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House of Commons

Monday 14 May 2012

The House met at half-past Two o’clock


[Mr Speaker in the Chair]

Defence Budget and Transformation

2.34 pm

The Secretary of State for Defence (Mr Philip Hammond): Before I make my statement, I know that the House will wish to join me in paying tribute to Corporal Brent McCarthy of the Royal Air Force and Lance Corporal Lee Davies of 1st Battalion the Welsh Guards, who were tragically killed in Lashkar Gah on Saturday. Both servicemen were performing an invaluable role in training and mentoring Afghan police, helping to ensure that Afghans will be able to take responsibility for their own security so that Afghanistan will never again be a place from which international terrorists can launch attacks on us and our allies. Their sacrifice will not be in vain. Our thoughts go out to their friends, families and colleagues.

With your permission, Mr Speaker, I would like to make a statement on progress in balancing the defence budget and establishing a sustainable equipment programme as part of the work to deliver the vision set out in the strategic defence and security review—a vision of formidable, adaptable and well-equipped armed forces backed by balanced budgets, disciplined processes and an efficient and effective Department.

The United Kingdom’s armed forces and the Ministry of Defence exist to protect our country and its interests and provide the ultimate guarantee of its security and independence. My overriding priority as Secretary of State for Defence must be achieving success on military operations, but our defence is built on the extraordinary quality and commitment of our people, and ensuring their welfare is close behind. I am clear that when we ask the brave men and women of our armed forces to put themselves in danger to ensure our national security, we owe it to them to make sure that they are properly supported with the very best equipment we can give them to do the job.

The best way I can support our armed forces as they restructure and refocus themselves for the future is to give them the assurance of stable and well-managed budgets and the confidence that the equipment programme is affordable and deliverable. That is because the only way to ensure, in the long-term, the ability to project power, to protect our national security and to ensure that our troops have the equipment they need is to have a defence budget that is in balance. A strong, diverse economy and sound public finances are a prerequisite to being able to sustain the armed forces that our national security requires, and so correcting the disastrous fiscal deficit we inherited and returning the economy to sustainable growth are themselves strategic imperatives. Defence has, rightly, contributed to that fiscal correction,

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as well as putting its own house in order by dealing with the chaos we inherited in an equipment programme that left a yawning black hole under our armed forces.

Tough decisions have been taken, and I want to take this opportunity to pay tribute to those who have taken them: my predecessor, my right hon. Friend the Member for North Somerset (Dr Fox), who showed the courage to tackle head on some of the worst and longest-running procurement fiascos and to make agonising choices over capabilities that Britain could not afford; the armed forces chiefs, who have grasped the challenges that the SDSR has presented and embraced the opportunity to create a sustainable foundation on which they can build for the future; and the leadership team in the MOD, who have worked tirelessly to turn this supertanker round—to tear up the old ways of doing things and to embrace a new model that will ensure that the MOD never again gets into the mess it was in by early 2010.

Thanks to all of them, and with the decision I announced to the House last week on carrier strike being the final piece of the jigsaw, I can tell the House today that, after two years’ work, the black hole in the defence budget has finally been eliminated and the budget is now in balance, with a small annual reserve built in as a prudent measure to make sure that we are not blown off course by unforeseen events: a plan endorsed by the chiefs and by the Treasury. We have achieved this by facing up to the fiscal reality and taking the tough decisions that Labour shirked: reluctantly accepting smaller armed forces and redoubling our resolve to invest in the best possible equipment for them; transforming the role of the Territorial Army as the regular army gets smaller, making it an integral part of Future Force 2020; and embarking on a major restructuring of the Department and a reduction of just over a third in the civilian work force.

Those have not been easy decisions, but they have been the right ones. This has been a difficult period for all our people in the armed forces and more widely across defence. Major change, the threat of redundancy and uncertainty about the future all present challenges to confidence and morale. Reaching a balanced budget for the MOD’s “planning round 12”, or PR12, represents a hugely important milestone in the transformation of defence. It is a symbolic break with the failed practices of the past and a solid foundation on which to build. It starts to put the destabilising uncertainty behind us as we move forward with defence transformation.

At the heart of the plan is the defence equipment programme, which by the end of the PR12 period will account for about 45% of the total defence budget. I have seen for myself over the past seven months just how complex defence procurement is. We are developing cutting-edge technology so that our armed forces have a battle-winning edge, with projects that rank alongside the biggest being undertaken in this country today.

Although there have been widely publicised failures, there have been unsung successes, most notably in Afghanistan, where the urgent operational requirements process funded by the Treasury has repeatedly allowed us to deliver the equipment that our armed forces need quickly and efficiently. Brigadier Patrick Sanders, who commanded 20th Armoured Brigade last year in Afghanistan, has described the equipment that his troops had as “second to none” and

“the best that I’ve experienced in 27 years”

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in the Army. We need to build on the best elements of the UOR model to achieve that level of performance across defence as a whole. At the same time, we must learn from the failures.

Over the 10 years of PR12, we will spend almost £160 billion on new equipment and data systems, and their support, reflecting the planning assumption agreed with the Treasury of a 1% per annum real increase in the equipment and support budget from 2015. However, poor decision making and poor management have too often meant that the armed forces have not received the full benefit of all their spending.

Under the previous Government, the equipment plan became meaningless because projects were committed to it without the funding to pay for them, creating a fantasy programme. Systematic over-programming was compounded by a “conspiracy of optimism”, with officials, the armed forces and suppliers consistently planning on a best-case scenario, in the full knowledge that once a project had been committed to, they could revise up costs with little consequence. It was an overheated equipment plan, managed on a hand-to-mouth basis and driven by short-term cash, rather than long-term value. There were constant postponements and renegotiations, driving costs into projects in a self-reinforcing spiral of busted budgets and torn-up timetables. Rigid contracting meant that there was no flexibility to respond to changed threat priorities or to alternative technologies becoming available. It is our armed forces and the defence of our country that have ultimately paid the price for that mismanagement. The culture and the practice have to change.

We will move forward with a new financial discipline in the equipment plan. There will be under-programming rather than over-programming, so that we can focus on value rather than on cash management. That will give our armed forces confidence that once a project is in the programme, it is real, funded and will be delivered, so that they can plan with certainty. The core committed equipment programme, which covers investment in new equipment and data systems, and their support, amounts to just under £152 billion over 10 years, against a total planned spend of almost £160 billion. That £152 billion includes, for the first time ever, an effective centrally held contingency reserve, determined by Bernard Gray, the new Chief of Defence Matériel, of more than £4 billion to ensure the robustness of the plan.

The plan includes 14 new Chinooks, Apache life-extension and Puma upgrade; a programme of new armoured fighting vehicles worth about £4.5 billion over 10 years, including the assessment phase of Scout; and a £1 billion upgrade of the Warrior armoured fighting vehicle. It also includes the building of the two Queen Elizabeth-class aircraft carriers, the remainder of the Type 45 destroyers, the new Type 26 frigates and the Astute-class and successor nuclear submarines. It includes investment in new Wildcat helicopters, the Merlin upgrade programme and the assessment phase of Merlin marinisation; the introduction into service of the Voyager air-to-air refueller and troop transporter, the A400M air transporter and the Air Seeker surveillance aircraft; an additional C17 strategic airlifter; continued investment in Typhoon and the joint strike fighter; and £7 billion of investment in “complex weapons”—the smart missiles and torpedoes that give our Navy, Army and Air Force their fighting edge.

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Balancing the budget allows me to include within that £152 billion core programme a £4 billion-plus investment in intelligence, surveillance, communications and reconnaissance assets across the Cipher, Solomon, Crowsnest, Defence Core Network Services and Falcon projects; the outright purchase of three offshore patrol vessels that are currently leased; capability enhancements to the Typhoon; and a range of simulators, basing and support equipment for the new helicopters and aircraft that we are introducing.

That programme represents the collective priorities of the armed forces, set out by the armed forces committee on which all the service chiefs sit. They confirm that the committed core equipment programme, together with the £8 billion of available unallocated headroom, will fund the capabilities that they require to deliver Future Force 2020 as set out in the strategic defence and security review. That £8 billion will be allocated to projects not yet in the committed core programme only at the point when they need to be committed in order to be delivered on time, and only in accordance with the military assessment of priority at the time. No project will be allowed to be committed without a 10-year budget line to cover not only its procurement but its support costs. Not rocket science, you might think, Mr Speaker, but quite an innovation in defence procurement none the less, and individuals and contractors can expect to be held to account for the estimates on which decisions to commit to projects are based.

