened since 2010. Government—I use that generically, because I think it was prior to 2010—have lost their case on maladministration in the Court of Appeal, yet the recommendations made by the parliamentary ombudsman have not been honoured.

Having set out those criticisms, let me say that there are areas in which this situation could be improved. The Government should increase the inflation-linking cap. As I have indicated, the current 2.5% cap will seriously erode the pensions of affected people within just a few years, and that reduction is accentuated year-on-year moving forward. I know that the Minister understands that. As I have pointed out, he was the one who highlighted it two years ago. The Government should consider scheme-specific capping. The ASW scheme promised workers much greater inflation protection. Not only have we seen a reduction, but we have seen a reduction that, in contrast to the scheme that they had, is much less generous. The former Government removed the right of trustees to use deemed buyback after a number of schemes had taken that up. Permitting deemed buyback would assist FAS scheme members in future. The Minister could consider establishing a hardship fund for those worst affected.

The Minister has been examining the potential unwinding of annuity purchase. Annuity purchases have taken place with two major annuity providers, and I am aware that he met ASW workers as recently as 1 November to discuss the issue. Will he confirm the outcome of those discussions, with whom the discussions have taken place and whether any progress has been made?

Reduced early retirement pensions should also be permitted. There are a range of pensioners, including my own constituents, who are currently unemployed and cannot find work, yet cannot access their pension. Changing the rules would have no cost implications, because there would be an actuarial adjustment. I have a constituent who is in poor health. He could be considered for early retirement only if his doctor is prepared to say that he will die within five years. Those requirements seem excessive and wrong. Allowing early retirement, subject to actuarial revaluation, would seem fair.

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Earlier today, I received an e-mail from one of my constituents, Mr Iain Kenworthy-Neale of Thornhill in Cardiff, entitled, “Fair Pensions for All”. I warn colleagues that they will all receive a similar e-mail shortly. He expresses support for the national strike on 30 November for fair pensions for all. He says that he is not impressed with the Government guaranteeing accrued pensions rights. He is not impressed with the Government maintaining current public sector provision for the next decade. He wants no change whatever in relation to public sector pensions, and he wants the Government to scrap their plans. However, Mr Kenworthy-Neale does not limit his views to public sector pensions. He also calls for all state pensions to be increased by £70 a week forthwith, and for every private sector employer to be compelled to pay pensions to their workers. He has asked for me to draw his demands to the attention of the Minister, and I am happy to do so.

In contrast, the demands of John Benson, the Pensions Action Group and all the former ASW workers at Cardiff and Sheerness are much more modest. They are merely looking for their pension promise, as underwritten by Government and regulators, to be met. I was pleased to stand with them at their protest at my party’s conference in Manchester in October. They are people of real dignity who have been badly let down by successive Governments. I hope that the Minister will be able to offer them today some light at the end of what seems a very dark tunnel.

12.46 pm

The Minister of State, Department for Work and Pensions (Steve Webb): I congratulate my hon. Friend the Member for Cardiff North (Jonathan Evans) on securing the debate and welcome the fact that a number of hon. Members have come to the Chamber to register their support for their constituents who have been affected in the way that he describes. He is right to pay tribute to those who have campaigned on the issue for a long time; I recall many such debates in previous Parliaments. The hon. Member for Cardiff West (Kevin Brennan) was certainly one of the principal campaigners on the issue, on behalf of his constituents. Indeed, Derek Wyatt, predecessor of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson), campaigned on the issue during his time as a Member of the House, particularly with respect to the link with ASW Sheerness.

As my hon. Friend the Member for Cardiff North rightly said, my involvement goes back a long way. I recall going with Mr Andrew Parr, from ASW Sheerness, and Dr Ros Altmann, to whom my hon. Friend was absolutely right to pay tribute for her role in all this, to see the parliamentary ombudsman way back when. We sat down with the ombudsman and went through all the literature that people were provided with at the time, as well as the concerns about the way successive Governments had said, “No questions asked, company pensions are a good deal.” Essentially, they had said, “Go for it.” As my hon. Friend rightly says, some people lost out very badly. That is, in a sense, how the financial assistance scheme came about.

It is worth reflecting on the sequence of events and the creation of the Pension Protection Fund, and how the financial assistance scheme fits into that universe. The existence of the PPF is germane to my response to

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my hon. Friend. Rightly, people sometimes ask about what previous pensions Ministers got wrong. One thing that previous pensions Ministers got right was the creation of the PPF. Going forward, people in defined benefit pensions can know that the scheme is paying a levy, that there is a sort of collective insurance and that, essentially, those who see their company become insolvent can expect to receive 100% as pensioners, and 90% as active or deferred members of the scheme.

We can all take some reassurance from the fact that for the sort of scandals my hon. Friend describes—where Governments have encouraged people to save through workplace pensions and then they find that there is an insolvency event and they have lost not only their job, but their pension—there is now pretty good protection in place, although it is not total protection. Insurance schemes tend not to be total, but they are very significant.

One criterion for what we may or may not do with the financial assistance scheme is that I believe it would be wrong to take its principles beyond what the PPF provides. The PPF is a levy-based insurance scheme. It would seem to me to be wrong to say to people whose employers are paying an insurance premium that they will get less insurance cover than those who did not. It is not their fault that they did not, but it would seem to me that that is a logical and coherent position. If we create an insurance scheme and people pay for it, that is what we think is fair provision. Therefore, the financial assistance scheme should not be more generous than the PPF. That, therefore, is part of my initial response to my hon. Friend’s first point about the 2.5% inflation cap. I take his point that we live in times of high inflation, with the consumer prices index at 5.2%, or 5% as the most recent figure. However, if we were to lift the cap on the financial assistance scheme indexation, by corollary we would have to do so on the PPF indexation. If we did not, that would be odd, and we would probably be in court by the end of the day, I suspect. The PPF indexation is funded by the levy payers, so there could be a significant additional cost from removing that cap, which would have to be met by the firms in British industry today that are continuing to run quality pension schemes, or that continue to have liabilities under them. A challenge that we face is the balance between wanting good-quality pension protection and good-quality pension provision. Every time we put a new burden on those who provide final-salary and salary-related pensions, the danger is that another will say, “Forget this, that is just another cost and we will close it.” That is one of the trade-offs.

My hon. Friend mentioned the indexation provisions specific to the ASW scheme, which were relatively generous compared with some, but, to give a feel for the scale of what we might be talking about, if we were to provide indexation along the lines of the schemes that people were in previously, rather than at a general level, it is estimated that we would add about 30% to the cost. Just one of the things on his list would add significantly to the cost.

