UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1688-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Northern Ireland Affairs Committee

Political Developments in Northern Ireland

Wednesday 30 November 2011

Rt Hon Owen Paterson MP, Alan Whysall and Mark Larmour

Evidence heard in Public Questions 1-71

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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 30 November 2011

Members present:

Mr Laurence Robertson (Chair)

Mr Joe Benton

Oliver Colvile

Lady Sylvia Hermon

Kate Hoey

Kris Hopkins

Naomi Long

Jack Lopresti

Dr Alasdair McDonnell

Nigel Mills

Ian Paisley

David Simpson

________________

Examination of Witnesses

Witnesses: Rt Hon Owen Paterson MP, Secretary of State for Northern Ireland, Alan Whysall, Deputy Director, Constitutional and Political Group, and Mark Larmour, Deputy Director, Security and Legacy Group, gave evidence.

Q1 Chair : Can I welcome you, Secretary of State, to our Committee? As you know, at the moment we are looking into fuel smuggling and laundering, and other products that may be smuggled and laundered, but today we thought we would take the opportunity to have a wider ranging discussion with you, so thank you very much for joining us. We have a number of questions we would like to go through, but before we do that, I wonder if I could invite you just to introduce your team and perhaps make a very brief, if I may suggest, opening statement?

Mr Paterson: Thank you very much for inviting me again. Can I thank you all for your sterling work in the past year? Your reports on Corporation Tax and APD were very helpful. And can I welcome new Members, who I am sure will help your deliberations? I will introduce first of all Alan Whysall, who is the Deputy Director of the Constitutional and Political Group, and on my right, Mark Larmour, who is the Deputy Director of the Security and Legacy Group. Just before I move on I would like to pay tribute to Hilary Jackson, who is retiring at the end of the year as Director General. She has worked for many years and put in sterling service, not just to the Northern Ireland Office, but, as I think people would agree, to Northern Ireland as well. I would like to thank her very much for her work and wish her well for the future.

I promise you, Chairman, I will be brief, as you asked me to be. The objects of the Northern Ireland Office were set out by the Prime Minister in his speech to the Assembly in June. We want to help build a peaceful, stable and prosperous Northern Ireland in which everyone has a shared future, and as he said, not a shared-out future. This year, we have seen some notable events; the elections in May went off more peacefully and amicably than the AV Referendum here, and we have seen more stability than for generations. A coalition has been formed. The draft Programme for Government was eventually delivered last week, and I look forward to working with the Executive in any way I can to help them get that implemented. I think the Executive now has to deliver. It is not enough just to have a stable institution. We have to go further than stability, and move on and deliver to keep the confidence and support for the institutions with the people of Northern Ireland.

As you know, we have set out our stall to help working with the Executive to rebalance the economy, as we touched on in Questions earlier this morning. As we promised in the election-which became a coalition commitment-to have a consultation on rebalancing the economy, we published a paper and had the consultation for the first few months of this year, which was, I think, very successful. It led to widespread participation. The Treasury will shortly publish a summary of the responses. There are, we think, about 700 responses, which were overwhelmingly positive. So the next stage is to go beyond that before we decide what will happen on Corporation Tax; a ministerial working group will meet for the first time on 15 December.

On the issue that has dominated Northern Ireland for decades-security-it is worth noting that there was not a security question on the Order Paper in Northern Ireland Questions today, which I think is a real tribute to how far we may have come. What I might do is address security concerns later in private, as I think you requested. But we work closely with Justice Minister David Ford, and Chief Constable Matt Baggott of the PSNI. I would also pay strong tribute to our very close co-operation now with the authorities in Dublin, and obviously in particular with the Garda Síochána. We have seen a seamless transition with the new Government coming in in Dublin, and their support and activity has been absolutely tremendous and invaluable.

On the issue of the past, which Naomi Long raised in Questions, we have been talking to all parties; Hugo Swire and I have been talking to numerous people throughout the recent months. As I think everyone round here knows, there is no consensus on this. The Northern Ireland Office and Westminster do not own this issue but, following the debate in the Assembly recently, I have written, and will be posting today I think, letters to all the party leaders following a brief meeting with the Speaker to decide how to proceed. I look forward to talking to parties individually. That is a very quick canter round our activities. I look forward to answering your questions as best I can

Chair : Okay, thank you very much. You mentioned the Corporation Tax and Air Passenger Duty. I think we will start with that issue.

Q2 Oliver Colvile: Thank you, Secretary of State, and your team as well, for coming to see us. I have unfortunately to leave fairly promptly in a moment or so. We understand the reasons for the delay on the issues of Corporation Tax and the Air Passenger Duty, but I wondered if you could explain to us where you think it is, and what else we can do to try and help progress this report coming out?

Mr Paterson: I think the consultation, as I touched on in my introductory remarks, was a real success. This organisation GROW NI was formed, which embraces all the business groups, representing virtually every sector across Northern Ireland. There was real enthusiasm in the debate. I was pleased that the party leaders of all main parties in the Assembly came to the launch at a splendid business called Kelvatek, which was entirely staffed, run, managed, directed and financed by Northern Ireland people; it is everything we are trying to do in Northern Ireland to revive the private sector. The Treasury will have had a very, very clear message from Northern Ireland.

To answer your question, what you can do if you think this is a good idea for Northern Ireland is to keep up the pressure, keep talking to people and keep publicising the benefits it might bring, because this is very much not in the bag. We are now moving on to the next rather more difficult stage. The working group will analyse exactly what it costs, because there was considerable debate, as we know, about exactly what it might cost. It will also establish once and for all how this would be administered and delivered. Thirdly, it will establish how we legislate.

That obviously also involves making sure this is Azores compliant. I am very confident that our proposal from before the election is totally compliant with the spirit of Azores: there must be complete independence in the decision-making process, so this will be devolved entirely to the Northern Ireland Assembly. If the Northern Ireland Assembly chooses to reduce tax, there can be no countervailing subsidy or subvention to make up for any forgone duty. I think it will take some months to do this work, and then a decision will have to be made whether this is actually devolved. At the moment it is not decided.

Q3 Oliver Colvile: Some months being? Can you tell us vaguely?

Mr Paterson: I think it is very important not to get into deadlines.

Oliver Colvile: Oh, right, okay.

Mr Paterson: It is more important we end up with the right result. You probably realise my enthusiasm for this continues undiminished. I would like to get to the right destination in time rather than rush it and fail. This is a major decision. David Gauke will be chairing these meetings. It does show that it is being taken very seriously by the Government.

Q4 Lady Hermon: I am delighted to see you in front of us this afternoon, Secretary of State and colleagues as well. Could I just whether in fact you think there is a job of work to be done in winning the hearts and minds of the general public in Northern Ireland about Corporation Tax and the equivalent large cuts that that would mean to the Barnett formula, to the block grant to Northern Ireland?

Mr Paterson: Well Sylvia, you and I, as we both know, do not agree on this.

Q5 Lady Hermon: No, we certainly don’t. I would just like that on the record. But I do not think that I am alone, Secretary of State. The point I making: is there a job of work to be done in convincing the wider public?

Mr Paterson: I think there may be. That is a good question. I think there is a job informing the public about what a very modest investment this would be in the future. Look at the consultation document. As I have said, the first task of this Ministerial Group is to absolutely nail down the cost. The suggested costs are that each 2.5% drop in Corporation Tax would cost between £60 million and £90 million. That is 0.5% of the block grant of £12 billion. That is a very, very modest investment. Look at the extraordinary success the Republic has had in bringing in foreign direct investment. We lost 300 jobs which could possibly have gone to Londonderry, but ended up going to Tralee, not entirely because of Corporation Tax-we all know that. But when you have equally skilled and well qualified people, equally competent people who work in IT, property prices are similar, there is absolutely no doubt about it-we have had it from people in Dublin-that, quote, Corporation Tax was the cornerstone of their success.

If you look at the Republic now, their export industries are growing very strongly, at 7% a year. They have fought like tigers, quite rightly, to defend their right to set the rate of tax. They have not done that for fun. They have not done that because they want to antagonise the French and the Germans. They have done it because it was absolutely essential to put themselves in the position where they can trade out of their deficit and the problems they have had. So I am absolutely convinced that for Northern Ireland this would be a very modest investment. I have to say to those, like you, who think this is too much: what are the prospects after the end of this spending round? We have seen the very turbulent storms that the euro is going through. We have seen the very great difficulties we have had inheriting this enormous deficit from the last Government. If we do not do something radical to revive the private sector, where is the wealth going to come from to build the new schools and the new hospitals that we want?

Q6 Lady Hermon: We are agreed, I think, Secretary of State, that we both feel that there is a job of work to be done in Northern Ireland convincing the wider public in the present economic climate that a reduction of Corporation Tax is a wise move. Could we agree on that?