The Government believe that transparency is a driver of performance. I want to be as transparent as possible about the defence budget, because greater transparency will help me to drive the change that we need to see in the Ministry of Defence. However, the House will understand that some elements of the defence budget are security-sensitive and others are commercially sensitive. It is essential that we preserve our negotiating space with defence contractors without announcing all our detailed intentions in advance. So to provide the reassurance that the House will want, while protecting the commercial and security interests of defence, I have agreed with the National Audit Office that it will review the equipment plan and confirm that it is affordable. The NAO will have access to confidential, detailed information on the equipment plan that cannot be published, but once it has completed its work, we will publish its verdict on the plan together with a summary of the plan itself.

Today’s announcement and the work that we are taking forward mean that for the first time in a generation the MOD not only has a balanced budget and an appropriate reserve but is putting in place the behaviour-changing incentives and structures that will keep it in balance. It means that the politicians and civil servants in the MOD can look the armed forces in the eye, in the knowledge that we are delivering them the stable platform that they need to build Future Force 2020. We are delivering them a budget agreed across Government, across the Department and by the service chiefs, and a firm baseline for the transformation that is under way to armed forces that may be smaller, but which will be adaptable, agile, equipped with the very best technology and supported by an MOD that is laser-focused on their needs. We are working alongside a defence industry that can invest with renewed confidence in an equipment plan that is actually deliverable. That represents the start of a new chapter in the long history of UK defence, and I commend this statement to the House.

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2.49 pm

Mr Jim Murphy (East Renfrewshire) (Lab): I join the Secretary of State in offering my condolences to the families of Corporal Brent John McCarthy from the Royal Air Force and Lance Corporal Lee Thomas Davies from 1st Battalion Welsh Guards. They will be for ever missed by those who love them, and their sacrifice should always be honoured by our nation. I agree with the Secretary of State. We continue to support the mission in Afghanistan, and we all wish to see political progress there to match our force’s bravery.

I thank the Secretary of State for advance copy of his statement. He might lack the passion of his predecessor, but he should not mimic his assertions. His predecessor said, about the strategic defence and security review, that defence was back on a stable footing, and at the time of the three-month review, he said:

“For the first time in a generation, the MOD will have brought its plans and budget broadly into balance”.

Today we are hearing the same thing, but we will judge today’s statement not on these reheated claims but on the detail published and on whether the Defence Secretary’s plans provide the right balance between flexible force structures, strategic reach post-Afghanistan, strengthening alliances within NATO, support for our forces and their families, and budgetary stability.

The Defence Secretary has said that there will be no more cuts over and above those he has already announced. Let us not forget, however, that he has announced cuts up until 2020, with thousands of service personnel and civil servants yet to be sacked, £900 million of allowances still to be lost and veterans’ and war widows’ pensions being frozen year-on-year.

Short-term control of defence costs to support careful deficit reduction needs to be coupled with long-term reform, but the Government have been reckless where care has been essential and timid when boldness has been required—reckless because decisions on the Astute class submarines and the Trident and carrier programmes have massively increased costs, and timid because long-promised reform of Defence Equipment and Support has been stalled. Only this Government’s review into speeding up defence delivery could itself be four times postponed. Hundreds of defence workers have lost their jobs, and major projects were last year delayed by a combined 30 months and at a cost of £500 million.

Last week, the Secretary of State stumbled into three different figures on the aircraft carrier U-turn. Let us see whether he is any clearer today. In the interest of the Liberal Democrats, the Government have delayed the biggest procurement decision of them all—Trident replacement. Will he therefore tell the House how much that decision to delay will add to the total projected costs of Trident’s successor? Will he also tell the House whether any cuts have been made since the three-month review and whether any programmes have been delayed to enable today’s announcement?

The Secretary of State talks about balancing the books, but I also want to ask him about the balance of our forces. What will be the precise up-front costs in this Parliament of converting RAF bases to Army bases for those returning from Germany? There is also consternation in Scotland about his plans for historic Scottish regiments. Scotland has a proud history in UK armed forces that simply cannot be cast aside, so will he guarantee that the names, identity and cap badges of Scotland’s regiments

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will be preserved? Failure to do so will show yet again that the Government are totally out of touch with Scotland.

We welcome the new investment, but will the Secretary of State confirm that the full cost of major projects, including the future tanker, the carrier programme, the Typhoon and the joint strike fighter fleets, have all been factored into the figures he is publishing today, and will he publish—perhaps not today but shortly—details of each programme and their costs? Ministers have committed to publishing a 10-year equipment plan. Without that, his claims today cannot be substantiated. Will he therefore honour his commitment to publish the equipment plan with its projected cost and available resource over the same period, or do his comments today about the National Audit Office override that previous commitment?

The Secretary of State has said that there is now a departmental reserve in each year. Will he guarantee that the contingency will be ring-fenced for defence?

In conclusion, Governments take the gravest decision of all by sending our forces into harm’s way. Today’s statement is about the quantity, quality and cost of the equipment we provide them with. We will hold the Secretary of State to each and every one of his commitments today, because it is in the nation’s interests that he gets it right; and where he does, we will support him.

Mr Hammond: They still don’t get it. Still they do not understand that a balanced budget is the essential underpinning to effective defence. Still they are in denial about the £38 billion black hole they left, even though we have the internal Labour party documents admitting that the £38 billion black hole is Labour’s biggest weakness in defence. Still they appear to believe, like children in a sweetshop, that it is better to have a big programme that cannot be delivered than a smaller one that our armed forces and defence industry can rely on. Where would we be if the right hon. Gentleman was in charge? We would be right back where we were in May 2010, because he will not make the difficult decisions that support effective defence and will get the MOD back on track.

The right hon. Gentleman asked me about the process from the SDSR and the three-month exercise. It has been a long and drawn-out process, with savings made at the SDSR, further savings made in the three-month exercise to get to the position announced by my right hon. Friend the Member for North Somerset (Dr Fox)—that the defence budget was broadly in balance—and, now, the work that we have done to go the final mile, which has enabled us to say that we have a fully balanced budget.

I must correct the right hon. Gentleman on his point about pensions. Pensions are not frozen, as he very well knows, and using emotive language like that will not help him.

The right hon. Gentleman referred to the £500 million increase in the defence programme projects over the last year. What he forgot to tell the House was that in the last year of his party’s Government there was a £3.3 billion increase in the equipment programme. I can also tell him, in answer to his question, that there is no delay to the Trident programme. The timetable of the Trident programme allows us to include all the critical path items in the PR12 period, and we have done so in the figures that I have announced today.

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The right hon. Gentleman asked about regimental structures in Scotland. I can say this to him: I, too, have read in a newspaper that I am determined to introduce a continental-style Army, without a regimental structure. I can say this to the House: I understand absolutely the vital role that the regimental structure plays in the British Army, and as long as I am Secretary of State for Defence, the regimental structure will remain.

The right hon. Gentleman made a fair point when he asked how, when the equipment plan in all its detail cannot be published—as it never has been published in the past—I can substantiate the statement that I have made today. I can do two things. On the one hand, I can ask the armed forces committee and the chiefs of staff to confirm that they can deliver the Future Force 2020 capability within the budget that I have announced, and they have done that. On the other hand, I can ask the National Audit Office to review the statement that I have made—the plan that we have produced—and confirm that it is deliverable within the available budgets. As I said earlier, once the National Audit Office has completed its review, we will publish the equipment plan at the same level of detail as it has been published in the past.

Finally, the right hon. Gentleman asked me whether I was confident that managing the Department’s budget prudently, with in-year unallocated provision and contingency provision in the equipment plan, would not lead to a Treasury raid, in an attempt to snatch back the headroom. May I guarantee that it will be retained for use in defence? He might have noticed that my right hon. Friend the Chief Secretary to the Treasury is sitting on the Treasury Bench. He gets it—he understands that the only way in which we will be able to manage the defence budget effectively in future is to have an open and transparent relationship between the Treasury and the MOD, where we both understand the boundaries and drive the incentives that will change behaviour in that Department.

As we have taken the painful decisions in the best interests of our armed forces and of Britain’s defence, we have required no lectures from the party that shirked them. As we have tackled the £38 billion black hole, we have asked for no advice from the Labour party, which has yet to take any action to deal with that black hole.

Dr Liam Fox (North Somerset) (Con): First, may I thank my right hon. Friend for his kind words and extend them to the rest of the ministerial team? The junior Ministers all had their share of the hard work and the difficult decisions that had to be taken to get us out of the mess that we inherited. Will my right hon. Friend reflect on the fact that we inherited from Labour not only a £38 billion black hole but a commitment to the replacement of the Trident programme that had no funding line whatever? Will he also tell us how far he has got in introducing professional procurement skills into the Ministry of Defence to enable us to deal with contracts on an equal basis with industry and thus give taxpayers better value and ensure that the kind of disasters that we faced in the past do not happen again?