Kevin Brennan (Cardiff West) (Lab): I did not intend to intervene, but as the Minister rightly says, in the past he and I were allies at times in working on the issue. We all accept that the deal that eventually happened was not what we would have liked to see, nor was it as adequate as we would have liked—he accepted that at

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the time—but does he not feel some responsibility at least not to make matters worse, which is what he is doing?

Steve Webb: Let me come on to the CPI point, which is what I assume the hon. Gentleman is referring to. Clearly, the Government took a view in summer 2010 as to the measure of inflation that they would use to uprate benefits and tax credits. There is no perfect measure of inflation; clearly, each has its strengths and weaknesses. However, as a new Pensions Minister in 2010, I received angry letters from people asking why their state earnings-related pension scheme had been frozen. Obviously, “It wasn’t me, guv”, as it were, but their SERPS pension had been frozen because “inflation” in the year to September 2009, as measured by the retail prices index, was negative.

We had a bizarre situation. I have yet to meet a pensioner who felt that inflation was negative in the year to September 2009, but, because mortgage rates were falling dramatically, headline RPI inflation was negative and, therefore, people’s pensions were frozen in 2010. CPI would have given them an increase then.

The further paradox was that, at a time of falling interest rates when savings returns were falling—low interest rates are, on the whole, bad news for pensioners, who tend to be savers rather than borrowers—we were using a negative or a low measure of inflation. That did not seem a good fit to us, particularly for pensioners, so the Government took the view that they would measure inflation using the CPI for benefits, tax credits, state earnings-related pensions, the underpin for occupational pensions and, thereby, via SERPS, public-sector pensions, and the PPF. Having decided that that was what inflation was across whole swathes of the what the Government do, it would be odd to have an island where we measured inflation differently.

I fully accept that that reduces the value of the financial assistance scheme pensions—I cannot dispute that—but that was not the purpose of the exercise, and the effect was well down the track from the decision on the CPI. It would, however, have been incoherent to have said that inflation was something different for the financial assistance scheme.

I have met Pensions Action Group campaigners on a number of occasions over many years, as my hon. Friend the Member for Cardiff North said, and I have great respect for what he described as their dignity and for their perseverance in campaigning, which has got the financial assistance scheme to where it is. The switch to using the CPI has reduced the cost of the financial assistance scheme in the longer term—it has had no impact in the first couple of years because we are above the cap on either measure of inflation—but other factors have led us to spend more on the financial assistance scheme than we were budgeting for. Rather than looking at a budget line that allows me some slack, I am having to explain why I am overspending relative to the budget that I inherited. The reason for that is that new schemes come into the financial assistance scheme, or we get data for schemes that we knew were coming in but for which we did not know the details, and we tend to find out that we have greater liabilities, in particular in the short term, than we had thought.

Working out what we will spend on the financial assistance scheme is not a precise science, although it is getting more so. However, it would be wrong to think

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that somehow the budget line has some slack in it and that we can decide what to spend it on. On the contrary, I am having to make the case in Government that we have made promises to the financial assistance scheme that we need to keep. Therefore, we have to find extra money compared with what we budgeted for.

Alun Cairns (Vale of Glamorgan) (Con): Will the Minister give way?

Steve Webb: If my hon. Friend will forgive me, I will not, out of respect for my hon. Friend the Member for Cardiff North, who secured the debate, but only because I want to respond to his comments.

To be clear, it is not the case, therefore, that some financial slack is available for the financial assistance scheme.

My hon. Friend also mentioned deemed buy-back, which is complex, so I will not say, “Here is one I prepared earlier.” Essentially, deemed buy-back is treating the scheme as if it had not contracted out of SERPS. On the face of it, we would assume that that is better, but it turns out that the situation is rather more complicated than that. At the moment, people in the financial assistance scheme have a level of certainty: they know what the rules are and they know what 90% is and is not. I entirely accept my own point from a few years ago that we have to be careful when we say, “It’s 90%,” because clearly the matter is much more sophisticated than that and there are limits, as he rightly said. However, those people have the certainty of knowing what the scheme rules are. Under deemed buy-back, they would not have that certainty while some people would get more than 100% of their scheme pension and some people less.

Jonathan Evans: Would there not be a responsibility on the trustees to form a view as to whether they wished to action that? My hon. Friend the Minister is indicating that some circumstances could be advantageous and others not, but that would be a judgment made in each case. Currently, no one can exercise such judgment.

Steve Webb: The answer might be different for each individual rather than for each scheme. How would a trustee judge? If the trustees chose deemed buy-back for the scheme and we agreed with that, might they put some members in a worse position and others in a better? How would a trustee balance the different interests of the different members? This is complex.

The other thing about deemed buy-back is that under the financial assistance scheme there is some flexibility as to when the payments are made. My hon. Friend the Member for Cardiff North thinks that the ill-health provision is too rigid, but there is no ill-health early access to SERPS, so, again, the current system has a

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measure of flexibility that deemed buy-back would not have. Deemed buy-back, therefore, is complex and technical, and not a silver bullet. We have looked at it—in fact, we have looked at just about everything imaginable to try to find ways to provide better value to those individuals.

My hon. Friend mentioned annuities. All the way through, Dr Ros Altmann has argued that one reason that we did not get good value in the first place was that many of the schemes were annuitising, and if we had got in there quicker, we could have done better. That is absolutely right and why the so-called FAS 2 schemes, in which the Government have taken over the assets, have enabled us to improve to a baseline of 90% compared with what was previously on offer.

To try to take that further, I had a personal meeting with the chief executive of Legal & General—no reason why I should not mention it—which is far and away the company with the most of those books still going. He was content to transfer the schemes across to us on the basis of the book value in his annual accounts. His comment was, “I don’t want to profit from this, but I can’t show a loss, so it goes across at the book value.” I am not sure we have said this before, but Andy Young, who was involved in the Government Actuary’s Department and has been instrumental in all this, helped us considerably, of his own free will, to analyse all the facts and figures and so on. We have had discussions with the Government Actuary and with the Treasury. The short answer is that the book value of those contracts has already got the profit in it. Therefore, we take across something from which the profit has already been made, and the view of the Treasury, which I understand, is that there simply was not the confidence that we would get extra value—that the Government doing this would provide added value. In fact, there was a risk that we would be net losers.

I was keen to pursue that avenue and I hoped that it would provide a way for us to squeeze some extra money into the financial assistance scheme, but, unfortunately, it has proved fruitless. I am disappointed about that, which I told the Pensions Action Group members when I met them a few weeks ago. I was keen not to string them along. The very least that they are owed is a firm statement of the Government’s position. It was suggested that we might have a review, perhaps when the Government have more money, but I was keen not to create a false hope or an expectation, because those group members have been through so many stages. However, considering the state of the public finances, it would have been dishonest and dishonourable of me to suggest that we might find a little pot of money to address their concern.