Mr Paterson: I think there is a job of work to be done informing the public of Northern Ireland that this would be a very, very modest investment, which would have enormously beneficial spin offs for everybody. There would not just be economic spin-offs. I believe very strongly there are significant social spin-offs. Take Almac, who employ 2,000 people. Their chief executive said, on the record, that if Corporation Tax was reduced to the same level as the Republic of Ireland he would double his business and double the number of jobs. The impact, in those difficult estates around Craigavon, Lurgan and Portadown, of another 2,000 well-paid jobs would be very significant, not just economically, but socially and ultimately politically.

Q7 Chair : But it will be for the Assembly to decide, if indeed you go down that route.

Mr Paterson: First of all, we have to agree with the Treasury, and then the Westminster coalition Government will have to make a decision on whether to devolve. After that, the matter is entirely in the hands of local politicians as to whether to do it, and how far and fast to go.

Q8 Chair : Just very briefly, we felt as a Committee we were quite successful on the Air Passenger Duty issue. Do you feel enough has been done to secure the routes at the present time? I know you want to go further in terms of devolution, but do you think the route is now secure-the North American route?

Mr Paterson: Yes, I pay tribute to everyone. Your report was very timely. Hugo Swire and myself were in very active discussions throughout. The First Minister and the Deputy First Minister were in America at a critical moment, and the key person, as it turned out, was the Chancellor, who came to stay with me at Hillsborough, and did a very good visit. We went to Wrightbus, we met a lot of local business people, and he personally got his shoulder really behind the wheel and spent a lot of time on this talking to the European Commission and directly to the chief executive of Continental. He wheeled in our Ambassador in America. It was very much him who pulled this off. And it recognises the problem we have where the Republic of Ireland, which is right on the doorstep, has a more competitive rate of tax.

Q9 Mr Benton: Secretary of State, good afternoon. Can I first of all say that you have answered the bulk of my questions to other colleagues? However, I do not know why it is, but I have the distinct impression all the time that there is opposition from the Treasury to the recommendations as put forward. I do not why I should have that feeling, but I have it. The only other thing I wanted to try and draw out, if you could elaborate on it: perhaps the tenor and nature of the consultation papers that have been submitted to you might give some indication if there is opposition. Your reply to Lady Hermon was very convincing, although I did not support the Committee’s recommendations, by the way.

I wonder why the Treasury are not convinced by those arguments, and this gives rise to me coming to the conclusions that I do. So perhaps, as I suggest, the nature of the consultation papers might be some indication about the way the Treasury is thinking because it is crucial to this Committee having deliberated for so long, listening to all the evidence that we have, and coming to the conclusion of our recommendations. So I am not trying to be awkward in any shape or form, but I do think it is important that we get as best as possible a view of the Treasury’s disposition to it as things stand at the moment. I don’t know whether you can elaborate or in any way be helpful to ease my tortured mind.

Mr Paterson: I think I have been straight: the Treasury have been very professional in all our dealings with them. You are quite right, the consultation paper was fairly cold, it did not jump either way. But if you look at the issues where we have had significant debates with the Treasury-on PMS, on the extra security money from the Contingency Fund, on APD-where we worked with the Treasury and have convinced them with our arguments, they have delivered what we wanted for Northern Ireland. But, on all those particular cases we had to make a very convincing argument.

Chair : Right, on to Nama.

Q10 Ian Paisley: Thank you. Again, Secretary of State, you are very welcome, and your team. Could I indeed pay tribute and thank Hilary Jackson for the work that she did? She was always extremely courteous in the manner in which she dealt with us as a political party.

Secretary of State, the activities of Nama and how they operate in Northern Ireland is worrying. It worries me; it worries a number of people. I note that our Finance Minister, Sammy Wilson, this week said that we are now moving to a "more dangerous phase", with a potential threat to jobs as well as property prices. I am concerned that the British Government have given the Irish Government a bilateral loan of several billion pounds. The Irish Government holds property therefore in our jurisdiction, in Northern Ireland, of up to £4 billion. It holds property valued in the City of London to about £14 billion, and yet we have no say over how those properties are disposed of, or the floor at which those property prices will be set. Especially in Northern Ireland, as it moves at a different economic pace to the rest of Ireland, they could have a detrimental effect on how our economy develops over the next few years. What conversations are you having with the Irish Government so they recognise the seriousness of this situation and start to listen to Northern Ireland companies that have already engaged with Nama, and to address some of the concerns that politicians like myself and others are expressing about the conduct of Nama?

Mr Paterson: The last direct conversation I had with a senior politician about Nama was with the last Taoiseach, Brian Cowen, and we discussed the concerns that you have raised. He made it absolutely clear to me that it is massively the interest of the Republic of Ireland to sell Nama’s assets at the best price possible, and there is absolutely no interest in Dublin in dumping Nama’s assets in an irresponsible hurry and crashing the value of those assets or other properties that might be around. I think the intention is to work out Nama in a steady manner, but at the moment the market is an incredibly difficult one in which to sell anything.

I drove across the Republic this week; there are a large number of empty properties, both domestic and commercial. There are obviously very difficult conditions for the Republic to sell these properties. You are quite right, these are owned by effectively an agency of a foreign jurisdiction, and it is up to them to sell them in the best manner they can, but I think our interests are exactly the same. We do not want them dumped in too much of a hurry, but we also totally sympathise with the Republic that they have to get their debts down, as we have.

Q11 Ian Paisley: Yes, they have to get their debts down, but at the same time we have given, as you put it, a foreign jurisdiction a bilateral loan of several billion pounds sterling, and we have no drawback on that unless they pay that loan back, which I am sure they will and they will want to. However, they hold asset value in our jurisdiction and indeed in the rest of the United Kingdom to almost twice the amount that they are getting on the bilateral loan. Is there any way in which we can hold the assets in our state and determine the pace at which they are marketed and sold? I understand from one of the complaints that has been put to me, that there are investors willing to come into the Northern Ireland market but that Nama, because it does not have an already established relationship with those investors, is not interested in talking to them.

The fact that I am getting those complaints demonstrates that there is frustration in the business community. I think that frustration has to be relayed very carefully but very directly to the Irish Government, to tell them that Nama must start to listen to the business community in Northern Ireland and not try to pace the sale of property in our jurisdiction the same as the sale of property in their jurisdiction.

Mr Paterson: It is interesting you raise that with me. I have not had that brought to my attention before. The general impression I have is that property sales are slow in both Northern Ireland and the Republic, and they are having trouble offloading their assets at a sensible price. I am in regular contact with Ministers and go to Dublin on a regular basis. If you have some detail on this I will be happy to raise it with them. But I think you have got to recognise that these are the laws of free trade and property throughout the world. We have British companies with significant assets all round the world; you have Irish properties all round the world as well.

Q12 Ian Paisley: No, that is where as a conservative, I think, these are not the laws, because this is a Government playing in the market, and also playing with a free loan from a neighbouring jurisdiction that affects that neighbouring jurisdiction’s marketplace. And I think that the pitch of the free market, which you and me both support, has been queered by this activity. And I think that it really does require you, sir, and a team, including our Finance Minister, to sit down with Nama and explain some of these difficulties that are now coming forward.

Mr Paterson: Well, I think you have a pretty negative view of the relationship we have economically with the Republic. A year ago, when their difficulties became very apparent, when we were drawn into negotiations on the EU IMF loan and the bilateral loan, I made it very clear talking to the Chancellor that we have a huge UK interest in a stable, prosperous and successful Republic of Ireland. We sell more to the Republic of Ireland than we sell to Brazil, China, India and Russia combined. We have very close contacts obviously across the border in Northern Ireland, and we have a very real interest in having a stable banking system, because the Northern Irish banking system is so much more closely linked up with the Dublin banking system.

I think it was absolutely right to put in a significant bilateral loan. At the same time, I said that we should also defend their right to set up a Corporation Tax, which has successfully been done. And as we have seen and as I touched on earlier, they have an export industry that is growing about 7% a year. That is the only way they will trade out. They have these hideous debts: there is a backlog from the banking problems, and that is Nama-they will have to work their way out. I do not see that our interests conflict. We would like them to work their way out of Nama to help the Republic get back on its feet financially but, like them, we do not want to dump these assets too fast. I think our interests are very similar.

Q13 Ian Paisley: But you will have a conversation with the Taoiseach?

Mr Paterson: If you have got evidence I am happy to raise it next time I go to Dublin, yes.

Q14 Ian Paisley: It would be useful if you could report back to us, sir.

Mr Paterson: Yes.

Chair : Moving on to the next question regarding the Aggregates Levy Credit Scheme.