Mr Hammond: My right hon. Friend is absolutely right to draw attention to one part of Labour’s black hole—the unfunded Trident commitment. He might

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equally have referred to the 22 Chinook helicopters that the former Prime Minister famously announced but forgot to fund. He asks about professional skills in Defence Equipment and Support, which is a crucial part of the MOD’s operation. The new Chief of Defence Matériel is drawing up a defence matériel strategy that will involve a radical change to the structure of the Defence Equipment and Support organisation. I hope to be able to make an announcement to the House on that matter before the summer recess.

Several hon. Members rose

Mr Speaker: Order. There is much interest in this matter among right hon. and hon. Members. Accommodating that level of interest will require brevity in questions and answers alike.

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): The Secretary of State was enormously helpful last Thursday when he told me that procuring an aircraft carrier was slightly more complicated than buying a bottle of milk or a box of eggs. I wonder whether he will be equally helpful today. He keeps referring to the £38 billion black hole. Will he tell us how much of that £38 billion he assesses as being due to contractual commitments and therefore outside the scope of his cuts, and how much of it as being outside those contractual commitments?

Mr Hammond: As the hon. Lady will know, my predecessor took some difficult decisions to cancel programmes that were contracted, which incurred some costs. One of the changes that we are now making will ensure that we do not commit contractually to projects earlier than we need to, so that if the MOD needs to restructure a programme or introduce flexibility, it will be able to do so without incurring such penalties.

Mr James Arbuthnot (North East Hampshire) (Con): The proof of this pudding will be in the eating, but I would suggest that the House should give it a wary welcome. At least we have now moved away from the position that existed at the end of the last Government, when the then Prime Minister said that there was to be no bad news and no new money. Does my right hon. Friend feel that we are really giving enough priority to defence research? The figure of 1.2% of the defence budget seems pretty low to me.

Mr Hammond: I am grateful to my right hon. Friend for his comments. Defence research and technology provide vital support to our defence effort and, after years of decline, we have guaranteed that we will not reduce any further the percentage of 1.2% of the defence budget.

Angus Robertson (Moray) (SNP): Taxpayers in Scotland contribute more than £3.3 billion every year towards the Ministry of Defence, but only £2 billion is spent on defence in Scotland. The Secretary of State’s predecessor said in evidence to the Scottish Affairs Select Committee that, between 2000 and 2010, the total reduction in service jobs was 11.6%, but that the reduction in Scotland was 27.9%. Given the disproportionate personnel cuts and the multibillion pound defence underspend in Scotland,

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will the Secretary of State take the opportunity today to rule out the prospect of any further amalgamation or disbandment of Scottish raised units?

Mr Hammond: The hon. Gentleman has clearly got the wrong end of the stick. Defence is about protecting our people. Scottish defence does not happen in Scotland: it happens under the oceans where our nuclear deterrent is on constant patrol and in Afghanistan where our servicemen are taking risks, day-in, day-out, to prevent threats from coming to our own shores. I will tell the hon. Gentleman frankly: we are going to have a smaller Army, and we cannot have a smaller Army without making some structural changes. I will make an announcement as soon as I am able about the structure of Army 2020.

Sir Menzies Campbell (North East Fife) (LD): May I tell my right hon. Friend that this Scottish taxpayer welcomes his statement? I hope he will excuse a moment or two of scepticism on my part, however, because those of us with long memories will have heard similar statements made from the Dispatch Box in the past—under the headings, for example, of “Options for Change” and “Frontline First”. The true test of the quality of this statement will be the extent to which it is achieved. I am delighted to hear that he has embraced the concept of fiscal reality. I hope he will keep it firmly in mind when he comes to consider the future of the Royal Air Force at Leuchars in my constituency.

Mr Hammond: I congratulate my right hon. and learned Friend once again on mentioning RAF Leuchars. It is not just about balancing the budget. I entirely accept that he will have heard statements about reductions in expenditure and budgets before. It has to be about changing behaviour. We will not make this change sustainable unless we put in place the structures, the mechanisms and the incentives within the Department to change the way the various players operate. That is what we are determined to do.

Mr Denis MacShane (Rotherham) (Lab): I warmly congratulate the Chief Secretary on obtaining the unconditional surrender of the Ministry of Defence across Whitehall. Has the Secretary of State seen today’s Le Monde, which has a whole-page article on how Britain is creating a “zizanie”—I think the English translation would be “omnishambles”—with the U-turn on the F-35s? As China flexes its muscles with the Philippines in the south Pacific sea, why will no British aircraft carrier be able to patrol at this crucial time for world history?

Mr Hammond: I am not sure whether the right hon. Gentleman was here last Thursday when I made a statement, which I hope he would regard as good news on carrier strike. I announced that the first carrier will be delivered in 2017 and that the first aircraft will fly off it in 2018. We are embarked on the process of patching up the hole that the previous Administration left us.

Nicholas Soames (Mid Sussex) (Con): I warmly congratulate my right hon. Friend, together with his colleagues in the Ministry of Defence—civilian, political and military—on a remarkable achievement. Will he tell us whether, in the light of the decks having been

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cleared, it is his intention to start work now on the preparatory work for the next strategic defence review, which comes along much quicker than one thinks?

Mr Hammond: I can tell my right hon. Friend that work is in hand. A body within the Department is already sitting and considering issues that need to be brought to the fore and thought through for the next strategic defence review. The five-yearly cycle will allow us to look at the strategic changes during it, while making tactical decisions within the five-year period to manage the budget and the programme.

Jeremy Corbyn (Islington North) (Lab): Now that the Secretary of State has finally got round to mentioning Trident, will he please say why he cannot give us some news in his statement on the expenditure of £1 billion on long-lead items for the reconstruction of the Trident system and the missiles that go with it, and why we are still contemplating spending £100 billion on a weapon of mass destruction that does not bring any security to this country, but merely a great deal of expenditure and danger?

Mr Hammond: The hon. Gentleman’s views on this subject are very well known, and I do not share them.

Mr Charles Kennedy (Ross, Skye and Lochaber) (LD): Will the Secretary of State clarify whether the statement can offer any long-term reassurance or will have any long-term impact on the future of the underwater training ranges at Rona and around Kyle of Lochalsh in my area? There has been a long-running uncertainty there, and it would be helpful to know whether this statement settles the matter one way or t’other.

Mr Hammond: I am afraid that that is a level of detail that, between us, the Under-Secretary of State for Defence, my hon. Friend the Member for Mid Worcestershire (Peter Luff) and I are unable to answer from the Dispatch Box, but I will write to the right hon. Gentleman later this afternoon.

Nic Dakin (Scunthorpe) (Lab): How many direct and indirect jobs will be lost as a result of this process?

Mr Hammond: We have already announced the reductions in the size of the armed forces and a reduction in the size of the MOD civilian service. As a result of what I have announced today, there will be no additional reductions in head count. The downsizing that has already been announced is the limit of the downsizing that we need in order to deliver the programme. I can tell the hon. Gentleman, however, that there are many tens of thousands of jobs in the UK defence industries, and that by introducing a sustainable equipment programme that will give industries the confidence to invest, we will protect those jobs and technologies and help those industries to build their export markets.

Bob Stewart (Beckenham) (Con): I welcome the Secretary of State’s announcement that we are going to balance the defence budget. I am also aware that the Royal Air Force is to have Rivet Joint aircraft, which will replace the Nimrod R1. Is there any intention for us to have a maritime surveillance capability again, given that we are an island nation?

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Mr Hammond: As has been said from the Dispatch Box before, maritime surveillance from conventional aircraft is not currently funded in the programme. That is one of the capability gaps that my predecessor chose to accept, and a risk that we have chosen to manage. A number of different technologies will be available to deal with it as we approach the end of the decade. That is one of the decisions that the armed forces committee will have to make when it considers the prioritisation for the head room in the planned equipment budget.

Hugh Bayley (York Central) (Lab): Will the Secretary of State assure the House that the budget that he has announced today will still meet the NATO requirement for us to spend 2% of our gross domestic product on defence? Given that operations abroad will almost certainly involve allies from other NATO countries, can he tell me whether he has made any progress in persuading countries that spend less than 2% of their GDP on defence to increase their defence spending, to which he has referred in the House previously, and if so, which countries are involved?

Mr Hammond: I can assure the hon. Gentleman that our defence budget in the spending review period exceeds the 2% of GDP NATO guideline. What I said on the previous occasion, and have said publicly on a number of occasions, is that while in the medium term our NATO partners must increase their contribution to collective defence, in the short term, at a time when there is extreme fiscal pressure on nearly all the European NATO countries, it is not realistic to go around wagging the finger at them about the amount that they spend. I have chosen to focus my pitch to them on the need to render the budgets that they do have more effective by making their forces more deployable and more available to the alliance. That is the thrust of the message that I was trying to deliver in Germany the week before last.

Penny Mordaunt (Portsmouth North) (Con): What impact does the Secretary of State expect the measures that he has announced to have on recruitment and retention in our armed forces, not only in respect of regulars but in respect of our challenging targets for the recruitment of reserves?