As I hope is apparent from all that I have said today and through the months that I have dealt with the group, I have huge sympathy for the situation in which they find themselves, but I do not believe that I can offer any realistic prospect of improvements beyond the current financial assistance scheme.

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Incapacity Benefit (North-East)

12.59 pm

Grahame M. Morris (Easington) (Lab): It is a pleasure, Mrs Brooke, to serve under your chairmanship for the first time. There has been tremendous interest in the economic effects in the north-east of changes to incapacity benefit. I was hoping for a much longer debate—a number of right hon. and hon. Members have indicated that they would be interested in participating in such a debate—but I will try to be brief.

I am pleased to have secured this debate, which gives me the opportunity to raise some important issues that affect communities throughout the north-east of England. As the title suggests, I want to focus on the economic effects of one specific coalition policy: the impact of welfare reform and changes to incapacity benefit. I shall refer specifically to a recent research report by Sheffield Hallam university on “Incapacity Benefit Reform: the local, regional and national impact”, and a report from the Institute for Public Policy Research North, the “Northern Economic Summary: October 2011”. I commend the latter report, which is the first of its kind, but IPPR North will produce it quarterly. It will be a useful way of tracking the impact of the Government’s policies on the north-eastern economy.

Before going into my main argument, I want to set the scene and to provide some context for the debate. The IPPR North report indicates that unemployment in the north-east is accelerating and is being driven by a weak northern economy being pushed into recession by public sector spending cuts, which are threatening to increase the north-south divide. The north-east, with Yorkshire and the Humber region, has faced the worst increases in unemployment in the UK. The figure for the north-east now exceeds 11%. Gross domestic product nationally suggests that the UK economy is avoiding a strictly defined technical recession at the moment, but it can be best described as flat-lining. Labour has a five-point plan to stimulate jobs and growth, but I do not want to go into that because of shortage of time. Perhaps it is a subject for another debate.

The situation for workers and those seeking work in the north-east is much bleaker than in many other regions. The northern economy could already be contracting, as the index of production figures produced by the Office for National Statistics show UK manufacturing contracting by 0.6% in the three months from June to August. Contraction in manufacturing affects the north-east disproportionately. It affects the economy in the whole of the north, but particularly the north-east because, despite the need to rebalance the economy—I am a great supporter of manufacturing—the north-east has a relatively high proportion of employees in manufacturing.

The latest job figures show that the north has lost a large proportion of public sector jobs in the last year. The figures produced by the northern TUC show that we are losing them at a rate of 2,000 a month, with almost no increase in the number of private sector jobs. In the north-east, the number of private sector jobs is declining. It has lost more than 32,000 public sector jobs, but more than 8,000 public sector jobs have been created in London, and 24,000 in the south-east. That is clear evidence of the Government’s failing regional policy.

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I want to concentrate on the impact of the Government’s welfare reform policies on the economic situation in the north-east. Sheffield Hallam university’s report, “Incapacity Benefit Reform: the local, regional and national impact”, shows that 60,000 people in the north-east face being moved off incapacity benefits, 35,000 of whom will be pushed out of the benefits system altogether due to the time limits. More than 20,000 will be added to the unemployment figures.

My constituency has the highest rate of working-age adults claiming incapacity benefits in England and will be one of the most affected. In my constituency alone, 4,200 people will be moved off incapacity benefit, of whom 2,000 will lose their benefits altogether. That will have a huge adverse impact on those individuals and households, but I want to focus on what it means for the north-east economy as a whole.

If 35,000 people are taken off incapacity benefit altogether, as the pilot study indicates, that will effectively remove more than £170 million every year from the north-east’s economy.

James Wharton (Stockton South) (Con): Will the hon. Gentleman give way?

Grahame M. Morris: I would like to make a little more progress, but I will give way when I have made my point.

That money would be in the hands of the poorest in society and would be spent in local communities, neighbourhood shops and local businesses. The clear economic argument is that unemployment would increase if benefits were cut in the region, owing to a reverse multiplier effect of credit withdrawal, because less money would be spent in the local economy. It is staggering that as the north-east seems to be heading into a regional recession, the Government are set to take another £170 million from our regional economy every year. It is even more staggering that, as employment is falling in the private sector owing to the Government’s lack of a credible policy for jobs and growth, they are simultaneously moving 60,000 people off incapacity benefit and adding more than 20,000 to the unemployment count.

The legacy of incapacity benefit is felt most in older industrial areas. The number of people claiming incapacity benefit is not evenly spread. The communities that I represent are mainly former coal-mining areas where long-term ill health is a consequence of years spent working in damp, cramped and physically arduous conditions underground. A recent review of coalfield areas by the former Member for the then constituency of Barnsley West and Penistone, Mick Clapham, reported two significant problems. He identified that incapacity benefit claims are not confined to the older generation, whose ill health was caused by working conditions. Ill health in the younger generation is due mainly to poor employment opportunities and the low expectations resulting from their marginalisation in the active labour market and has given rise to a lost generation.

James Wharton: I congratulate the hon. Gentleman on securing this debate. The topic is extremely important to him and to many of his constituents. I am a little concerned that he seems to believe that being on incapacity benefit when able to work is an acceptable end in itself. Does he agree in principle that those who are able to

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work should be encouraged to do so and should be taken off incapacity benefit and helped back into work? Does he also agree that, although incapacity benefit must be available for those who need it, the Government have a duty to review the system and to address some of the problems that have arisen as the system became out of control in recent years?

Grahame M. Morris: I will come to that. My fundamental point in response to the hon. Gentleman is that the big issue for us is not just worklessness; it is joblessness. We want the Government to invest in creating jobs in the private sector and generally to get the local economy moving. There seems to be little point in inflicting penury and misery on large sections of already impoverished communities when there are no jobs for them to go into. The two should go hand in glove, and I have some suggestions for achieving that.

Mr David Anderson (Blaydon) (Lab): I agree with my colleague. The figure of 32,000 that the report spoke about was released about a month ago. That figure has not been challenged by the Government. We have 32,000 job losses across the public sector in the north-east. If my hon. Friend is correct, another 35,000 will be taken off incapacity benefit, which will put up the unemployment figures. There will be a 70,000 increase in those two groups alone. There is also the failure of the private sector to move into the void. Does that not make the jobs situation even more serious than it already is?

Grahame M. Morris: I am grateful for that intervention, which reinforces the point that I was trying to make. It is absolutely essential that we tackle joblessness; the Government have a responsibility to do that. I am concerned about the complete failure of regional policy; I am not convinced that we have an effective regional policy. We lost our regional development agency, One North East, and our regional Minister. It cost nothing to have an advocate at the top table of government, arguing the case for business, as well as for the regeneration of the whole region. It seems perverse that the coalition should abandon that, particularly when the region is doing so badly.