Q15 David Simpson: You are very welcome, Secretary of State, and can I also add my tribute to Hilary Jackson for the work she has done over the years with the NIO, and join with my colleagues in that?

In relation to the whole subject of the aggregates, you will be well aware that within Northern Ireland , and certainly within my constituency, the companies that deal with this are going through a very, very difficult time. This is an 80% derogation that was approved by the EU, and now there has been some dispute over that; there could be a possibility that they may want this all paid back and whatever. What are the Government doing to resolve this issue? Can you give us an update on that, because it is untold damage to the industry, not only to the quarry industry but to the construction industry as well?

Mr Paterson: I am fully aware of the seriousness of this problem. When I was the Shadow I visited a couple of quarries; I visited a quarry with Margaret Ritchie not long ago; and you yourself have also raised the problems that this presents. I am fully aware how really serious this is for the quarrying industry in Northern Ireland. We have been in pretty steady communication with the Treasury Ministers on this, who in fairness have really been trying with the Commission, but it has been pretty fraught and there is no solution. The latest update is the Treasury is continuing to talk to the European Commission, but we do not have a final result.

Q16 David Simpson: When you say, Secretary of State, there is no solution, can you elaborate on that?

Mr Paterson: Well ideally, we would like to get it reinstated. Whenever I meet anyone in the quarrying industry in Northern Ireland, they really dig it into me how damaging this has been, so that is the Government’s target: to reinstate.

Q17 David Simpson: But is there a realistic possibility that we can get this derogation reinstated because of the untold damage? It is horrendous at the moment. I have companies in my own constituency who have been on with me only last week-these are major, major difficulties.

Mr Paterson: I am fully aware of the difficulties, as I have said. I have been to sites, and local politicians have kept me up to date. All I can repeat again is it is the Government’s intention to get this reinstated. It was allowed once before, and we think as it went through the first time it should be allowed again, but I would not like to give an absolute guarantee it will be. Look how long we have been talking about this. These discussions have been going on for months and months, and it is still not resolved. It is highly unsatisfactory.

David Simpson: It is.

Q18 Kate Hoey: Just on that point, it is one thing, Secretary of State, getting it reinstated. The question is one of paying back: I presume that you would like to be the first Secretary of State who really does make it quite clear to the European Commission, and you would have full backing I am sure from Parliament on this, that this is just one bit of money that we will not pay back, and what can they do about it?

Mr Paterson: I think you are right, it would be catastrophic for the businesses concerned. It would be absolutely devastating for them. Frankly, many would not survive if there was a payback, so let’s not talk about paying back. Let’s see if we can get this arrangement reinstated, which worked very well before.

Q19 Kate Hoey: Do you visualise a time when we would, as a Government-

Mr Paterson: I don’t want to talk about that, I want to talk about getting it reinstated.

Q20 Kate Hoey: Okay. But I think you should know that, certainly at a conference I attended at the weekend in Northern Ireland, there were many, many people there who would be absolutely, solidly behind this Government, and you in particular, if you were to simply say to the Commission, "No."

Q21 Chair : Okay, I think the message is quite clear on that one.

Mr Paterson: Received and understood.

Chair : Can we move on to the issue of airports in Northern Ireland?

Q22 Nigel Mills: Welcome, Secretary of State. Can I just take you to the question of BMI apparently being bought out by Lufthansa, and the potential threat to the flight from Heathrow to Belfast if they were to look to find a more apparently lucrative use for those slots at Heathrow? I can vaguely remember BMI used to fly from East Midlands, near my constituency, down to Heathrow and for years flew empty planes just to keep those slots rather than surrender them. I think there is plenty of evidence that these slots are probably the most attractive asset that BMI now has. Have you had any discussions with the parties involved to try and see whether the route to Belfast will be safe?

Mr Paterson: I have. I asked Mr Willie Walsh for a meeting last week, and he came and met me in the Northern Ireland Office, and we had a very interesting discussion. It is commercially sensitive, no deals have been finalised, but he made it clear that his group is looking seriously at buying British Midland. I stressed to him two things: firstly, the vital importance of keeping the direct Heathrow flight to Belfast. If we are going to rebalance the economy we have to make these air links as convenient as possible, and having Belfast City right on the doorstep of the whole Titanic Quarter is a massive bonus.

I think our interests coincide on that, because the British Airways system depends on long-haul flights at Heathrow being fed by spoke flights, feeder flights, from outlying regional airports. We would very much like to see that service continue, or be strengthened, and that fits in with the British Airways model of flying people into the centre of Heathrow and then flying them out on long-haul flights.

Q23 Nigel Mills: BA’s history of maintaining flights from regional airports into Heathrow is not tremendous, is it? They used to have a whole lot more than they have retained. I can remember their network being much greater.

Mr Paterson: My nearest major airport would be Manchester, and there is a satisfactory shuttle service down to London. It works very well, and I have used it for many years. Personally, I think the conversation was positive. I had another telephone conversation with Willie Walsh on Friday evening. The discussions are going on; the due diligence is probably going to take longer than possibly envisaged; and I said I would keep in close touch with him. There may be other bidders. Other people might come in and look at buying BMI. However, it is quite clear that BMI is losing a lot of money; it is also quite clear that Lufthansa wants to sell it, and it is very much in our interest that we keep a close watch, and I hope whoever does take on the airline or the slots does maintain the link. It is absolutely vital we keep those Belfast City regular flights into Heathrow.

Q24 Lady Hermon: Can I just pick up on a couple of things, Secretary of State, particularly in light of the written response that you gave to a question I asked last week? If I heard you correctly in response to my colleague, you made it quite clear-I am delighted that you made it quite clear-that you sought assurances from Mr Willie Walsh that he would maintain the links between Heathrow and Belfast City Airport. Those were the assurances that you sought. Did Mr Willie Walsh give you those assurances?

Mr Paterson: The current BMI slot is from Heathrow to City Airport, which has, as I understand it, one of the best load factors in the whole BMI network. I made it clear, as I have just said, that we think this is of great importance. Willie Walsh made it clear that it fitted in with the British Airways system of maintaining regional spokes going into a central hub feeding long-haul flights, so it seemed to me that our interests coalesce. This is a commercial decision; we cannot interfere in how this turns out. All we can do is keep a close eye and keep in close touch, which is exactly what I have agreed to do with Willie Walsh.

Q25 Lady Hermon: Secretary of State, my question was actually very clear indeed: I am reassured that you sought reassurances that there would be links maintained between Belfast City Airport-I think the words that you used were "vital importance"-and Heathrow. What has concerned me is that in fact you have not confirmed that Mr Willie Walsh assured you that those links would be maintained between Belfast City Airport and Heathrow, and that is confirmed sadly, and worryingly so, in the written response from you, Secretary of State. I quote: "Mr Walsh explained that the BA business model involved a mix of short-haul and long-haul flights, and in particular the maintenance of a short-haul network into Heathrow." There is no mention at all of Belfast City Airport. That is deeply worrying and concerning.

Mr Paterson: In which case, I apologise for drafting a bad reply, because obviously the discussion with Mr Willie Walsh, from my point of view as Northern Ireland Secretary, was entirely about Belfast. It was not about Newcastle or Manchester or anywhere else. Quite clearly I was talking to him about the flights to Belfast. He is doing due diligence, and, in fairness to him, last week was the early stages of this. I do not know what particular files he had got to in his investigation with British Midland. We can’t impose or demand.

Q26 Lady Hermon: Forgive me, Secretary of State, for being repetitive here. I repeat the words, "A commitment to Belfast City Airport". As you are well aware, Secretary of State, there is also Belfast International Airport. So for Mr Willie Walsh to confirm that in fact flights will be maintained between Heathrow and Belfast actually needs clarification. Did he confirm that the links will be maintained between Belfast City Airport and Heathrow?

Mr Paterson: Sorry, yes, I see where you are coming from. My discussions on the Heathrow link were entirely about Belfast City Airport to Heathrow. I also raised Aldergrove, because I did point out to him that, following the Chancellor’s intervention with Continental, we now have an opportunity to fly long-haul flights out of Belfast International at a favourable rate of APD. I raised that: just in case he missed it, I drew it to his attention, because it is possibly another opportunity for British Airways. We did discuss both airports, but in a totally different vein.

Q27 Lady Hermon: So is there a possibility, following on from that logic, Secretary of State, that the slots that would become available to BA at Heathrow could then be used for continental flights out of Belfast International Airport, losing the short-haul flight with Belfast City Airport? That is my concern. Can you tell me that it is completely without any foundation?

Mr Paterson: We are getting into a bit of a tangle here. I think you are suggesting that Continental might buy the British Midlands slot.

Q28 Lady Hermon: No, no, I did not mention Continental.