Mr Hammond: My hon. Friend is right to draw attention to that issue. Many people have asked me—and I have to say that I asked the question myself when I first entered the Ministry of Defence—why we are making service people redundant but are still recruiting. The answer, of course, is that because the armed forces are a bottom-fed organisation, we need to recruit even when we are reducing the overall size of forces. I hope that the greater confidence and clarity about the future will be an aid to recruitment, and I am sure that the greater role that the reserves will play in our overall force construction will be a great aid to recruitment in the Territorial Army and the air and naval reserves.

Nick Smith (Blaenau Gwent) (Lab): The life extension of the Apache helicopters will help while we wait for our aircraft carriers to have planes. How much is being committed to that?

Mr Hammond: I am not willing to specify a precise budget. I must correct the hon. Gentleman on a point of detail: I think that the Apache was due to go out of

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service without life extension in 2025—we will have aircraft carrier capability long before that—and this programme will extend its life beyond 2025. However, I cannot give him the individual line item budget.

Dr Julian Lewis (New Forest East) (Con): Will the balanced budget enable the previously agreed total of 25 frigates and destroyers to be maintained in the future, and will it allow the future Trident successor fleet to mount continuous at-sea deterrence, as personally favoured repeatedly by the Prime Minister in this House?

Mr Hammond: The answer to the second question is yes, the funding for the successor submarine is based on continuous at-sea deterrence. I am not sure about the 25 figure; the figure in the SDSR is 19 frigates and destroyers.

Mr Iain Wright (Hartlepool) (Lab): The Secretary of State has mentioned long-term value and a sustainable equipment programme for our vital UK industry, but given the debacle in respect of the Royal Navy fuel tankers, for which not a single British supplier or shipyard was invited to bid for the £500 million contracts, what reassurances can he give on providing real long-term value for the UK defence industry by enhancing our British manufacturing capability as well as our military capability?

Mr Hammond: We have made it very clear that where there is a sovereign capability that needs to be retained in the UK—such as in complex warship building, aerospace technologies and submarine building—we will enter into agreements with the private companies that have that capacity in order to ensure it is sustained. The hon. Gentleman is completely wrong about the MARS—military afloat reach and sustainability—tankers, however. British companies were invited to tender and were involved in the process. In the end, none chose to submit a bid, and the only bid we received from a European company was far in excess of the winning bid, received from a South Korean company.

Mr Edward Leigh (Gainsborough) (Con): Any objective observer would want to congratulate the Secretary of State on the rigour he has brought to his job, but does he accept that balancing the budget may not, on its own, be enough? At other times in our history, we have balanced the budget; we may have done so in the mid-1930s, but we were spending far too little on defence. Is he aware that his greatest task may lie before him: convincing the Treasury, the Cabinet and the people that we simply have to spend a greater proportion of our national wealth on defence in what is a dangerous world?

Mr Hammond: What I can say to my hon. Friend is that the chiefs of staff sitting on the armed forces committee have written to me to confirm that, with the budget we are making available, they can deliver the force construct set out in the SDSR for Future Force 2020. I agree with him on this, however: balancing the budget in itself does not solve the problem. Anybody can cut a budget. The challenge is to make sure the money that is spent is spent efficiently and effectively, getting through to the sharp end and delivering the

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military capability we need. That is why we need to change the behaviours and practices in the MOD, not just the budget.

Mr Wayne David (Caerphilly) (Lab): Given the Government’s commitment to the renewal of the Trident programme, can the Secretary of State explain the point of the Liberal Democrats’ review of alternatives to Trident?

Mr Hammond: As part of the coalition agreement, we made a commitment to such a review, in parallel with committing to the long-lead items on Trident replacement, so it would not slow down the programme—to answer the question of the right hon. Member for East Renfrewshire (Mr Murphy), the shadow Secretary of State. That review of possible alternatives to a submarine-based nuclear deterrent will be completed by the end of this year and submitted to the Prime Minister and Deputy Prime Minister, and a decision will be made then.

Mark Lancaster (Milton Keynes North) (Con): Urgent operational requirements have become a permanent fixture in the procurement process. However, while they have delivered excellent kit to our troops on the front line, they are widely regarded as offering poor value for money in the medium term and in respect of the through-life process. Can the Secretary of State assure me that while we have an effective UOR process, it will not be used as a substitute for planned procurement?

Mr Hammond: Yes, I can reassure my hon. Friend of that. There is a perception that UORs have effectively delivered equipment far more quickly, and often far closer to the original estimated budget, than conventional procurement. We have got to see what we can learn from those processes that will translate across into the main procurement programme.

Thomas Docherty (Dunfermline and West Fife) (Lab): The Defence Secretary has today made exactly the same claims about having balanced the books as his predecessor did some 12 months ago, yet 12 months ago the ministerial team refused to give the Defence Committee a single strand of evidence. Will the Government give that evidence this time?

Mr Hammond: First, my right hon. Friend the Member for North Somerset (Dr Fox) said that he had broadly balanced the defence budget and he was correct. What we have done over the past few months is go that last mile, to be able to say that it is fully balanced over the PR12 period. As for information, I have made it clear that once the National Audit Office has completed its review, we will publish its report and a summary-level equipment plan, with the same level of detail in it as has routinely been published about the defence budget. That may not be the level of detail that the hon. Gentleman would like, but it just is not possible, for security reasons and for commercial reasons, to publish a 10-year programme in minute detail without making the situation that the MOD faces impossible.

Mr Julian Brazier (Canterbury) (Con): I congratulate my right hon. Friend and his team on a remarkable effort, which will make a considerable difference to our

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armed forces over the next decade. While he has the Chief Secretary to the Treasury sitting next to him, may I urge on him two points of detail that used to exist the last time Conservatives were in office? The first is a carry-over facility within the procurement function, so that we do not have the year-end scrabble. The other is an exemption from the burdensome European procurement regulations, which the French still enjoy.

Mr Hammond: Some defence procurement is not subject to the European procurement directive. As for the carry-over, year-end flexibility on procurement, I have had very constructive discussions with my right hon. Friend the Chief Secretary and with the finance director in the MOD, and we are satisfied with the arrangements we have in place.

Several hon. Members rose

Mr Speaker: Order. Given the number of right hon. and hon. Members still seeking to catch my eye, and the fact that the debate to follow is very heavily subscribed, I repeat my exhortation to single, short supplementary questions and the Secretary of State’s typically pithy replies.

Sir Bob Russell (Colchester) (LD): Britain’s national and international defence interests are not best served by having a smaller Army, a smaller Navy and a smaller Air Force. We are now told that the budget is in balance, so, looking to the home front, can the upgrade and modernisation of the family accommodation be brought forward?

Mr Hammond: Not without busting the budget again, I am afraid. There is a programme for the modernisation of accommodation, part of which is continuing. Another part of it has been put on hold until 2014-15, and I am afraid that is where it will have to stay for the moment.

Stephen Phillips (Sleaford and North Hykeham) (Con): On behalf of the regiment in which I had the honour to serve, may I join my right hon. Friend, and indeed the shadow Secretary of State, in paying tribute to Lance Corporal Davies for his sacrifice?

No Government Member doubts the enormity of the £38 billion hole left by the previous Government or that it is, as the shadow Secretary of State has said, the principal weakness of the Labour Government. Will my right hon. Friend tell the House what effect promising much and delivering little has had on the morale of our armed forces?

Mr Hammond: It has sapped it and undermined it.

Mike Crockart (Edinburgh West) (LD): The Secretary of State has said much today about ensuring the welfare of, and building a stable platform for, our armed forces. One of the best ways of delivering that is by giving them certainty about where they will be based. Unfortunately, that is in short supply in Scotland, particularly in Edinburgh, so when will he deliver it?

Mr Hammond: My hon. Friend is absolutely right about that and I have acknowledged it many times: uncertainties about redundancy, about basing and about unit structures are all debilitating. We will close down

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those uncertainties as soon as we possibly can but, as I said, it will be towards the end of the year before we can make an announcement about basing.

Jessica Lee (Erewash) (Con): Does my right hon. Friend agree that the £4 billion contingency budget for the equipment programme is particularly welcome for companies such as Chemring, in my constituency, which provides hundreds of jobs and builds fantastic, quality equipment for our armed forces? I say that because businesses require clarity in order to plan for the future, and today’s statement provides that.

Mr Hammond: I am grateful to my hon. Friend for that. The knowledge that there is a £4 billion contingency budget will be hugely reassuring for the defence industry when it looks at the overall programme and decides how to invest its own money in the technologies and skills needed to deliver it. However, I urge the company in her constituency not to think that the £4 billion is there to accommodate its cost overrun.