Ian Swales (Redcar) (LD): I congratulate the hon. Gentleman on securing a debate that is very important for the region. Does he agree that the current process of checking who should claim incapacity benefit follows a system—work capability assessment—introduced by the previous Government? Does he further agree that that system is flawed and broken? Will he congratulate this Government on trying to do something about it?

Grahame M. Morris: I certainly would not like to do any of those things. However, there are some positive things that the Government could do to address a dire and worsening situation that many people are not aware is going to hit them in the next 12 or 24 months. There are things that the Government could and should do. Sheffield Hallam’s recommendations were clear:

“government should resist penalising the older generation, who, not unexpectedly, are suffering from ill-health.”

Instead, efforts should be concentrated on

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“creating opportunities for work”

for this younger generation, this lost generation, which could prevent the problem that we have experienced with young people

“falling into a cycle of ”

dependency and

“economic inactivity”.

That often relates to mental health issues, a lack of self-esteem and a lack of aspiration, which eventually leads to

“disability and incapacity.”

We should have an early intervention to tackle this huge problem. There are lessons for Government to apply not only in the north-east, but for other former industrial areas. This is a big issue in the north-west, in parts of Scotland, in Merseyside and in the former mining communities of Wales. Claimants of incapacity benefit are usually concentrated in the same disadvantaged communities that have weak local economies with little chance of finding work. The Government must recognise that.

The authors of the Sheffield Hallam report, Christina Beatty and Steve Fothergill, are also damning of the reforms, saying that there is little reason to suppose that changes will lead to significant increases in employment. Without creating the jobs first, it seems like a double punishment on the thousands of people who will be adversely affected: 35,000 in our region and more than 4,000 in my constituency.

I want to give the Minister an opportunity to respond, but first I want to say a few words about the Government’s workfare programme, which seems like cynical exploitation by a Government that have already put thousands of people out of work. I want to place on the record my opposition to an extension of workfare. Where will the jobs for the long-term unemployed come from? If such jobs exist, why are they not being offered as real jobs with real wages, as opposed to benefits that carry the threat of withdrawal of benefit if individuals are unable or unwilling to take up offers?

The effects of such changes will not hurt the affluent south, but will be a body blow to the poorest areas, particularly in the north-east. At the same time as the Government are retrenching on any support for jobs and growth in the north-east, they are quick to pull the rug from underneath the sick, disabled and worst-off in society. I want to focus on the loss that that represents to the north-east regional economy and what the Government could do to limit the damaging effects.

I want to pose some specific questions, and I look forward to the Minister’s response. Can the Minister confirm that the north-east has seen a decline in private sector employment over the last year? Does he have an estimate of what the financial loss will be to the north-east economy owing to changes in incapacity benefit? Can he confirm the figure of £170 million? Will he consider how money lost to the north-east could be ring-fenced and reinvested in the region to support job creation?

I will give the Minister a few helpful suggestions from the IPPR:

“The government should offer a guaranteed job, paid at the minimum wage or above to anyone who has been unemployed and claiming JSA for more than 12 consecutive months. The guarantee should be matched by an obligation”

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because there are rights and responsibilities. If the Government give somebody a right to a guaranteed job, the individual should be obliged to take up the offer of employment

“or to find an alternative that does not involve claiming JSA.”

Will the Minister look at this proposal and whether it could be targeted as a jobs guarantee for the north-east? A jobs guarantee could be implemented in areas of the north-east where long-term unemployment meets a certain critical level or where the job density ratio falls below an agreed threshold.

The IPPR believes that these recommendations could be afforded if the proposed reduction in corporation tax was abandoned. All the evidence suggests that the reduction in corporation tax is unlikely to increase employment and it significantly benefits large finance companies, particularly banks, and companies employing fewer staff. If the Government are serious about getting people back to work—I will conclude on this point, so that the Minister has a chance to respond—they should commit to supporting our regional economy and reinvesting any money saved from changes to incapacity benefit back into the north-east directly, to support jobs and create growth.

1.18 pm

The Minister of State, Department for Work and Pensions (Steve Webb): I congratulate the hon. Member for Easington (Grahame M. Morris) on securing an important debate. It is good to see other hon. Members from his region present for the debate today. I will speak primarily about incapacity benefit and the changes made by the Government—indeed, primarily by the previous Government. It is worth spending at least a moment on the context. Every night on the television news, we see stories of what happens in countries that did not get their deficits under control. We see fiascos, shambles, rioting in the streets and Governments being overturned.

It strikes me that two political parties working together in the national interest after the 2010 general election has meant that Britain is not seeing the extraordinary bond rates that Italy or Spain have faced. We are able to borrow at modest rates because of the fiscal credibility that we have. In the context of the north-east, low interest rates are one of the critical things in giving householders money to spend. If someone has a mortgage and the bank base rate is 0.5%, that gives them money in their pocket to spend in the regional economy.

Grahame M. Morris: Will the Minister give way?

Steve Webb: I will give way in a second. There are direct consequences of the difficult choices that we have made on the deficit that are specifically to the benefit of local economies such as the hon. Gentleman’s. I will give way to him, but he has not left me long to respond. If he wants to add additional points, I will have even less time.

Grahame M. Morris: I am grateful to the Minister, but it is important to challenge the point that is raised again and again that everything has to be sacrificed on the altar of deficit reduction. Is it not true that the Government’s plan is hurting but not working, and that

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the deficit is growing because there is no growth in the economy? The last figures I saw showed that we are borrowing an additional £46 billion.

Steve Webb: The hon. Gentleman mixes the structural deficit with the cyclical deficit. We have said that we will eliminate the country’s structural deficit. Although when the economy grows faster we get additional revenues and save money on benefit spending, we also have to tackle the structural deficit—something the previous Government failed to do. He referred to a five-point plan that simply adds more debt, and it is hard to see how the solution to a problem caused by excessive borrowing is more borrowing.

The hon. Gentleman referred to incapacity benefit, and his constituency has the highest concentration of people of working age on incapacity benefit in England. I have seen the Sheffield Hallam report to which he refers. It lists four changes that have been made, three of which—although he did not want to admit it—were introduced by the previous Government. My hon. Friend the Member for Redcar (Ian Swales) made that point. The replacement of the personal capability assessment by the work capability assessment was introduced by the previous Government; I am not sure whether the hon. Member for Easington supports that, or indeed the process of re-testing the stock of people on incapacity benefit, or the requirement to undertake work-related activities—all measures initiated by the previous Government. Those are three of the four measures in the Sheffield Hallam report, and it seems that each was a move in the right direction.