Mr Paterson: Sorry, you just did. You mentioned Continental.

Lady Hermon: I beg your pardon.

Chair : Clarification needed.

Q29 Lady Hermon: The clarification is: can you just confirm, from the conversation with Mr Willie Walsh, that he is not aiming to take the short-haul flights, the slots at Heathrow, and to convert those into long-haul flights from Belfast International, losing the business connection and the short-haul connection between Belfast City Airport and Heathrow?

Mr Paterson: I am in no position to guarantee anything, because when I talked to him on Friday evening he was still going through the due diligence process. This is all commercially sensitive. He needs to look at how British Midland operates. But for the third time, I will repeat very clearly that it appears to me quite secure, in my mind, that British Airways needs to feed its long-haul flights from regional airports, and Belfast, being one of the busiest ones for British Midland, must fit into that category. I don’t think I can put it clearer than that.

Q30 Chair : So you are not in a position to guarantee anything at the moment.

Mr Paterson: No, they have not agreed. They are in the early stage of investigation. Someone else, some other airline, might come in and buy it. It might break up and disappear, sadly.

Q31 Naomi Long: It is good to speak to you, Secretary of State, about this issue, because I share some of the concerns that have already been expressed, given that City Airport is in my constituency. I am interested because there are two separate issues that are becoming slightly conflated, and I want to try to tease them apart. The first is that many people who use the BMI flight from City Airport to Heathrow are regional commuters, not feeding international flights.

There are two separate issues, therefore. There is the issue of regional connectivity, which is hugely important; and there is then the separate issue of international connectivity through Heathrow. It is already very clear from, for example, the passenger landing charges that have been levelled by the airport authority themselves that their focus is not on regional commuters arriving in Heathrow, nor indeed on regional flights that then feed into other flights, but on through-carriers at Heathrow. They have made it very clear in correspondence with me that their focus is increasingly on through-carriers, so you would leave with the same carrier from Belfast and travel through to your end destination as a through-passenger, not as someone who would take a regional flight to Heathrow, leave that flight and then take a different flight on a separate flight number.

They are therefore penalising people who do that for arriving by a financial charge that is being levied. I am slightly concerned, because I think it is important in terms of our regional connectivity that that commuter route is still available from City Airport, which is only 10 minutes from the city centre in Belfast, to the heart of London and Heathrow. It is also important that there is significant diversity in terms of options available to people for international connectivity, because there are a very limited number of through-carriers operating out of Northern Ireland, with the result that, if we lose regional connectivity, we effectively, by extension, lose our international connectivity, so it is critical.

Heathrow has made it clear that, because of lack of runway space, their emphasis is on having through-flights, and that those are the passengers they prioritise. I am interested in whether that has been explored directly with them, and indeed with the potential purchasers for BMI and so on, in terms of the impact that will have around City Airport’s business.

Mr Paterson: The only organisation I have had a conversation with is the owner of British Airways, because they appear to be the frontrunners at the moment, and the most likely people to take over British Midland, which is making a very substantial loss. What you have outlined I thought coincides exactly with what Willie Walsh told me. You are hoping that there will be regional flights into a hub that has a network. British Airways has one of the best international networks of any airline one can think of. I would have thought what they were talking about coincides with what you are looking for.

Q32 Naomi Long: To clarify, if what they have said to you is that they want to maintain their regional flights so that both regional commuters and those who wish to take flights to other destinations beyond Heathrow can continue to do so, that is first of all at odds with the policy that has been adopted by the airport authority itself, which is prioritising through-passengers on international flights. They charge people to land in Heathrow and change flights; they do not charge under their passenger landing charges if you are a through passenger. I have explored this. It is an extra tax, if you like, that is being applied to passengers from Belfast. It is also likely to be implemented in Gatwick as well, as a result of the decision made in Heathrow.

So it is the clarity around whether or not this is simply seen as slots for feeder routes that pass through Heathrow as part of through - flights to international destinations, or whether they continue to operate as independent, if you like, regional flights that can then either feed into international destinations or be the terminal destination for peopl e wishing to commute to London- as I say, that is an important connectivity between Belfast City and London. T hat is rea lly the crux of the issue; there are two slightly different business models.

Mr Paterson: I do not see why these flights cannot both supply what you might call local flights into the London market and feed into the international network.

Willie Walsh talked about Manchester while we were with him. He gets both those types of passenger out of Manchester. I see the glass half full. If British Airways were to take this on, you would be tying into a very successful airline with a very successful international brand, and the activity might actually be expanded, which would be even better. My main concern is that somebody does take on the flights. That must be our main worry. As I understand it, they are the most interested party at the moment. I have not heard of anyone else taking a really serious look at this. Don’t forget, they are losing a significant sum of money. Someone is going to have to eat those losses for some time while the thing is put in order.

Q33 Dr McDonnell: Very briefly, Secretary of State, thank you for all your information around the airport. As you can gather, it is a fairly contentious and important issue to most of us. My big concern is that there is not an air transport strategy, for want of a better description; do you feel that we perhaps should have one? We do have a situation where competition-unnecessary in many cases-between the two airports is driving both of them into financial difficulty. Certainly I would worry about the balance sheets, particularly that of City Airport. At what point should we intervene to ensure that-

Ian Paisley: Chairman, before the Secretary of State answers, can I just say I am really uncomfortable about this Committee publicly talking about two private companies that are both very successful, that are, yes, owned by different shareholders across the world? We could potentially say something that affects their EBITDA and their valuation. I just think we need to be extremely cautious. I agree with Alasdair that we need a strategy, but I do not think we should be talking about the airports’ balance books when they are two private companies-Aldergrove and Belfast City-both are very successful, and there is passionate support for those airports and we love the links. We should not be saying anything that has an impact on the success of the airports. We need to be very careful, and I am very uncomfortable about the way this is going, especially in public.

Chair : Yes, I understand the point that is being made by Alasdair and by Ian. I think we do need to be aware of the sensitivities, but I am sure the Secretary of State would not divulge any commercial sensitivities even if he knew what they were. We are concerned as a Committee about rebalancing the Northern Ireland economy, and this is seen to be a very important issue with regards to that, so perhaps with those parameters, Alasdair?

Dr McDonnell: I am not casting any aspersions, but I could see circumstances where airports flogged each other to death in unnecessary competition, and I think we need a strategy to ensure that we provide the public service, and that need is met in a cost-effective way. That is really the bottom line. I would only see an airport strategy. I would hope, Secretary of State, that you might have some discussion with the Secretary of State for Transport, because it is a reserved matter, as I understand it.

Mr Paterson: I was just about to say I have had a brief discussion with the Secretary of State for Transport, Justine Greening, and obviously these matters are her responsibility, so I would not want to impinge on her territory. All I can do is speak for myself as Northern Ireland Secretary.

Where an issue has arisen concerning airports to do with Northern Ireland, which I think is of great concern, such as APD, we really piled in. I got the Chancellor over, we stressed to him the importance of the direct flight to Newark. In this case, again in fairness, Hugo Swire has been talking to Arlene Foster on a regular basis, and as you have just heard, I invited Mr Willie Walsh to come and explain his possible proposals over BMI. I think from our point of view as the NIO, that is really what we can do. It is not for me to start picking winners, as Mr Ian Paisley just said, between two private airports. I would like to see both airports flat out.

As the Chairman said, it is in our interests to have a really, really lively aviation sector in Northern Ireland, getting people in and out of Northern Ireland as quickly, easily and cheaply as possible. I would like to see both airports thriving, but it is not for me at the NIO to start picking winners and directing flights between the two different airports. That is for commercially run airlines to decide. What we want to try and do, working with the Executive, is to create conditions where there are more and more flights. In fact in fairness, there has been a very significant increase in flights. There used to be one international flight to Amsterdam. We got over to 41 flights, and I think the number of international flights has dropped back down to about somewhere in the mid 30s. It has improved, but it could be better again.

Chair : Thank you very much. Let us move into another difficult area, the Decade of Centenaries.

Q34 Naomi Long: Secretary of State, first of all can I apologise, because I hoped to have a short Adjournment debate on this issue, but as you know I was indisposed at the time and was unable to go ahead with it, so I have not been able to raise this with you as I had hoped. I think we are all aware that there is a decade approaching where there will be some very significant Centenary events in the history of the UK and Ireland, which have particular impact within Northern Ireland.

I am aware from personal work that I have been doing of the work that has been done, for example by Belfast City Council, around some of this in terms of preparing for that 10 year period, and setting the context for those commemorations there. I am interested to know at the regional level who, if anyone, has responsibility for looking at , co - ordinating and organising the commemoration of the various events connected with that period? Is it the Northern Ireland Office who take a lead on that matter, given that it has an international dimension in terms of the Irish Republic , or is it the Executive who take that matter forward as part of their work? I am just interested in how that is being handled.