John Glen (Salisbury) (Con): In warmly welcoming today’s announcement, may I ask the Secretary of State to go further and assure the House that when he reviews the options for the organisational model that the Chief of Defence Matériel believes will be best for the future of the Defence Equipment and Support organisation, he will challenge them robustly on their capacity to deliver real, radical organisational and cultural change in that organisation so that decisions are made in the right way in the future?

Mr Hammond: I can give my hon. Friend that assurance, but I do not underestimate the scale of the task. As DE&S is structured at the moment, we are seeking to employ project managers to manage some of the world’s largest and most complex projects and we are seeking to do it on civil service pay. That is challenging.

Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I thank my right hon. Friend for what he has said and I hope that it will produce greater confidence in his negotiations with the Treasury, as it will understand exactly where the MOD budget is going. May I ask for an assurance that the nuclear deterrent will not be up for negotiation with any of the other political parties in this House?

Mr Hammond: Let me assure my hon. Friend that relationships with the Treasury have improved dramatically at a working level. My right hon. Friend the Chief Secretary and I have complete transparency on these matters and have worked together very closely to achieve this outcome. The Government are fully committed to the replacement of the Trident nuclear deterrent.

Duncan Hames (Chippenham) (LD): I welcome the Defence Secretary’s decision to require an estimate of 10 years’ worth of support costs before a project is committed. It makes little sense, after all, to go to a cheaper supplier of respirators, for example, only to pay more each year in servicing them. Will that open the

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door to a more innovative approach from suppliers, so that we might increasingly be procuring not just kit but in-service capability?

Mr Hammond: I am glad to tell my hon. Friend that that is already happening. We are increasingly entering into availability contracts where the whole-life costs of the project are taken into account and capability is delivered in the most efficient way.

Christopher Pincher (Tamworth) (Con): My right hon. Friend’s announcement is good news for the taxpayer and will give certainty to our armed forces personnel. Will he say a little more about how it will build certainty among the lower reaches of the procurement supply chain—the small and medium-sized enterprises—who have suffered historically from budgetary uncertainty and do not have the luxury of waiting around for Government and prime contractor decisions?

Mr Hammond: We are committed to supporting the role of SMEs in the supply chain. I visited some SMEs involved in defence equipment very recently and they are among the most innovative and flexible parts of the industry. The changes we have already announced will assist them and I have pledged to look at how we can give them greater certainty that when they invest their own money in developing technologies, we can give them the highest possible level of assurance in advance that they will be able to export those technologies and not find that they have developed a white elephant.

Sajid Javid (Bromsgrove) (Con): I warmly welcome the statement by my right hon. Friend and congratulate him and his team on cleaning up the mess left by the Labour party. With respect to that mess, has he received an apology from that party?

Mr Hammond: Very far from it.

Stephen Gilbert (St Austell and Newquay) (LD): Will my right hon. Friend confirm that the £5 billion-worth of funding for the Atomic Weapons Establishment that has been announced today in a written ministerial statement is not new money and does not represent an increased financial commitment to the Trident successor programme?

Mr Hammond: I can confirm that the new contract for the Atomic Weapons Establishment, announced today, is in fact a rolling over of the existing contract at a lower price for the next period.

Andrew Selous (South West Bedfordshire) (Con): Kuwait compensated this country for the cost of its liberation. Libya is a very wealthy country. Has any similar offer been made?

Mr Hammond: Not to my knowledge.

James Morris (Halesowen and Rowley Regis) (Con): Does the Secretary of State agree that a balanced defence budget combined with sensible procurement in defence are central to protecting Britain’s national interests and allowing the country to make the difficult strategic choices we need to make in a global world?

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Mr Hammond: Absolutely. Understanding the cost of what we need to procure and ensuring that what we announce we will procure can genuinely be delivered are central to giving our armed forces the certainty to plan for the future.

Harriett Baldwin (West Worcestershire) (Con): In reaching this historic milestone—eliminating the £38 billion black hole—did the Secretary of State receive any submissions at all from the Labour party?

Mr Hammond: That is an interesting question, because the Labour party’s position is to deny that there was a £38 billion black hole. It is rather helpful to us that we have in our possession a letter from the right hon. Member for East Renfrewshire to the Leader of the Opposition, setting out his view that the £38 billion black hole was Labour’s greatest weakness and vulnerability when it came to defence.

Mr Speaker: I am grateful to the Secretary of State and to colleagues.

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Points of Order

3.30 pm

Ms Harriet Harman (Camberwell and Peckham) (Lab): On a point of order, Mr Speaker. Lord Justice Leveson is conducting a public inquiry on the media, and will call a number of hon. Members, including Ministers, to give evidence. It is an important inquiry, and we await the outcome, but will you clarify that while the Leveson inquiry proceeds with its work, it remains the case that the Secretary of State for Culture, Olympics, Media and Sport is accountable to this House? Is it in order for him to say that he will not answer questions from hon. Members in this House because he will instead tell Lord Leveson the answers, and to say that he will not place documents in the Library because he is giving them to Leveson? Will you confirm that he refuses to answer the question not because he is prevented from doing so by the Leveson inquiry, but because he does not want to? Of course the Secretary of State must give his evidence to Leveson whenever he is called to do so, but surely he cannot use that as an excuse to evade his accountability to this House.

Mr Speaker: I am grateful to the right hon. and learned Lady for giving me notice of her point of order. My response is twofold. First, as a matter of general principle, I should make it clear that the accountability of a Minister to this House is not diluted or suspended by a Minister’s engagement with inquiries or other proceedings outside this House. When parliamentary questions to Ministers are tabled, those questions should receive substantive and timely answers. Secondly, if Ministers are providing written documents to an inquiry, it would be a courtesy to the House, and help with the discharge of its scrutiny function, if such documents were also provided to the House. I hope that is clear.

Mr George Howarth (Knowsley) (Lab): Further to that point of order and to your response, Mr Speaker. Before the House prorogued, I tabled four questions to the Secretary of State for Culture, Olympics, Media and Sport and received replies to exactly the same effect as those that my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) described: the Secretary of State said that he would submit the information that I sought to the Leveson inquiry. In view of the ruling that you have just given, should I retable those questions, or should the Secretary of State answer them?

Mr Speaker: I have made the position very clear. I would not presume to advise the right hon. Gentleman, who is well versed in the use of the Table Office and the facilities offered by the House. He is a persistent woodpecker, and he will make his own judgment on how to proceed in the matter. I hope that is helpful.

Several hon. Members rose

Mr Speaker: Order. I do not want this to become a debate; I am a little concerned that it might. I will err on the side of tolerance, but I hope that it will not be abused by the hon. Member for Gainsborough (Mr Leigh).

Mr Edward Leigh (Gainsborough) (Con): On a point of order, Mr Speaker. When we have had scandals or so-called scandals in the past, our Select Committees

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have constantly been fobbed off, and no information—e-mails, for instance—have been given to them. Inquiries such as Leveson are given everything. Surely the time has come to proclaim this truth: this House is supreme and sovereign, and we should get everything first.

Mr Speaker: I hope that over the last two and three-quarter years I have given some indication, not just by voice but by conduct, that I believe that this House should be pre-eminent. It should be treated by whomsoever is in government with courtesy and consideration. It should be regarded as a priority and a matter of honour to keep the House informed and to facilitate the House’s discharge of its scrutiny function, so I do not dissent from anything that the hon. Gentleman has said.

Chris Bryant (Rhondda) (Lab) rose—

Mr Speaker: This will be the last point of order, I hope, on this or any related matter. I call Mr Chris Bryant.

Chris Bryant: Further to that point of order, Mr Speaker. Can you confirm that article 9 of the Bill of Rights makes it clear that no other body, including a court, can impeach or question a proceeding in Parliament, so the only body that can adjudicate on whether a Minister has misled the House, whether deliberately or inadvertently, is this House, and that Lord Leveson has no power to do so?

Mr Speaker: I believe the hon. Gentleman is absolutely correct in his statement and interpretation of article 9.

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Debate on the Address

[3rd Day]

Debate resumed (Order, 10 May ),

Question again proposed ,

That an humble Address be presented to Her Majesty, as follows:

Most Gracious Sovereign,

We, Your Majesty’s most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

Business and the Economy

3.35 pm

The Secretary of State for Business, Innovation and Skills (Vince Cable): The measures set out in the Queen’s Speech reassert the coalition Government’s fundamental commitment to rescuing the UK economy and promoting growth. There is no easy route out of the debris of a financial collapse. I start with that point, since one of the most important pieces of legislation in the Queen’s Speech is structural reform of banking, which I have worked on closely with the Chancellor.

More broadly in relation to pursuing growth, it is clear that the economic model that produced growth in the past decade and a half was fatally flawed. It rested on the illusion that growth could be created by a bloated banking sector, a bubble in property values, ballooning household debt and an unsustainable budget deficit. In practice, what we saw was that business investment stagnated, and British manufacturing industry was left to decline as a consequence of an overvalued exchange rate that resulted from the imbalances in the economy.