My hon. Friend the Member for Redcar was right to say that the system of work capability assessment that we inherited was broken, and a work capability assessment that focuses on whether people can work or not is a positive measure. We have proceeded with the Harrington review, and Professor Harrington’s second report will be published imminently. Significant changes have been made to the WCA process. For example, we will ensure that we garner more medical information initially rather than wait for it to emerge on appeal, and we will allow Department for Work and Pensions decision makers to more readily override the Atos assessment. A lot of positive changes to the WCA process have been recognised by those who campaign on such issues, and we have refined and improved the process to the benefit of the hon. Gentleman’s constituents, and others.

My hon. Friend the Member for Stockton South (James Wharton) asked the key question: what does the hon. Member for Easington want for his constituents who are on incapacity benefit? Even when private sector jobs are created, they do not go to those on incapacity benefit. There is a gap: folk on IB are stuck on IB and nothing gets them off it. We need to bridge that gap, which is where the reassessment process and, crucially, the Work programme come in, involving serious money that gets spent only when real jobs are created.

Let me give the hon. Gentleman a feel of how seriously the Government approach this issue. He referred to the ring-fencing of money, but suppose one of his constituents is on incapacity benefit but expected to be ready for work in about three months under the employment and support allowance process. If they find a job through the Work programme and that job is sustained, we will pay about £13,700 to the provider—double the £6,500

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that we pay when someone comes off jobseeker’s allowance. That is a serious amount of public money going into the hon. Gentleman’s constituency, although only if those people about whom he is rightly worried get lasting jobs. The money does not get paid—via a small up-front fee—if the folk do not get a job. In many previous Government programmes and new deals, people got sent on schemes and the providers were paid whether those schemes were useless or not. Under this scheme, the providers will be paid only if they get people into lasting jobs. That will benefit the local area and is an entirely positive measure.

Time limiting of ESA was an important part of the deficit reduction strategy, and the hon. Gentleman referred to people being left “in penury.” It is, therefore, important to put on record two key features of that time limiting, which are that the sickest and poorest people will not be affected. The sickest people will be in the support group, which is not time limited, and they will continue to receive contributory ESA.

Grahame M. Morris: Will the Minister give way?

Steve Webb: Perhaps the hon. Gentleman will bear with me; I have six minutes left to respond to everything that he said. The people in the support group are not on time-limited ESA, and if they are regarded as inappropriate for work-related activity, they will continue to receive benefits indefinitely. The second category of people who are not affected by the time limiting are those on income-related ESA—in other words, even if someone else in the household has an income or substantial capital, they will not be affected. That means that 60% of those coming to the end of a period of time-limited contributory ESA will move to the income-related version. Those in the support group are not on time-limited ESA, and nor are those who move on to the income-related version. People not in those groups will be those who have other household income or substantial amounts of capital in the bank.

People may ask about the impact of such measures on the local economy, but we must also look at the impact of thousands of people who are stuck on incapacity benefit for years with nobody talking to them. Sometimes, people are stuck on IB for three, four or five years, with no contact at all. Nobody asks them, “What would it take? What are the barriers to work? What would help and support you?”, which shows the difference in approach taken by the new Government. We are not writing people off and leaving them on IB; we want to talk to them, identify those who could be active participants in the labour market with the right support, and have a Work programme that supports them into a job.

The hon. Gentleman mentioned regional policy, but my personal view is that having a regional Minister would feel a little tokenistic. We can have a Minister for

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this or for that, but will they be in the room when key decisions are made in the way that departmental Ministers will be? I am sceptical that a Minister for one region would get special treatment compared with a Minister for another region. We do, however, have a substantial regional growth fund that is worth £1.4 billion and has been popular and successful. We have now had two rounds of bidding—I could go through a long list of projects in the north-east that have been awarded funding. We recognise that additional support needs to be provided to areas that have experienced difficult economic times, and the regional growth fund is an important part of our response to that.

Many of the changes to incapacity benefit were rightly introduced by the previous Government, whether that is the work capability assessment, which, as my hon. Friend the Member for Redcar said, needed to be refined to ensure that we get decisions right, or the attempt to take an incredible number of people—1.5 million nationwide—off incapacity benefit. As the hon. Member for Easington noted, some of those people will be former miners who have claimed IB for a decade or more. Is it humane or economically rational to say, “Well, you’ve been on IB for a decade, you are seven years away from the state pension age so we will leave you alone, you can have IB until pension age, and then you will get a pretty lousy pension because your miner’s pension will have stopped years ago”? That is not good enough.

The hon. Gentleman asks why we cannot wait until there are more jobs, but even if we waited for a big increase in private sector jobs, those on IB would not be active participants in that labour market. Ex-miners who have received IB for seven years are far from that labour market and not competing in it. When jobs are available, who will the employer choose between someone who has received no contact with the system, and no encouragement, work-related activity or training, and someone who has just come from another job? Both I and the hon. Gentleman know who that employer will choose, and it will not be his constituent on IB. We must talk to people on IB and look at who could work with the right support and who needs to be in the support group. We must enable and support those who are able to work for when jobs become available. I accept that there is currently pressure on jobs, but there is churn every day and week as people leave old jobs and start new ones. When recruiting someone new, perhaps not net additional employment but as a replacement for someone who has left, the crucial question will be whether the person on IB is a credible participant in that labour market. We believe that our policies support the north-east by helping those on IB, supporting them and paying by results when people get lasting jobs. That is the long-term answer to the pressures faced by the hon. Gentleman’s constituents.

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Music and the Economy

1.29 pm

Nigel Adams (Selby and Ainsty) (Con): I thank my hon. Friend the Minister and the many other hon. Members present for attending this very important debate. Unfortunately, we have only half an hour, so I shall have to crack on. I want to talk about the UK music industry and its importance to the British economy. The music industry mainly comprises small and medium-sized enterprises, micro-businesses and creative individuals; 92% of music businesses employ fewer than 10 people. In terms of the economy, it is invaluable. I want to focus on the positives that are coming out of the UK music industry, rather than the headline-grabbing negatives that we regularly hear about.

The UK music industry is a £3.9 billion business, employing more than 130,000 people. Additionally, UK artists are responsible for 12% of global album sales. That is a phenomenal figure. The music industry as a sector continues to outperform the rest of the economy, with the UK continuing to be one of only three countries that export more music than they import. The UK is the largest producer of recorded music in Europe and the second largest in the world. In 2007, 2008 and 2009, the top-selling global artist album was by a British act—Amy Winehouse, Coldplay and Susan Boyle respectively. In March this year, UK artists occupied the top three spots in the US album chart for the first time in 25 years. Again, that is a fantastic achievement for our industry.

As a country, we are also centre stage for live music, playing host to some of the world’s greatest music festivals. Many of us will have been to those festivals, which include Glastonbury, the V festival, Reading and Leeds. Hon. Members will no doubt have heard of the Selby fake festival. That enormous event attracts thousands of people to watch some of the best cover bands. This country is also home to the most successful ticketed venue in the world—the O2 arena in London. It is therefore vital that we make the most of the next big opportunity for music tourism—the 2012 Olympics.