Mr Paterson: I think it is both actually. I have discussed this with the Irish Government in recent months. I met Brian Hayes in Cambridge, and then I went to Dublin not long after and had meetings with him, and discussed it with the Tánaiste, Eamon Gilmore. The first thing to say-and we probably should have mentioned it already-is since I last addressed you we have had the most amazing event, the Queen’s visit to Dublin, which set the tone for Centenaries. That visit was commemorating her grandfather’s visit in 1911, and was an absolute model for us all to follow in that it showed great respect, great sensitivity and, I think, was educational. If we can set that tone through the coming Decade of Centenaries it could all be very beneficial. These events should be remembered respectfully, and I think quite a lot of misconceptions might be cleared up if they also turned out to be of educational value.

I have discussed this with the First Minister and the Deputy First Minister, and quite a lot of the local responsibilities, I think, are with the Executive. These Centenaries could be very beneficial if handled properly, or they could be, I’m afraid, rancorous and divisive. So I am very keen that we talk as much as possible well in advance as these Centenaries come along.

Q35 Naomi Long: Can I thank the Secretary of State? I appreciate the answer, and I certainly would agree with you that they have both potential and risk attached to them. There is potential obviously for them to be educational, to set history in context, and to be commemorated in a way that ensures an increasing understanding and tolerance, building on the visit of Her Majesty to the Republic. I think it actually has huge potential for Northern Ireland in terms of healing wounds and moving forward

W hat efforts can be made by yourself and by your good offices through the Executive, local councils and others who will have responsibility for various aspects of this, to ensure that those commemorations are contextualised and that they do look at the history - n ot just UK history and Northern Irish history, but also European history, because they were linked events, and indee d further afield than even that ? How can it also be ensure d that they are celebrated and marked in a respectful way , without triumphalism and without issues that are important to perhaps one section of the community being given precedence over others, so that people have the opportunity to participate and understand better all of the events of that era, and to better understand where we are today? Do you believe there is a role for yourself in ensuring the means by which those will be commemorated, and also the tone of those commemorations?

Mr Paterson: Yes, I think there is. As I said, the Queen and the President really did set a remarkable precedent, which everyone should try to follow, on how to remember a Centenary of a significant event, which was immensely beneficial. I do think the educational angle is important, so I think there is a role for us in the NIO to talk to the Government in Dublin and the Executive about how this is handled, and possibly to do some things here.

For example, one possibility might be to have exhibitions in Westminster Hall. This is the heart of Parliament. The Irish Question dominated Parliament for a large part of the 19th century. There is the whole issue of the Covenant, where very significant numbers of signatures were collected here in GB, but also in what is now the Republic. There are discussions about that to see if that could be recognised. That is where I think the whole idea of education is really valuable. There is a sort of glib public image that the Covenant was all about just Ulster. It was not. There was a very significant number of signatures all over the British Isles.

I think the trick is to talk well in advance, to see some of the more contentious and difficult Centenaries coming, and work together to make sure they are handled in a sensitive and respectful manner. Recognising a Centenary does not mean to say one is necessarily celebrating what happened.

Naomi Long: Indeed.

Mr Paterson: If we take the point of view of the British Government, the then Liberal Government did not like the Covenant, did not like the gun running, did not like the Rising, did not like the civil war, so in some ways we can stand back from it.

Q36 Naomi Long: I would agree that commemoration and marking are significantly different from celebration, and I think it is important that that point is made. Some of the aspects have a specific parliamentary element to them: the election of Constance Markievicz, the first sitting of Dáil Éireann, and the opening of the Northern Ireland Parliament, for example. Are those aspects where you feel that the Government, and particularly the Northern Ireland Office, have a particular role to play? You did mention the way to handle this was to start early. Given that the Decade commences in 2012, do you believe that we have started early enough?

Mr Paterson: Well, it has started.

Naomi Long: Well it has, because actually some of the events began in 2011.

Mr Paterson: Just look what the Queen and the President pulled off last year. Just keep harping back to that. That is the way to do it. So if in doubt, think how they did it. I think there is time, yes. As I have said, we have had meetings at Cambridge and then in Dublin discussing what we might do for next year, and I think that is the way to do it. We want to keep in close touch, not just at ministerial level but also at official level, and work this through.

But I would just say to everyone, all these Centenaries want to be respectful and educational, and I hope they will actually be enjoyable, because each of them is a stepping stone to the position where we are now, which is a better position than our relations have been in for many, many decades. There will be some very difficult Centenaries-some very unpleasant events happened-but I think we should just see them as stepping stones on the way, and treat them as such.

Q37 Dr McDonnell: Secretary of State, I would wish to compliment you for your approach and your enthusiasm in being active on this issue. I would also like to compliment the Irish Government, and you are obviously in dialogue with them. Certainly when we were in Dublin we got a very clear message from David Cooney that he wanted to ensure, as far as he could, that any celebrations remembered the events without reliving them. Have you had any dialogue with the Northern Ireland First Minister and Deputy First Minister around these issues, or is there any activity in terms of the Stormont Assembly, the Executive there, to try to ensure that these events are managed?

Mr Paterson: Well, thank you. One person who we should also really stress has played a key role is the ex-President, Mary McAleese. She was the one who was really, really keen to pull off the Queen’s State Visit, and it was a triumphant end to her long tenure-

Dr McDonnell: I fully concur with you.

Mr Paterson: -which I was very happy with. It was really good. We invited her to Hillsborough to meet a significant number of people with whom she had worked over the past 14 years, and we had a big dinner. She played a key role in all this.

I think that is the way to do it. We need to be on the ground, talking to people, planning ahead and, as I have said, try to stick to an educational plan, try to have people come out of each Centenary more enlightened and better informed, because all these events were a lot greyer, a lot browner, a lot muddier and a lot more difficult. They were not all black and white and simple.

On your question, I have raised this in my regular meetings with the First Minister and Deputy First Minister. We are trying to set up another one shortly. And as I have had these discussions in Dublin, I will have more report to them. So I am keen to pursue it at that level, but also at official level.

Q38 Chair : We will turn briefly to the issue of fuel laundering and smuggling. As you are aware, we are doing an inquiry into that.

Q39 Mr Benton: The Committee, as the Chairman said, is currently inquiring into this topic. Given that it is the Government’s revenues that are targeted by fuel fraudsters and criminal proceeds may finance dissident terrorism, what role do you have, with the OCTF? For example, are you in meetings with Chairman, David Ford? Do you receive progress reports from the OCTF and other agencies? I would like to get some feel of what sphere of activity you have in trying to resolve or eliminate international crime but, in particular in this case, the laundering and smuggling.

Mr Paterson: I think it is mainly a local issue on the ground, but it is a team effort. So the key agencies are the PSNI and the Revenue. We have regular meetings with David Ford, as I touched on earlier, and meet the PSNI on a regular basis. I have had meetings myself with the Revenue. There is then the Republic, where there is very good co-operation, as we know now-exceptional co-operation-over the border. Then at national level, I had a meeting only last week with SOCA. I was in Dublin at the beginning of the week talking about some of this stuff to our Ambassador. It is very much a team effort, but to answer your question, I think the main agency carrying out the actual operations is going to be the PSNI on the ground working in close co-operation with Customs and Excise.

Q40 Mr Benton: I appreciate that. I would like your opinion, Secretary of State, on how you view progress. For example, only recently I was at a meeting concerning cheap cigarettes coming in and the disastrous health effects that is having anywhere this trade is carried out. It is a quite an alarming situation. I know you will be aware of all these things, but I would like your opinion about progress, initiatives that are taken and where it is all going. Are we making progress, particularly in Northern Ireland, in this regard?

Mr Paterson: I think you are quite right to mention the cigarette smuggling. There is this issue of white cigarettes, I think they are called; there are absolutely extraordinary volumes being smuggled. They are unhealthy, firstly, and obviously very damaging to legitimate businesses like JTI up in Ian Paisley’s constituency. We have been there and discussed it. There are enormous sums of duty being lost, which we badly need to pay for public services and to get our debt down, so we take this very seriously.

I think we are making progress. In the last year the Revenue dismantled laundering plants with a capacity to produce 90 million litres of illicit fuel. That is probably worth £36 million to the criminals concerned. We think the estimated non-UK duty paid market share for Northern Ireland diesel has come down from about 40% in 2004-05 to 28% in 2008-09, and that is continuing, that trend has carried on, with this significant number of plants being stopped.

I do not underestimate the determination of these people. They are ruthless criminals, they need the money, and we all have to work together. As I said, it is a team game, and the PSNI are to be congratulated, working with the Revenue, for the increasing number of arrests that they have brought through in the last year, but there is more work to be done.