The ongoing crisis in the eurozone makes the task even harder. The turmoil in Europe serves to illustrate the wisdom of creating a firewall of confidence in the UK against otherwise panicky financial markets. The low interest rates that our policies have created provide an economic platform for support of private and public investment in infrastructure and housing.

We are very conscious that the absence of growth is a major challenge and it accounts for much of the frustration of the public, who are understandably impatient to see a recovery from the financial crisis and its aftermath, which wiped out 10% of our economy, dragging down the living standards of many families.

Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab): Can the right hon. Gentleman explain to the House why the Labour Government were responsible for the global meltdown, but the present Government are not responsible for the drop in growth and the double-dip recession?

Vince Cable: Clearly, the previous Government were not responsible for the global meltdown, but they were responsible for building up the largest and most volatile banking sector in the western world, and it was from that that the collapse followed.

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To achieve a recovery, we need to build on some of the positive trends that are beginning to emerge. Despite the deep-seated problems of the economy and the slow growth, we have seen 634,000 private sector jobs created in the past two years, which is almost twice as many as have been lost in the public sector. Private sector job growth explains why our unemployment level, although distressingly high and a tragedy for many individuals, is no higher than that in the United States.

Sheila Gilmore (Edinburgh East) (Lab): That figure of 600,000 private sector jobs has been given, on and off, for the past two years. Is it not the truth that the vast bulk of those new jobs were created in the early part of this Government’s term but were clearly related to the financial policies pursued by the previous Government, and that the number of private sector jobs created in the latter part of this Government’s term to date is extremely small?

Vince Cable: That is not correct. There has been a sustained improvement in private sector employment.

Julian Smith (Skipton and Ripon) (Con): Will the Secretary of State list some of the international companies that have invested across Britain during the past six months?

Vince Cable: I would be here for much of the afternoon if I listed all of them, but I am sure that my hon. Friend will be familiar with some of the big and high-profile investments, including those in the car industry by companies such as Nissan, Jaguar Land Rover and others, which are important not just in themselves, but because they involve a long-term investment commitment to the UK and bring behind them a large supply chain of small companies.

Mr Brian H. Donohoe (Central Ayrshire) (Lab): But is it not the case that specifically in Scotland, as a consequence of the delays that are being created by the nats, inward investment is faltering?

Vince Cable: No doubt there is uncertainty in Scotland because of the political situation there. I have been in Scotland supporting new inward investment. Scotland is participating in the substantial increase in investment that is taking place.

The policies required to sustain this growth of tradeable activities, such as manufacturing and creative industries, lie in aspects of economic policy that are not part of the Queen’s Speech, but they do provide the context to explain why the enterprise and regulatory reform Bill is at the heart of the forthcoming legislative programme.

Mr David Evennett (Bexleyheath and Crayford) (Con): Does my right hon. Friend agree that to get growth we need successful businesses? Successful businesses need less red tape, regulation and bureaucracy, but also the Government’s apprenticeship scheme, which is making more well-trained young people available to meet the needs of those businesses.

Vince Cable: Yes, and this is one of the big success stories. I understand that since the Government came in, half a million apprentices have now been trained

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through this process, which is 63% growth in an area where we made a major commitment, even in the context of necessarily declining public expenditure.

My hon. Friend’s first point leads on to my comment on the reform Bill, which contains a wide-ranging package of measures to overhaul the competition framework to support dynamic markets, to scrap unnecessary bureaucracy that is holding back companies, and to boost business and consumer confidence.

Mr William Cash (Stone) (Con): We have been here before. We have heard about enterprise and regulatory reform Bills and all the like. Will the Secretary of State categorically assure us that he will arrange in the Bill for the overriding of that European legislation that imposes an impossible burden on small and medium-sized businesses? He knows it, the Government know it, promises have been made, and the Prime Minister said that he regarded it as an imperative necessity. Will the Secretary of State please get on with it?

Vince Cable: I think that I can deliver the spirit if not the letter of the hon. Gentleman’s intervention. I do not think that we can override European legislation in quite that way, but I do agree that there is a lot of unnecessary and burdensome European regulation, and I am working with what we call like-minded Ministers in other European Governments to get rid of it as much as possible.

Mr Barry Sheerman (Huddersfield) (Lab/Co-op): I have great admiration and respect for the Secretary of State because he is one of the few leaders of the coalition Government who has ever had a proper job. What does he say to the Foreign Secretary, a man who has had very little experience in the real world, whose message to business people is that they are lazy and should work harder?

Vince Cable: I do not think that the Foreign Secretary actually said that. He works extremely hard with me and my colleagues promoting British business around the world. A large part of his job is commercial diplomacy and he is doing it extremely well.

One key proposal in the enterprise and regulatory reform Bill is legislation for the UK green investment bank, which will drive the transition to a green economy. The Bill will set the bank’s purpose, ensure its independence and make funding provision. The bank will be formed as a public company under the Companies Act, with initial funding of £3 billion to March 2015. It will operate independently from Government, but will agree its strategic priorities with the Government. Until formally established, the Government are making investments, on commercial terms, in green infrastructure through a specialist team in my Department. I reported to a Standing Committee of the House two weeks ago on its progress.

Mr John Redwood (Wokingham) (Con): I think that the Secretary of State agrees with me that the Vickers proposals for more competition among our domestic banks are very good. What further measures can the Government take urgently to get some competition in banking capacity in the high street?

Vince Cable: My right hon. Friend is right that, in addition to the structural reforms, competition is essential. He will know that the Government are endeavouring to

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carry through as ambitiously as possible the divestment of branches from Lloyds, and a potential solution to that is in sight. There are also some excellent new banks coming up—Handelsbanken and Metro bank are good examples—and we must ensure that the regulatory process is as efficient as possible in order to get those up and running. I thank him for his continued pressure on that important point.

Sir Peter Tapsell (Louth and Horncastle) (Con): My right hon. Friend the Member for Wokingham (Mr Redwood) mentioned the Vickers report. I very much welcome the announcement in the Queen’s Speech that its proposals will be implemented, but in the light of the recent massive losses in the derivatives market by no less a firm than J.P. Morgan, is not it clear that Vickers does not go far enough and that we really must go back to the basic principles of the Volcker rule and the Glass-Steagall Act by having a total separation of the retail banking system and the speculative banking system, which will otherwise destroy our business in this country and throughout the world?

Vince Cable: My right hon. Friend is quite right that the J.P. Morgan experience underlines the wisdom of separating the so-called casinos from traditional banking, but we take the view that in this country—J.P. Morgan, of course, is not a British bank—the solution we have advocated achieves that result at considerably lower cost than would the more extreme measures that I think he is advocating.

As with many other important industrial transformations, the Government’s role in the green investment bank’s infancy is key. By setting up the bank, which is the first of its kind in the world, we can provide capital and funding to nurture these nascent markets and secure a global competitive advantage for the UK.

Mr Andrew Love (Edmonton) (Lab/Co-op): May I take the right hon. Gentleman back to an earlier point? As I understand it, the Volcker rule would have outlawed the activities that led to J.P. Morgan losing $1.5 billion. Is such a proposal included in the Bill he is talking about?

Vince Cable: No, the Volcker rule as such is not in the legislation, but there is nothing stopping the hon. Gentleman bringing his proposals forward when the Bill is debated on the Floor of the House.

As several colleagues behind me have said, regulation is an issue, particularly excessive regulation for small companies, but inconsistent regulation damages businesses just as much, so the enterprise and regulatory reform Bill, as well as repealing some unnecessary requirements on business, will extend the primary authority scheme, enabling businesses that trade across local authority boundaries to deal with one authority on particular regulatory issues. If we consider that local authorities are responsible for 80% of inspection activity, covering areas such as trading standards, health and safety, and environmental health, the benefits of this approach are clear. As of last month, more than 450 businesses were members of the scheme, covering more than 50,000 premises in the UK, including many of our major high street

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retailers. Our reforms will make the primary authority scheme available to many more small and medium-sized enterprises and help improve the targeting of inspections, which can be so time consuming.

The Bill also contains provision for accelerating deregulation. Much is being done at present through the one-in, one-out system to prevent small companies, in particular, from being suffocated by red tape, and we are working with like-minded Governments in Europe, as I pointed out to the hon. Member for Stone (Mr Cash) a few moments ago, to roll back excessive regulation emanating from Brussels. The red tape challenge is repealing many of the 22,000 Government regulations that impose unnecessary costs on business, mostly by secondary legislation, but also, where necessary, through the Bill. The Bill will also embed sunset clauses.

Julian Smith: Will the Bill include the possible inclusion of European legislation in the quarterly statements that are now put in place for all Departments? Is that under consideration?