John Robertson (Glasgow North West) (Lab): I congratulate the hon. Gentleman on securing this very important debate. One of the most important factors in ensuring that bands progress is live music in pubs and clubs, where they can develop. Does the hon. Gentleman agree that more must be done to ensure that we have more live music, not less?

Nigel Adams: The hon. Gentleman is right. Live music is incredibly important to pubs as venues, not just for the pub’s business, but for the artist. It is incredibly important that young artists—people starting out—get an opportunity to play in pubs as venues. I shall talk about that later.

Kevin Brennan (Cardiff West) (Lab) rose—

Mr Don Foster (Bath) (LD) rose—

Louise Mensch (Corby) (Con) rose—

Nigel Adams: I give way first to my hon. Friend.

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Louise Mensch: I am grateful to my hon. Friend for taking an early intervention. It is right that he concentrates on the great successes of the UK music industry, and I congratulate him on securing this very important debate. May I ask for his agreement on a couple of points? First, will he join me in paying tribute to Feargal Sharkey, who recently retired as the head of UK Music, and in welcoming Andy Heath of Beggars Banquet, one of our greatest independent labels, who is taking over that role? The debate seems an appropriate juncture at which to do that. Secondly, will my hon. Friend join me in expressing some fear about the success of the UK music industry being perhaps undermined, by the proposals in the Hargreaves report on format shifting? There is a great deal of support for format shifting for private use, but as the UK music industry moves into global leadership with cloud services, one would not wish—

Annette Brooke (in the Chair): Order. May I point out that interventions should be short and to the point?

Nigel Adams: I agree with my hon. Friend the Member for Corby (Louise Mensch). The Government broadly welcome the Hargreaves report—the Minister will no doubt talk about it—but in relation to cloud services, we must be mindful of anything that has an impact on growth. My hon. Friend is absolutely right about that. She also refers to the contribution that Feargal Sharkey has made, to UK Music in particular and to the industry as a whole. It is rare to switch the telly on and not hear one of his pieces of music being played in an advertisement. I certainly wish him well in whatever he does next as a venture. He has done a sterling job with UK Music in the past three and a half years. However, we can all agree that, with Andy Heath involved, UK Music is in very good hands.

Mr Ben Bradshaw (Exeter) (Lab): Does the hon. Gentleman agree that one of the great achievements of UK Music under Feargal’s stewardship has been bringing diverse voices together in one organisation that has the ear of Government, Opposition parties and the public? That is a model that I suggest the rest of the creative industries could follow, because they have not always spoken with one voice as effectively as, for example, the CBI and other business organisations, although they are just as important.

Nigel Adams: Yes. The right hon. Gentleman is right about having someone such as Feargal Sharkey involved. He is a unique character because he brings experience of having done the job previously and he has enormous respect not only in the industry, but in both Houses and across—

Mr Foster rose—

Nigel Adams: I will give way again, but I will have to move on at some stage.

Mr Foster: I apologise; I know that the hon. Gentleman wants to make progress. May I add my own tribute to Feargal Sharkey? He has done an enormous service to music in this country. On the issue of live music, does the hon. Gentleman share my view that when on Friday I seek to steer my noble Friend Lord Clement-Jones’s

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Live Music Bill through the House of Commons, it would be a disgrace if any member of any party tried to object, preventing the Bill from making progress?

Nigel Adams: I certainly share that view and would support the right hon. Gentleman in that move. It is very important that the Bill is not talked out. The Minister might refer to that as well. I need to move on now, because one or two other hon. Members want to make a contribution.

It is vital that we make the most of the Olympics. Obviously, that is a sporting event, but we need to make the most of the opportunity to ensure that Britain continues to be, in the words of Danny Boyle, the film director, “a beacon of music.” UK Music’s report, “Destination: Music”, highlights the impact that festivals, which I have referred to, and other large-scale music events have on tourism, with such events contributing £864 million of gross value added to the national economy and the equivalent of 19,500 full-time jobs. Although the Olympics are not a music event, the opening ceremony offers us a huge opportunity to showcase our talent across the world.

In this difficult economic climate, it is refreshing to hear that businesses based on manufacturing the intangibles of intellectual property are the cornerstone of economic growth and, as things stand, one of the only parts of our economy that is growing. That is yet more evidence of how this diverse and uplifting industry can help our economy and must be allowed and, indeed, encouraged to do so.

Damian Collins (Folkestone and Hythe) (Con): I congratulate my hon. Friend on securing the debate. Does he agree that protecting intellectual property is very important for young and emerging acts as well? I am thinking particularly of young performers such as Zorzilla, Magnets and Daniel Addison in Folkestone in my constituency. They are writers and performers and need to know that their investment in their future is secure.

Nigel Adams: It is crucial that there is as much support as possible for those people, certainly when they are starting out. My hon. Friend is absolutely right.

I am pleased that the Conservative-led coalition has recognised the importance of the creative industries, specifically highlighting the industry in “The Plan for Growth.” I welcome the plans to remove live music in venues with audiences under 5,000 from the Licensing Act 2003. That policy has been detrimental to the music industry for too long. The change will enable pubs, which we have referred to, to host live music without navigating the red tape and regulation currently in place. The change is supported by the British Beer and Pub Association on behalf of its members. It will encourage musicians to perform in pubs as their venue of choice for small-scale events.

The creation of the Creative Industries Council has been well received by the industry and by UK Music in particular, and plans to reduce digital copyright infringement and further develop the digital market are also steps in the right direction. However, more can and

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should be done. We need to ensure there is proper access to finance so that more artists can get their careers off the ground. As I mentioned earlier, this is very much an industry of small and medium-sized enterprises, so we need to ensure that musical SMEs can find the finance to invest in artists.

Gloria De Piero (Ashfield) (Lab): I, too, pay tribute to Feargal. On finance, has the hon. Gentleman, like me, heard about the problems with the enterprise finance guarantee scheme? Will he press the Government to address those issues?

Nigel Adams: The hon. Lady is absolutely right: the industry seems to be excluded from the enterprise finance guarantee scheme, and I hope the Minister will comment on that. However, I am looking forward to hearing the Chancellor’s autumn statement; I hope there will be something in it for this important industry.

I should say at this stage that it is not all doom and gloom for the music industry. I was just on the phone to my son, who is in a teenage band that has been together for four years. I asked him how the band was going, and he told me it had secured a grant from the Keyfund scheme, which is run by North Yorkshire county council—a fine Conservative council. The band has managed to raise a few hundred pounds for a recording session, and it is about to secure some more money—in the thousands of pounds—to record a video, so there is money out there. However, the hon. Lady makes a good point.