Chair : We will of course look at these issues in great detail over the next few weeks, thank you. Right, the Daylight Saving Bill.

Q41 Dr McDonnell: Secretary of State, I want to focus briefly on the Daylight Saving Bill. A number of new clauses have been added to the Bill that mean that the First Minister and Deputy First Minister in Northern Ireland could veto its implementation, or even the proposed trial; if the trial was successful, they could certainly veto the full-blown Daylight Saving Bill being introduced. Have you had any dialogue or discussion with Northern Ireland Ministers about the Daylight Saving Bill, and have you any sense about whether they will support the Bill?

Mr Paterson: No, I have not. It is something that I will definitely be raising when I see the First Minister and Deputy First Minister next. The Prime Minister has made it clear that he does not want this Bill to go through unless it has support from all over the United Kingdom, so what the Scots say on this Bill will be significant. But I would be interested in the Committee’s reaction to this. I do not think I have had anybody in Northern Ireland raise it with me, which is surprising.

Q42 Dr McDonnell: If I could just come back on that. It is now raised with you, but there would also be a need for some discussion with people in the Republic, because one thing that might create a lot of difficulty would be two time zones, so that when you cross the border you cross time zones as well. I think that not only would we need to sort it out from a Northern Ireland stance; if there is a change in time it would need to apply to the island as a whole, if it is to work.

Mr Paterson: I think you are quite right, it would be quite tiresome for everyone if you had a separate time zone along the border with the Republic. First of all, I think we need to establish if there is any hunger for this move in Northern Ireland, and I have not detected much.

Q43 Kate Hoey: Secretary of State, probably the reason you have not heard a lot is that a lot of people in Northern Ireland remember the disastrous experiment when it went on in England, and don’t want it back.

Mr Paterson: So is there no great enthusiasm.

Dr McDonnell: I am frightened, Secretary of State, that we will establish Newry time and Dundalk time, or Fermanagh time and Sligo time.

Q44 Naomi Long: I have not raised it with you, Secretary of State, but I was here for Second Reading, because I wanted to raise specific issues regarding the Bill. The further north and indeed the further west you go, the more severe the impact. For example, those living in Coleraine, I think, would have to wait in winter until around ten o’clock for sunrise, which is quite a considerable wait by anybody’s estimation. The journey home in the south-east would be done in daylight, which has potential to actually make road journeys safer, but it also means that the main, most intensive commute would be done in darkness in the north of Scotland, and in Coleraine, and that was my concern.

I did have brief discussions on this with some Irish officials, because I was concerned about it. I am not sure that it was particularly on the ir radar until Second R eading was granted. However, the Bill does look as though it has shaped up slightly more to receive at least some more significant support. Are you intending to have formal discussions at this stage -o nce you have taken soundings from Scotland , Northern Ireland and Wales - and are you also intending to take soundings from the Irish Government formally on this? I t does have significant implications for our economy in Northern Ireland if there are changes that would lead to two time zones.

Mr Paterson: Well, I suppose if there was a serious prospect of this going through, someone in the British Government would have to talk to the Government in Dublin.

Q45 Naomi Long: Are you suggesting there is not?

Mr Paterson: The Chairman and I gamble on horses normally. I am not convinced this is going to go through myself. That is my gut feeling, but if there was a chance, I think you would have to go to Dublin because it would have quite serious implications.

Q46 Chair : Can I ask you about the Carbon Floor Price tax? We visited, in Coolkeeragh-and I hope I have pronounced that right-a gas plant recently, and they did raise this issue with us. As you are aware, there is the EU Emissions Trading Scheme, and the UK Government is putting the Carbon Floor Price on top of that, which is not going to be applied in the Republic of Ireland. That particular gas plant, which is a very efficient and quite a modern one, is obviously very concerned about losing business, particularly as there is an all-Ireland electricity market. Have you had any discussions with those responsible? I am not sure whether it would be the Treasury or DECC implementing this. Have you had any discussions with them about the impact on Northern Ireland?

Mr Paterson: No, I have not. The only thing that has cropped up recently was that, in the statement yesterday, there was £250 million to help energy-intensive industries. I am not sure; I have not looked at the fine print to see if that could possibly apply, but I think it is something that should be raised with the Treasury. Obviously there is a problem if you have plants in the South that do not bear this tax. The last discussion I had on electricity was with the distribution agency in the Republic, who were very keen on establishing more interconnectors as a way of bringing down electricity prices right across the island of Ireland; they did not think the market in the island of Ireland was big enough to bring down prices. You need to link up the whole of Ireland with the whole of the rest of the British Isles to really get advantage of scale and bring down prices.

Q47 Chair : This is going to be a tax on producers, or at producer level.

Mr Paterson: Yes. But to answer your question, this has not been raised with me before.

Q48 Chair : Given that the Autumn Statement was only yesterday afternoon, could we ask you if you would have those discussions? Because it was raised as a very important issue to us.

Mr Paterson: As you have taken the trouble to go the power station it would be very helpful if you could write to me, and I will take it up.

Chair : Certainly, okay. Right, can we turn to the Olympic legacy?

Q49 Kate Hoey: I just wanted to ask for your feeling about the legacy of the Olympics and the Paralympics for Northern Ireland, given the promises that were made in Singapore that there would be a legacy for the whole of the United Kingdom. The news about the Australian boxing team and Chinese gymnastic team coming is welcome, but what do you think, in the end, when it is all over and everybody has gone away, will be left at the grassroots sport level in Northern Ireland?

Mr Paterson: I hope that it would enthuse young people to participate in sport more. AP McCoy and the two golfers are absolutely splendid examples of how Northern Ireland can produce world-class sportsmen. Of course, Mary Peters, gold medallist, has played a significant role in this. I think that much the best legacy to come out of this is that young people take up a sport and stick to it. That would be the best thing.

Q50 Kate Hoey: So it is more about participation levels and a fervour for sport than new facilities particularly, is that how you see it?

Mr Paterson: Yes. There has been some activity. We have got the Australians, the Chinese and some teams coming over.

Q51 Kate Hoey: Yes, they are coming because we paid for them to come.

Mr Paterson: That is a bit of a temporary boost, but then you have the World Police and Fire Games coming. That really is significant; that is going to bring tens of thousands of people. On the back of the Olympics, if those games go well, again, we might establish that Northern Ireland is a potential venue for this sort of activity.

Q52 Kate Hoey: And do you think the Sports Council in Northern Ireland are doing their best? Or is that not an area that you want to comment on?

Mr Paterson: They are not my responsibility, so I think that is for you to take up with-

Q53 Kate Hoey: Can I just ask you one other thing on this, because it is something that gets raised occasionally? Do you have any concern at all that your constituents and my constituents in London are buying lottery tickets, that money then goes to the sports councils, gets distributed, and we have a situation where actually our constituents’ money is going to help fund Northern Ireland people, who are British citizens, to compete for the Irish team against British teams. In other words, in some sports, we are funding another country’s Olympians, or helping to.

Mr Paterson: No one has raised that with me before.

Q54 Kate Hoey: No, sport is one of these things where things do not get raised about politics, but it is an interesting topic.

Mr Paterson: Are there many examples of that?

Q55 Kate Hoey: Well for example, if you are a Northern Ireland tennis player and want to play British tennis, you cannot, because the tennis is organised across the border-Tennis Ireland. A Northern Ireland tennis club cannot affiliate the Lawn Tennis Association, so much so that when Ariel, or some of these organisations, do their advertising for young tennis players, they specifically exclude Northern Ireland. I do not expect you to be an expert on it, but I am just raising it as it is something that, I think, at some stage we need to look at.

Mr Paterson: It is interesting. No, no one has ever raised that with me before. But I am sure it is something you could take up with the tennis organisations or the different sports.

Kate Hoey: Ah, there is a long history to it.

Mr Paterson: It is probably for the sports organisations to sort out. I do not think there is any Government involvement.

Q56 Kate Hoey: But anyway, as far as the Olympics and the Paralympics are concerned, you think there is going to be a great legacy for Northern Ireland.

Mr Paterson: Yes, enthusing young people and older people to take up sport I would hope would be the best long-term legacy. Do not underestimate the World Police and Fire Games, because that will be a major event in its own right.

Q57 Chair : Okay, thank you. Can we move on to the security situation in Northern Ireland?

Q58 Jack Lopresti: Secretary of State, welcome. I will be brief, I know we need to crack on, and I know you have said you will give us a private briefing, if you like, after the meeting. I just wanted to know what the official Government view was about the security situation in Northern Ireland. I will ask the supplementary question now that I was going to ask about Peter Hain allegedly having his computer hacked into, and whether your Department are taking that seriously or taking any additional steps to ensure that if it has happened it will not again.