Vince Cable: I do not see why we should not do that, but I do not think that legislation is required to make that possible. We will certainly see whether it is feasible.

Small businesses also tell us that the fear of employment tribunals is a real disincentive to expanding and to taking on new staff. An employment tribunal is often a costly and stressful process for all concerned. I am fully persuaded that there has to be a balance between the legitimate expectations of workers that they will be protected from abusive employers and the legitimate expectation of businesses, especially small companies, that they can dismiss underperforming staff and not face costly and bureaucratic procedures. That balance is best pursued not through an adversarial system but by fostering conciliation in the workplace.

Our reforms will therefore promote the early resolution of disputes through the greater use of early conciliation and settlement agreements, so that fewer disputes end up in a tribunal. A tribunal is an admission of failure, so we want tribunals to be a last resort.

Mr Donohoe: Is the right hon. Gentleman saying, in that respect, that the trade unions have a major part to play, and that people should join them so that they are protected against the legislation?

Vince Cable: The unions certainly have a part to play, and I will continue to discuss the proposals with the TUC and affiliated unions, as well as with the employers’ groups.

One area in which good regulation strengthens a market economy is competition policy, so the Bill establishes a new competition and markets authority, bringing together the competition functions of the Office of Fair Trading and the Competition Commission. It will be the principal competition authority with a remit to tackle anti-competitive behaviour and to ensure dynamic and open markets. Competition processes will be faster, with clearer time frames bringing greater certainty and reduced burdens on business.

Jonathan Evans (Cardiff North) (Con): It is not only the structure of the competition authorities which is important, but their budget. Over the past five years

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there have been a number of areas in which the OFT has not investigated because of resource constraints under the previous Government, so what will happen to the resources of the competition authorities?

Vince Cable: Bringing the two organisations together will in itself produce some efficiencies, but I cannot assure the hon. Gentleman that they will be protected from the efficiency savings that the rest of the public sector is having to undergo. We are confident, however, that with the reforms that we are undertaking, competition procedures will be faster, not slower.

The same concerns about competition underpin our decision to bring forward a separate Bill, establishing an independent groceries code adjudicator, which will protect suppliers—small firms and farmers—from unfair treatment. In doing so, we will support investment and innovation in the groceries supply chain, and support British food manufacturing and British farming. The measure has been welcomed by the Food and Drink Federation, the National Farmers Union and the Association of Convenience Stores.

The case of a highly concentrated industry buying from and selling to large numbers of suppliers and customers is a classic, economic textbook case in which intervention is needed to prevent monopoly profits. Retailers should not of course be prevented from securing the best deals and passing on the benefits to consumers, but equally retailers should be required to treat their suppliers fairly and lawfully. An independent adjudicator will ensure that the market is working in the best long-term interest of consumers. It will have the powers to intervene proactively and to name and shame offenders. In such a competitive market we consider that those powers will be an effective tool, but if it appears that they are not adequate, I, as Secretary of State, will be able to grant the adjudicator the power to impose financial penalties.

Andrew George (St Ives) (LD): I must congratulate my right hon. Friend and the Government on bringing forward this important measure, which has all-party support. If supermarkets have nothing to hide, they have nothing to fear from the introduction of the adjudicator. Given that the OFT and the Competition Commission are due to merge, however, may I urge him to introduce the measure as quickly as possible so that the merger does not distract from the important job of getting on with the adjudication that is clearly necessary in the sector?

Vince Cable: May I first congratulate my hon. Friend, who I think was one of the prime movers behind the legislation and was very persistent in demanding it? Of course, I have no control over the parliamentary timetable, but given that the Bill is small and there is a consensus, it should go through very quickly.

Steve McCabe (Birmingham, Selly Oak) (Lab): On that point, will the right hon. Gentleman make clear the circumstances in which there will be penalties? That seems to be the proposal’s grey area. Previously he seemed to be more interested in naming and shaming. Is he now saying that in order to protect people the adjudicator will have the power to fine and to impose sanctions?

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Vince Cable: That is a reserve power. When the Bill comes before the House, we will discuss precisely how the mechanism operates. We are committed to back-up powers. Voluntary mechanisms are desirable, and ideally we should not need such powers, but we will take them if necessary.

Chris Bryant (Rhondda) (Lab): Does the Secretary of State think that the powers will be sufficient to deal with a situation in south Wales in which Tesco has tried to prevent a smaller operator from opening a local ice cream parlour because it, too, sells ice cream? This is not only about dealing with suppliers, but about the whole product chain and ensuring that there is a level playing field for smaller operators.

Vince Cable: That is the type of case that needs to be investigated; clearly, I do not know the facts behind that particular case. I do not want to take this as an opportunity to have go at Tesco; of course, its highly competitive retailing has been of great benefit to millions of customers, and we should not lose sight of that.

This intervention is designed to promote healthy competition, but it also speaks to a wider agenda that has emerged from this crisis, which is for business to be not only confident to expand and invest, but responsible too. That is the motivating factor behind one key element in the enterprise and regulatory reform Bill: our proposals to address directors’ remuneration, where the link between performance and reward has been weakened in recent years. We have a responsibility to make sure that shareholders of UK-quoted companies have sufficient information and power to challenge boards. Under the current regime, companies can all too easily ignore shareholders, and that is why we intend to give shareholders binding votes on directors’ pay.

We published detailed proposals in January and our consultation has just come to a close. We are now considering the responses and working carefully with stakeholders on the details. When we have finalised and published them, legislative measures will be introduced by Government amendment at the Committee stage of the Bill. Shareholders have shown admirable spirit in challenging boards. The so-called shareholder spring is a positive development. They are right to challenge boards; after all, it is their money. Our measures will give them the tools to maintain this challenge and, I hope, to reverse a trend that Labour was far too relaxed about.

Nowhere was Labour more relaxed, and with such disastrous consequences, as in relation to the excesses of the banking sector. We have been persuaded that it will be possible for the banking sector to perform its proper role in channelling savings towards productive business only if there is structural reform separating the so-called casinos from real, traditional banking. The banking reform Bill will boost the resilience of the UK banking sector, making it easier and less costly to wind down banks that get into trouble and curtailing the implicit Government guarantees from which the banking sector benefits. As I said to my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), we intend to achieve this by mandating the ring-fencing of essential banking services from riskier wholesale and investment activities, as recommended by the Independent Commission on Banking chaired by Sir John Vickers.

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The Government have given a clear commitment to legislate by the end of this Parliament, and banks will be expected to implement a ring fence as soon as practically possible thereafter. Implementation of the banking reforms will proceed in stages, with the final, non-structural changes fully completed by the beginning of 2019. This is another historic reform, and one where we lead the world.

Mr Frank Field (Birkenhead) (Lab): I am sure that most of our constituents are grateful for this aspect of the Queen’s Speech. Does the Secretary of State see some link between the support that the Governor of the Bank of England has given him for these reforms, the hoped-for effects of reform on the City, and the fact that certain journalists are now trying to rubbish the Governor of the Bank of England for his support?

Vince Cable: I am not here to attack journalists; I am not sure which ones the right hon. Gentleman is referring to. It is certainly true that the Governor of the Bank of England has been absolutely clear from the outset that in order to have long-term stability in banking, these reforms, or something very like them, had to be implemented, as we are now doing.

One area where business success and responsibility coincide is in relation to flexible working. The UK employment framework compares well internationally and has helped to keep unemployment relatively low, despite the extremely difficult economic conditions, but that is not to say it cannot be improved, both for workers and employers. We want a flexible labour market that supports growth and creates employment, and making sure that that happens requires acknowledgement of changes in family life.

Most women now go out to work and men shoulder more of the duties at home. As roles and responsibilities have changed, our lives have become increasingly complex. That is not just true of parents with young children. Many have to combine working with looking after an elderly parent, a sick partner or a grandchild. Extending the right to request flexible working to every employee will make that easier.

Sheila Gilmore: I am pleased to hear the Secretary of State endorse the needs of parents and carers. Will he comment on and perhaps put to bed the proposals appearing in the media over this weekend saying that we should restrict maternity leave to no more than six months? For example, The Sunday Times seemed to be full of that proposal yesterday.

Vince Cable: That proposal is not in the enterprise and regulatory reform Bill. We are committing to extending flexibility at work in a way that avoids unnecessary costs for companies and delivers real economic benefits. Research from the CBI, for example, found that 63% of firms offering flexible working reported lower staff turnover, saving on recruitment and training costs.

Julian Smith: Will the Secretary of State confirm that there is a strong argument for excluding micro-businesses—those comprising fewer than 10 employees—

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from these proposals and allowing them just to get on and run their businesses on their own?

Vince Cable: I recognise that there are particular problems for small companies in adapting their work practices, but of course many of the most successful small companies have flexible practices. The idea of creating a two-tier labour market in this respect has many practical difficulties, but we can debate that as the Bill goes through Parliament.