Jonathan Lord (Woking) (Con): Will my hon. Friend give us the name of his son’s band? It should be on the record so that we can look out for it in the years ahead.

Nigel Adams: At the risk of my son never speaking to me again because of the embarrassment that I have caused him as a teenage boy, the band is Summer City, and it is rather good. My son is Ben Adams, and there are three Bens in the band. If Andy Heath is listening, it has not yet been signed, but he can check it out. When it has made the recording it just got the money for, I will make sure that Mr Heath and the industry get a copy.

We must ensure that finance is in place and that all possible measures are taken in this climate to help the business. We must also ensure that intellectual property is properly protected; copyright law must be made relevant to the world we live in. By that, I mean it is time we caught up with our European counterparts and recognised that private copying from CD to iPod, for example, should be made lawful. As things stand, there is a grey area between what is allowed under copyright exceptions and the reasonable behaviour and expectations of most people.

On this matter, I urge my ministerial colleague to consider the effects that changes to format shifting may have on a larger scale. It is right that personal format shifting becomes an exception, but if the terms are drafted too widely, we could see an adverse effect on future innovation and potential revenue, which would be very damaging. Cloud services, for example, are an area where, if we get the balance right, music will play an even greater role in the UK’s future economic success. If we get it wrong, however, those who manufacture and

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create valuable intellectual properly could be undercut, which would be disastrous for the industry and those businesses.

Several hon. Members rose

Annette Brooke (in the Chair): Order. Two Members are standing. The debate finishes at 2 pm. Obviously, there must be time for the Minister to respond.

1.43 pm

Dr Thérèse Coffey (Suffolk Coastal) (Con): It is a pleasure to serve under your chairmanship, Mrs Brooke. I congratulate my hon. Friend the Member for Selby and Ainsty (Nigel Adams) on securing the debate. How appropriate it is that we are having a debate on UK music and the economy on St Cecilia’s day, given that she is the patron saint of music. There is, dare I say it, a member of another distinguished band—MP4—here today, and we pay tribute to its members.

My hon. Friend strongly outlined how important music is to the economy, creating more than £5 billion. As he said, more than £1 billion is also generated by live events. In that respect, I should plug an excellent festival in my constituency, which is called Latitude. My right hon. Friend the Member for Bath (Mr Foster) spoke there earlier this year.

There is a side aspect to the economic issues involved here, which is about not only music or tourism, but some of the construction work involved in creating arenas. Latitude has just committed to a 15-year contract and is now investing in its site and in other aspects of the festival. That is important for local people. It also makes the area a great place to live.

There is also the investment undertaken by Arts Council England in UK music. Although it perhaps does not invest in popular music—the Professor Greens and the like—it does invest in things such as the Aldeburgh festival, at Snape Maltings, which has made that an attractive place to live in Suffolk Coastal.

I therefore want to make a call to councils. I understand the strong economic pressures they are under, but they should think about how they use some of their arts funding and how they invest in areas. Thirty or 40 years ago, Basingstoke and Deane borough council, for example, invested in ensuring that it had a concert hall so that it would attract companies to the area. That meant that it was a nice place to be and that people did not always need to travel elsewhere to get their cultural entertainment.

I, too, support the suggestion that we should deregulate entertainment in pubs and similar venues. My council has asked me to lobby against the changes, and I have said no, because I think the Government are making the right move. I would like to go even further and try to get rid of temporary event notices for unamplified music of any kind, because it is a shame when things go slightly wrong and the brass band can no longer play at the bandstand in a concert that was supposed to happen. I am delighted that the Live Music Bill, which my right hon. Friend the Member for Bath will take through the House, deals with that.

I pay tribute to the Government for their support for bodies such as Chetham’s school of music and the Yehudi Menuhin school, which stresses the excellence

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of such provision. There is also the wider point that children at every single school are being encouraged to play a musical instrument.

The 12 notes on a keyboard can give rise to extraordinary emotions. Six strings on a guitar, four strings on a cello and just three valves on a trumpet can really touch the heartstrings of what makes people special. I think it was Tolstoy—that master of words—who said:

“Music is the shorthand of emotion.”

That is absolutely right. We need to ensure that UK music is celebrated and supported so that it will contribute to our economic growth.

1.46 pm

Esther McVey (Wirral West) (Con): Time is short, so I will keep my remarks brief. The music industry and the entertainment business are not called that for no reason; they are called that because they are worth £5 billion to the economy, with £1.3 billion coming specifically from exports, and they employ 130,000 people. However, I want to look specifically at the impact on the north-west.

Coming from Liverpool, I like to see the city as the epicentre of creativity and the hub of the music industry. Whether we are talking about Gerry and the Pacemakers, The Real Thing, Orchestral Manoeuvres in the Dark, Echo and The Bunnymen, The Lightning Seeds, The La’s, The Zutons or The Coral, Liverpool is a creative hub.

I want to look at the direct and indirect consequences of music and the music industry. Yes, music has financial implications, but it is also an emotional outlet for a younger generation and a way to let their creativity out. It can provide jobs that people might not otherwise have. People can express and stretch themselves, and they can explain their life and their whole meaning.

Obviously, I could not talk about Liverpool as a creative hub without mentioning The Beatles and what they are still worth to the city. The Beatles Story museum attracts 600,000 people every year. It is claimed that people going there over recent years have brought £20 million to Liverpool and Merseyside per year—that is just because of The Beatles.

UK Music research found that the north-west attracts 965,000 music tourism visitors per year and accounts for 12% of all such visits to the UK. It is the second biggest such destination outside London. In addition, it is estimated that music tourists in the north-west spend at least £132 million a year, which benefits the north-west economy by £56 million a year in gross value added. That also sustains the equivalent of 1,400 full-time jobs. The music industry is vital for us and something we particularly excel in. It links to the film industry, adverts, the gaming industry, TV and radio. We also have the brand-new MediaCity in Salford.

My point to the Minister is that we need to protect the industry and the creatives. We need to protect music as a financial and creative industry. We must support it to help it grow, and we must sustain it as much as possible. We must also link in the new MediaCity in Salford as much as we can, so that we get as much benefit from it as we can.

1.49 pm

The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey): It is a delight to appear under your chairmanship once again,

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Mrs Brooke. I congratulate my hon. Friend the Member for Selby and Ainsty (Nigel Adams) on securing this important debate. The fact that so many hon. Members have attended, intervened and made speeches shows that there is large-scale recognition throughout the House of the success of the music industry, and support for it.

I wish Ben Adams the best of luck in his music career. I shall look out for Summer City, which has a ring to it. I can just hear the late Saturday night programme announcer saying, “We’ve got Ben Adams from Summer City coming on next,” and people will stay through the advert break to hear what he says.