Mr Paterson: On security, since we last met, tragically we have lost a policeman. That was a revolting and brutal murder of a young man who had chosen to devote himself to his community. It just shows the completely warped mentality of these people who do not accept the process and the ability everybody now has in Northern Ireland to express their political views by peaceful democratic means and to pursue those views.

We have a number of people-they do represent a danger, and we know they are determined-and they continue their efforts. As far as we are concerned, we have discussed this at the highest levels of Government, and just about this time last year, the National Security Council agreed a target of reducing the threat from severe to moderate by 2015. Having already put £50 million in as extra money, we have endorsed a completely unprecedented programme of £200 million-£50 million in each of the next four years-from the reserve, which has been bolstered by £45 million from the Executive, in order to bear down on these people.

I think one could say that the preliminary results, having talked to the PSNI and the Chief Constable, and to David Ford this morning, of the effects of that investment are beginning to come through. We are beginning to bear down on them, but we are not in the least bit complacent, because these people are brutal, dangerous and determined. I repeat the comments I said earlier: the other massive change is the unprecedented co-operation with the Garda and the authorities in the Republic, who are equally determined to bear down on these people; given all their financial difficulties, they have been more than proper in putting a major effort into the border areas. However, this is a difficult task and they are unpleasant, dangerous people we are dealing with. On Peter Hain’s computer, this is subject to a police investigation. I think really we should wait and see what comes out of that investigation.

Q59 Ian Paisley: Secretary of State, would you support my call for the Leveson Inquiry to be extended to the newsrooms in Belfast, to really get to the bottom of how far reaching phone hacking actually was across the whole of the UK?

Mr Paterson: I think the Leveson Inquiry has a pretty broad remit. If you feel strongly you are in a position to write to them.

Q60 Ian Paisley: I am doing that, but I am asking you as Secretary of State to support the call for Leveson to extend its remit and ensure that it covers allegations of phone hacking in Northern Ireland.

Mr Paterson: I would support the Leveson Inquiry going to every area where there might have been wrongdoing in this area as long as it was within the remit of the inquiry.

Q61 David Simpson: Secretary of State, may I now touch on a subject that is somewhat of a hot potato and a bit thorny? You are well used to those things, I suppose. What discussions have you had with the Taoiseach or the Foreign Secretary about successive Irish Governments’ alleged failure to prevent terrorism along the border? It was expressed, I understand, in a letter or a note handed to the Taoiseach by Unionist Ministers in the City Hotel in Armagh recently, I believe, where a request was made to the Taoiseach to meet Protestant families who were bereaved, following killings by the IRA along the border, and to acknowledge and apologise for alleged failure by previous Irish Governments to stop the murders.

Mr Paterson: I have had no discussions since that meeting in Armagh. We were supposed to have the British-Irish Council on Monday, which has had to be postponed sadly, because the Taoiseach’s mother died, and the funeral was not the appropriate opportunity to discuss these matters.

As this has been raised-I think Danny Kennedy and Arlene Foster raised this directly with the Taoiseach-next time I am in Dublin, I certainly will be talking about these matters. As we move on to our ideas on how you handled the past, which is an issue that Naomi Long has raised with me, I think it is perfectly public knowledge that I am very interested in opening up archives, establishing opportunities for giving oral testimony and getting oral archive, and if there is to be a full history, we will have to discuss this with the Republic of Ireland to see how they will be making information available.

David Simpson: Chairman-through you to the Secretary of State-from a Unionist perspective, we have seen in recent times the Prime Minister, and indeed yourself, come to the Dispatch Box and apologise for events that have taken place in Northern Ireland. Murder is murder; it is wrong. However, we have never had a situation where the Prime Minister of the Republic of Ireland has come to their Dispatch Box to apologise for any wrongdoing, or for preventative maintenance or whatever, as regards the murders carried out by the Provisional IRA whenever the Republic of Ireland was used as a safe haven that helped to train the Provisional IRA. We all know the history of it.

If we are talking about healing in Northern Ireland and moving forward in Northern Ireland, I think that would go a long way. I have been in touch with the Foreign Minister in the Republic, and I hope very shortly to have a delegation to go to meet them on the issue. I think it would be very helpful if someone in your position, as the Secretary of State for the Province, would raise this issue with the Irish Government to see if we can get a resolution.

Mr Paterson: I almost certainly will be raising this because, as I have said, in our discussions with local parties, all the victims groups and everything else, we know there isn’t a consensus. However, there is some interest, I think, and some enthusiastic support in some areas for these ideas of making archives available, making access points available where people can add to an oral archive. We have to be quite quick about this, because sadly many of these participants are getting old, ill and their memories are going.

David Simpson: Absolutely.

Mr Paterson: So I will be pursuing my ideas on this. As I said, I will be writing to the leaders of every party to discuss it with them, and over the next few months I hope we will be able to come up with our ideas. I really have to stress, as I did in Questions, we do not own this. We cannot impose a solution from the NIO. We have to try to do this-we have to try to find some sort of consensus among local parties. And frankly, as we saw from the Eames-Bradley reaction, there isn’t one. We really cannot impose.

David Simpson: Absolutely.

Mr Paterson: If I am going to go down the archive route, and the historian route, obviously there will be some key material in the Republic of Ireland that historians will want to have access to, so that will be something I will need to talk to the Republic of Ireland about.

Q62 David Simpson: Absolutely. I understand, Secretary of State, you cannot impose it. That is a given, but if you ask the question and develop it a little further, I think the influence that you have would help to nudge it a little bit closer to a conclusion.

Mr Paterson: As I said, we are having very satisfactory discussions with them on the issue of the Centenaries. We have pretty well agreed how to handle that. I think this will probably be an extension of those discussions.

Q63 David Simpson: So there is a good chance then that the Republic of Ireland will celebrate the Act of Union when it comes next year?

Mr Paterson: No, I think there is a very sporting chance they will put on some interesting work to do with the Covenant, but if you think of that, that is a big development. There were a significant number of signatures in what is now the Republic of Ireland, and if you think how, for instance, Islandbridge, the great Lutyens’ All-Ireland War Memorial is now absolutely central to the Republic’s life. The new President went there, I think, the first day he was elected. That is absolutely tremendous, recognising people from all over Ireland, all communities, who tragically lost their lives in the First World War-and they were all volunteers, every one of them.

Chair : We are running out of time. Can I ask for very short questions and perhaps short answers as well, if I may be so bold? Alasdair, can we move on to inquiries?

Dr McDonnell: Yes, Chair, I would like to certainly move on to inquiries. One very brief point I would want to make on the last question is that I could not let it stand on the record. The Irish Government did not train the Provisional IRA, nor were they responsible for them. I think the record has to be corrected on that. Beyond that, I welcome the opening up of any discussion on the past, and any answers that can be given.

Chair : I do not want to go down this route. Can we move onto inquiries?

Q64 Dr McDonnell: Secretary of State, would you like to bring the Committee up to date on the various issues around inquiries? There is the contention around Pat Finucane, but there is equally Omagh and Ballymurphy. You and I have discussed these recently, but I think it would be very useful if you could just bring the Committee up to date on the circumstances surrounding these.

Mr Paterson: On Finucane, the Government inherited an impasse. The Labour Government, following the Cory Report and Weston Park, promised a number of inquiries, but then in 2005 passed the Inquiries Act. The Finucane family were offered an inquiry under that Act, and I discussed this with John Reid recently, who was quite clear; they turned it down, so we inherited a complete impasse. This was going nowhere.

In fairness to myself, I wrote to the Finucane family very quickly after we came to office, and met Mrs Finucane and one of her sons, about this time last year. I said I had no black-and-white, preconceived solutions as to how we could resolve this, but I said that it does need resolving, because this appalling murder happened a long time ago, right back in 1999. It was not good enough to inherit a sort of Mexican standoff that was going nowhere. I said, "What I would like to do is to get to the truth. How we get to it we will establish over the coming months." We put out a written statement-you have probably read it-in Parliament, which set a two-month period for representations. We extended that period in January, then I met Mrs Finucane in Washington at St Patrick’s.

I assured Mrs Finucane we were not giving her the run-around, but it was really not a very clever time to make a big announcement on a very controversial issue during the Assembly Elections, so we would have to make it after the Assembly Elections. Now it did take longer, and I am personally disappointed it took so long to get an agreement on what we were going to do, but our conclusion was simple. It was that unlike all the other inquiries- Nelson, Hamill, Wright, Smithwick-there is an enormous archive around the Finucane case. That was the Stevens Inquiry, which is possibly the biggest police inquiry in British history. There are a million pages. There are 9,265 witness statements. There are 16,000 objects. And Stevens, one of the most respected policemen in Britain-

Kate Hoey: You mean in the UK?