I congratulate my hon. Friends the Members for Suffolk Coastal (Dr Coffey) and for Wirral West (Esther McVey) on their important contributions. Obviously, I go regularly to the Aldeburgh festival, which is probably one of the world’s leading classical music festivals. When my hon. Friend the Member for Wirral West recalled The Beatles, that made me recall a recent visit to Abbey Road studios, which I think still has the largest recording studio in the world. Hon. Members may have seen the George Harrison documentary recently, with the extraordinary pictures of The Beatles recording in Abbey Road. The studios still have the piano on which “Eleanor Rigby” was composed—a piano built in 1902. If hon. Members can find any excuse to visit Abbey Road studios, I would urge them to do it.

We talked about the huge success of the British music industry—and it is a staggering success, with almost £4 billion of sales. Britain is the only country apart from the United States and Sweden that is a net exporter of music, and although the major record labels may no longer be owned by UK companies, it is heartening that Beggars Banquet, the largest independent label, has had such astonishing success working with that amazing artist Adele. That leads me on to the point that was made about Andy Heath taking the helm at UK Music, following Feargal Sharkey’s resignation. I pay tribute to Mr Sharkey’s astonishing record in leading the UK music industry, and herding cats in putting things together. He was ably assisted by his second in command Jo Dipple, who I know will continue to play an important role.

Kerry McCarthy (Bristol East) (Lab): I, too, pay tribute to Feargal Sharkey. The Minister rightly talks about our success in exporting albums, but I understand that if we were to take away from the equation Adele, Amy Winehouse and Coldplay, and a few other big names, we would be doing a lot worse. Does he share my concern that things are increasingly difficult for struggling artists, some of whom, in the independent sector, have made the greatest contribution because of their influence? They struggle in today’s climate, and we are in a world where only “The X Factor”-type bands and the huge sellers such as Adele and Coldplay can survive.

Mr Vaizey: We have a thriving and vibrant music scene, and no individual singer or band is guaranteed success, but it is reassuring to me—I happen to be a fan of “The X Factor”, but people understandably say it should not be the future of UK music—that Adele and other stars have risen. Adele, I think, is the biggest

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selling artist in the world at the moment; that is an astonishing achievement. Obviously, the Government cannot dictate who is going to survive and thrive, but that is testament to the fact that we have a vibrant music ecology in this country.

I know that the hon. Member for Bristol East (Kerry McCarthy) has concerns about visa issues. It is important that bands in this country should have the opportunity to tour the world, and I am happy to continue working with her on the question of jurisdictions where it might be difficult for bands to get the appropriate visas—perhaps for understandable reasons.

Kevin Brennan: Will the Minister give way?

Mr Vaizey: I give way to the musician in the Chamber.

Kevin Brennan: That might be a stretch. Without making the debate too much of a love-fest I, too, pay tribute to the work that Feargal Sharkey did, including the ultimate sacrifice of actually playing with MP4 once or twice along the way.

Does the Minister agree that it is important for the industry to maintain that single-voice focus, which Feargal Sharkey helped to establish with the setting up of UK Music; that that put an end to the old days, when it was difficult to get a single established view from the music industry; and that it is important that that should continue into the future?

Mr Vaizey: Yes, absolutely. I agree that when UK Music came together two or three years ago, that was a real achievement. There were a number of disparate voices. I emphasise, for the benefit of all hon. Members, that Feargal Sharkey is still very much alive; the range of tributes being made might make people think he is not. He is entitled to move on, and I have no doubt that he will continue to play an extremely important role.

Among other issues covered in the debate was the importance of live music and of deregulating the licensing system. I echo the call made by the right hon. Member for Bath (Mr Foster) that no man should stand in the way of the Bill that Lord Clement-Jones has introduced. Let no man put asunder the marriage between the right hon. Gentleman and the Bill this Friday. Let us hope that it passes through the House with ease. Nevertheless, there is the backstop of the Government’s consultation on live music licensing.

Copyright is an incredibly important issue to the music industry. The Hargreaves report was mentioned; a consultation will shortly be initiated by the Intellectual Property Office. As to format shifting, from a common-sense point of view it makes sense to establish regulations that would allow people to do what they do already—move from CD to iPod and so on—while at the same time ensuring that any measures that are appropriate to protect the music industry are in place. That will be part of the consultation.

There are other things whose importance I want to highlight: the digital copyright exchange, which we are not forcing on the music industry—we hope that there will be a bottom-up approach, with Government help; the recent extension of copyright for performers, taken through the European Commission; and the continued action that the Government take to combat the theft of intellectual property—otherwise known as piracy—not

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only through the Digital Economy Act 2010, passed by the previous Government, but through brokering conversations and deals with rights holders and internet service providers, including advertisements on pirate sites, credit card details, payment facilities being provided on pirate sites and search engine optimisation issues, and through the important progress made recently in the courts, with the blocking of the Newzbin site, which began 10 days ago.

Access to finance is of course a perennial problem for the creative industries. The Creative Industries Council, which we established last year, has one specific work stream on access to finance, chaired by Ian Livingstone from the games industry. It is important that people engage with him on issues of access to finance. I have spoken to banks about the enterprise finance guarantee scheme. I had a meeting, for example, with the Royal Bank of Scotland, to discuss it. Importantly, a recent Demos report, authored by the researcher Helen Burrows, shows that the creative industries are not as risky as people think, and that they are a good investment.

Others could take a leaf out of the video games industry’s book. After the debate I shall be going to the National Endowment for Science, Technology and the Arts to talk to small-scale angel investors, who are being introduced to games companies. If UK Music could stretch itself even further to organising one or two investment conferences with banks and the music industry, and independent labels in particular, that could bring progress.

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My hon. Friend the Member for Suffolk Coastal, who rightly highlighted the Aldeburgh festival, made the point that the record industry of course encompasses classical music. Although we missed a trick by not launching it today, on St Cecilia’s day, we shall shortly launch our national music plan. I gather that it is pencilled in for Friday; it is a constantly moveable feast, as we seek to improve it more and more. However, the key point about the national music plan is the music education hubs that will sit at the heart of it. I hope that those will bring together local authorities and organisations such as the Aldeburgh festival to provide a wider offer to children in schools. The money has been secured for local authorities, but we want to put a system in place to secure the participation of the much wider ecology of the music industry locally, whether that is local orchestras, the brass band or the Aldeburgh festival.

We have had a good-natured and well-tempered debate in which hon. Members from both sides of the House have united to emphasise our support for the music industry. We have highlighted the key issues that affect it: education in schools, copyright, access to finance and live music. The Government are focused on all those issues, and I am grateful for the participation and input of hon. Members from both sides of the House.

Question put and agreed to .

1.59 pm

Sitting adjourned.