Mr Paterson: -in the UK, made a clear statement that there was collusion. Our feeling was-and the Prime Minister was very clear about this-that what we wanted to do then is accept collusion, apologise for it, and then establish the quickest route to get to the truth. We believe the truth lies in that very large archive. I have talked to Paul Bew, who was the historical advisor to the Saville Inquiry, and he is clear that we have made available a larger archive than existed for Saville. Also, very importantly, there are fewer live key witnesses concerned with the Finucane case than there were for Saville, so I am very much not convinced an inquiry would have got to the truth, because the truth actually lies in the archive.

We had a very interesting case. I quoted Mr Paisley, who refused to attend the Billy Wright Inquiry. There is this golden image that public inquiries are the only way to get to the truth and to summon witnesses. You have a living embodiment over there of someone who did not turn up to a public inquiry. Our decision was very clear. We invited the Finucane family to come to Downing Street so the Prime Minister could make a personal apology in Downing Street. Then we have appointed a lawyer with an impeccable international reputation for total integrity, Desmond de Silva. He saw off three assassination attempts when he was a 28-year-old lawyer getting 16 young people off death row in Sierra Leone. He has a track record, literally second to none, working for the United Nations, and we were lucky to get him; he was under pressure to do another big international job, and, to show that he is no patsy, his report on the Gaza flotilla ruffled quite a few feathers earlier this summer. The idea that he is going to come up with some soft report, I think, is illusory.

Desmond de Silva has gone away; he has been given complete independence and the remit to come back by December next year with a report, which I think may be very uncomfortable reading for us. We will present it to Parliament having gone through the usual procedures, as we did with the other inquiries. Personally, I think what we have done is bold, and I think it took real courage for the Prime Minister to make an apology like this. It has never been done before. I think what we have decided to do will get to the truth in a much more rapid manner, and speed, I think, is really important. Do not forget, the Saville Inquiry went on for 12 years. Mrs Finucane has been waiting since 1989. The review is up and running, and I look forward to receiving it in December next year.

Q65 Lady Hermon: Secretary of State, may I just interject and ask for clarification on one small but very important issue? It is a point that in fact you have made to the Committee today, and you certainly made in your statement to the House of Commons on 12 October. Can I just clarify whether in fact-I am just reading here from your statement-the 9,256 witness statements and over 1 million documents in the Stevens Archive, are all, every single one of them, focused and related to the murder alone of Pat Finucane?

Mr Paterson: No, that is the whole Stevens Archive, but a lot of these events are interrelated. We have to wait and see what de Silva comes up with.

Q66 Lady Hermon: The clarification I need is that in fact not all of these over 9,000 witness statements are confined to the murder inquiry for Pat Finucane.

Mr Paterson: We do not know. We need to find out. A very brief summary of Stevens was published, so that is what we want to know. That is why he has been let loose on this very, very extensive archive.

Chair : We could spend a lot longer on that. I am sorry, I am going to have to move on to the final question.

Q67 Kris Hopkins: Certainly as a new member of the Committee, I would appreciate-I know the Committee would as well-a brief general assessment about how you consider devolution is working in practice. I was going to ask a supplementary, which I will tie in, as I know we are short of time. Who plays the role of the Opposition to the Executive, and how are the Executive held to account?

Mr Paterson: Well, welcome to the Committee. I should welcome your colleague Nigel as well; it is very good to see you.

I think devolution is in a position where it now has to deliver. I made this quite clear in my speech in Manchester. It is no good repeating that it is stable, that the first election has gone through for decades and it is existing. It has to deliver, otherwise the instability will not be from those participating in politics, because we do have a stable coalition, but from disillusioned people on the ground. That is the real area of pressure. It did take six months to come up with a draft Programme for Government, which seemed to many people a long time. They now really have to crack on and deliver that.

On the issue of an opposition, we have been completely clear that we would like, in time and with the agreement of local parties, to move to a more normal system of Government. A mandatory coalition emerged for reasons everyone in the Committee understands-the very, very peculiar circumstances-as an absolutely key part of the peace process. But to use Mark Durkan’s phrase, he said he wanted to get rid of the "ugly scaffolding" and he thought the institutions over time would be "biodegradable", which I thought was a very good expression.

I am quite clear that in time we would like to move to a more normal system where there is an Opposition and you can remove one set of politicians, make your laws, and replace them with another. That would be a satisfactory way to go, but if you think of the man years that have gone into setting up these institutions, and the extraordinary difficulties and background, I do not think we want to rush on any of this and be too precipitous.

The next stage is that it was part of the agreement that there would be a review by the Assembly, and that is going ahead. We have a possible vehicle; there is a possibility of a Bill that would address Northern Ireland matters. There are things like double-jobbing. We have said we would like to get rid of double-jobbing, ideally voluntarily, but if necessary, by legislation. There might be stuff on political donations. There might be a change in the number of MLAs per constituency. We are going down from 18 to 16 constituencies, so the Assembly might decide it would like to reduce the number of MLAs per constituency. All those could go into this possible Bill-I cannot guarantee the Bill will be there-and should the Assembly come forward in its review with recommendations on how to move the institutions further forward, again, that would be a vehicle to bring them into fact.

Q68 Kris Hopkins: We must reach a period of time where, if there is no effective Opposition or mechanism by which the actions of the Executive are being challenged in some formal way, the effectiveness and the respect of the Executive must diminish. I appreciate it is difficult for you to put a timeline on that, but I was just wondering what your views were on how we should go about addressing that. I am concerned about the power and strength of the Executive if we just continue the present process.

Mr Paterson: Yes, I think I made it absolutely clear that we would like to progress to a more normal system of an Executive and Opposition for exactly the reasons you have just outlined. It would be more effective, and it pertains in virtually every other democratic system, but given where we have come from, I am also very keen we do not go and destabilise everything by being in too much of a rush. There is a balance here. Getting the existing arrangement delivered is the most important thing. As far as I am concerned that is the absolute priority: that the institutions deliver and keep the confidence of the public. In time, discussing these matters with the local parties, you could develop alternative arrangements, but I am clear down the road, you want to move towards a Government or Executive and Opposition system. I am quite clear about that.

Q69 Lady Hermon: Poor Secretary of State, it is Lady Hermon again. Secretary of State, you are being very, very generous with your time this afternoon in front of the Committee, and you have covered such a broad range of issues. There is one final issue that I would like to raise with you, and that is whether in fact you have had an opportunity to have an in-depth conversation with the new Secretary of State for Defence, Philip Hammond, at the MoD. I had agreement from his predecessor, Liam Fox, to come and visit Palace Barracks in my constituency. I thought it would be very helpful to lift morale, etc, and I hope that the new Secretary of State for Defence will follow through on that.

In your most recent discussions with your Cabinet colleague, has there been any discussion about the possibility-and I hope not- of reducing troop levels in Northern Ireland as part of the restructuring of the armed forces? I raise that specifically in connection with a primary school, which is now facing closure - Redburn Primary School in Holywood- on account of a drop in A rmy families sending their children there . I would like to see that trend reversed. Have you had any discussio ns with the Secretary of State Philip Hammond about troop deployment in Northern Ireland ?

Mr Paterson: I have not had discussions with the new Secretary of State, but I did with the old one, and I made it clear there were commitments in the agreement that the troop levels should be maintained. I think that is an important part of the agreement. I think it is good there is a British Army presence in Northern Ireland. As I said at Questions, I have got the Royal Irish wristband on. It is a very good institution because it brings in people from all parts of the community, who are working together.

Q70 Lady Sylvia Hermon: May I seek a commitment from you this afternoon that you will in fact speak to the new Secretary of State for Defence and ensure that troop levels remain in Northern Ireland, particularly as it does have an impact, as I have experienced, for primary schools if Army families are not having their children going and attending local schools in the area. It is a very detrimental effect.

Mr Paterson: All I can say is I was reassured by my previous discussions with his predecessor. In fairness to the new Secretary of State, he has taken on a huge job and he has had a lot of other things to get stuck into, but I will meet him in due course.

Q71 Lady Sylvia Hermon: As Northern Ireland is part of the United Kingdom I would like a commitment that troop levels will be maintained there.

Mr Paterson: Yes, well-sorry, I am going to say the same thing three times. I had that discussion with his predecessor and I was reassured that there was not going to be any great reduction in troop levels in Northern Ireland.

Chair : Okay, it is late and I think we have been robbed of the opportunity for a private few minutes, but thank you very much indeed, Secretary of State. It has been extremely valuable, and no doubt we will be in touch about a meeting in the not-too-distant future. Thank you very much indeed.

Prepared 9th December 2011