Mr Sheerman: Before the Secretary of State moves on from that point—I can see from his papers, I think, that he is coming towards the end of his speech—I would like to point out that he has not once yet said anything about innovation, he has said little about entrepreneurs and enterprise, and he has said something complacent about the levels of unemployment, which include 1 million unemployed young people. What is in the Queen’s Speech about that and what is he going to do about that?

Vince Cable: That sounds like the basis of a speech in the debate. The hon. Gentleman will know that we are pursuing forceful policies in respect of innovation, including the establishment of the catapults across the country—something entirely new and positive in the innovation sphere—without the need for legislative approval.

Mark Pawsey (Rugby) (Con): In recognising the needs of small businesses in respect of parental leave, will the Secretary of State consider the matter of employees giving as much notice as possible to those businesses in order that they can make allowances for when staff are not going to be present?

Vince Cable: That suggestion sounds eminently sensible. I do not know the extent to which it is required to be incorporated in the law, but it seems eminently sensible to pursue it in guidance.

Tristram Hunt (Stoke-on-Trent Central) (Lab): Further to the point made by my hon. Friend the Member for Huddersfield (Mr Sheerman), can the Secretary of State explain why there is no higher education Bill in the Queen’s Speech? If we are interested in innovation, skills and training, and future competitiveness, why on earth is there no such Bill?

Vince Cable: There were many candidates for the Queen’s Speech—a lot of productive legislation. The reforms in higher education are being pursued successfully. Many of the alarms sounded about the university reforms have not been realised. We can pursue questions about higher education in Business, Innovation and Skills questions next week. This is not about the higher education Bill.

Stella Creasy (Walthamstow) (Lab/Co-op): On the point about what is not in the Queen’s Speech, I agree with what the Secretary of State said about concern about Governments who were intensely relaxed about excessive financial practices. In a week when we found out that Wonga intends to lend to small businesses failed by Project Merlin, does the Secretary of State regret that there is nothing in the Queen’s Speech to deal with legal loan sharking?

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Vince Cable: As the hon. Lady knows, there is a lot of discussion about whether, in respect of loan sharking, we should best proceed through different forms of regulation. It is not required to be in the Queen’s Speech. In terms of small business lending, of course, we acknowledge that there is a real problem. There is a decline in net business lending, as the Bank of England has highlighted. Those who are closely engaged with small business, as I am, will tell her that the current issues are complex ones of security and the terms of loans. We need to engage again with the banking system about how to get proper flows of funds, and the structural reforms that we propose will certainly help.

Mr Ronnie Campbell (Blyth Valley) (Lab): On Friday I had a visit from a small business association in the north-east, and it told me two things: that it wants the banks to lend, and that it wants the big companies to pay small businesses. It said that if that were to happen, small businesses would be able to take on more employees and get the economy moving.

Vince Cable: I agree with the hon. Gentleman that we want banks to lend to small businesses, and one of the sources of finance, as identified recently in the Breedon report, which my Department commissioned, is big companies at the top of supply chains financing their own suppliers. They should do more of that, and we have introduced a programme, with some Government funding, to enable that to happen on a much bigger scale.

Mr Chuka Umunna (Streatham) (Lab): Project Merlin failed, and we were told that credit easing and the national loan guarantee scheme would resolve small businesses’ problems in accessing finance. What does it say about those schemes that, since they were introduced, Wonga has seen fit to enter the market for lending to small and medium-sized enterprises?

Vince Cable: Nobody ever argued that the credit easing scheme would solve the problem of small business lending. We argued that it would cheapen the cost, and that will happen. All the major banks are now engaged in arranging packages to enable those lower costs to be passed through. I think the hon. Gentleman will be pleasantly surprised by the take-up within a few months.

Mr Love: The right hon. Gentleman is well known for his support for co-operative and mutual organisations. In January, the Prime Minister spoke warmly about a consolidating Bill for co-operatives, but it did not appear in the Queen’s Speech. Will the right hon. Gentleman assure us that the Government have not forgotten about it?

Vince Cable: I have worked with the hon. Gentleman for many years on the promotion of mutuality. I seem to remember that there was considerable progress under the Labour Government, but almost all achieved through private Members’ legislation. Maybe he should put in a bid.

The benefits of flexibility also apply to flexible parental leave. The current system of maternity, paternity and parental leave is not fit for purpose. It is old-fashioned, inflexible and gender-biased. Indeed, research has found that a quarter of fathers change jobs, often in the two

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years after a child is born, so that they can spend more time with their family. That generates costs for employers, so the answer lies in a system that reflects modern parenting without placing excessive burdens on business. A period of leave will be reserved for both the mother and the father, and a period of shared flexible leave will be available to the family for them to choose how to use. Greater flexibility in how leave is taken in the first year of a child’s life will make it easier for both parents to work, keeping their attachment to the labour market. However, I recognise that we need to work closely with the small business community to ensure that those changes are introduced in ways that supports its growth rather than undermine it.

Legislation alone will not solve the economic challenges that we face or generate the economic renewal for which we are striving. However, our measures will help to create a platform for sustainable recovery. As I said at the start of my speech, we face an immense challenge, and the Government are determined to succeed in meeting it so that we rebuild the UK economy for the long term.

Several hon. Members rose

Mr Speaker: Order. In view of the extensive interest in this debate, numbering almost 50 Back Benchers, I have decided to impose a limit on Back-Bench speeches of six minutes each. There has been no time limit on Front-Bench speeches, as there ordinarily is not, and of course the Secretary of State wanted to take interventions, which is respected. The shadow Secretary of State may also wish to do so, but may I invite a certain self-denying ordinance in the interests of maximising the number of Back-Bench contributors?

4.9 pm

Mr Chuka Umunna (Streatham) (Lab): Thank you, Mr Speaker. I shall try to achieve that aim.

In responding to Her Majesty’s Gracious Speech, let us first take stock of the state of our economy and British business. Following the 2008-09 financial crash, born in the banking sector, to which the Secretary of State has already referred, the economy went into recession, like many others around the world, but thanks to the action that Labour took in office, we prevented that recession from turning into a depression and got the economy growing again. In so doing, we ensured that the pain of recovery was shared fairly, so that those with the broadest shoulders bore the heaviest burden.

When the Conservatives and Liberal Democrats took office, unemployment was falling, the economy was growing and the recovery was settling in. Consequently, borrowing in the last year of the Labour Government was £20 billion lower than forecast, because our approach was working. Today, the UK economy has not grown since the Government’s spending review, unemployment has soared beyond 2.6 million and 50 businesses are going under every single day. As a result, we are now in a double-dip recession created by this Government, and what is more, they are borrowing £150 billion more than forecast to pay for their failures. And who is bearing the burden of their policies? While taking tax credits away from families who want to stay off benefit and in work, they have given a tax break of more than £40,000 to millionaires. So they are unfair and out of touch as well as incompetent.

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At the ballot box a couple of weeks ago, the public made it clear what they thought of the policies of the two governing parties. This is what the Business Secretary said about that vote of no confidence a couple of days after his party’s drubbing:

“as a party we’ve got to maintain our identity, we’re going to work in the coalition but by the time we get to the election we’ll be an independent force with our own values competing independently and I think those are the elements that will form the basis of our recovery.”

For all the murmurings of discontent from the Secretary of State, for all the attempts at differentiation and threats to press the nuclear button, the simple fact is that he, the Chief Secretary to the Treasury, sitting next to him, and their Liberal Democrat colleagues have all facilitated and voted for the things that their Government are doing but which are holding back our businesses and economy. They have waved through—more often than not, enthusiastically—all those things that the public made it clear they disliked a couple of weeks ago. For the avoidance of doubt, then, the Conservative’s out-of-touch and unfair economic policies are the Liberal Democrats’ unfair and out-of-touch economic policies; and the Prime Minister and the Chancellor’s incompetence is the Liberal Democrats’ incompetence. No amount of differentiation or smoke and mirrors will change that now or by the general election.

Michael Fallon (Sevenoaks) (Con): I thank the shadow Secretary of State for giving way so early in his speech. Does he not recall the Governor of the Bank of England describing the Government’s economic policy as a “perfectly sensible” “textbook response”? Why is the Governor wrong and he right?

Mr Umunna: In case the hon. Gentleman has not noticed, we are in a double-dip recession. That says something about his party’s policies, given that, as I have just said, it inherited an economy that was growing, unemployment that was falling and a recovery that was setting in.

Before the Queen’s Speech, there was, of course, the Budget. Let us remember what people said about it. The general secretary of the TUC said:

“We needed a Budget that looked to the future and made jobs - particularly for young people - the national priority… Instead we have got a Budget by the rich for the rich.”

The chief executive of the Forum of Private Business said:

“what small businesses and the economy need are confident strides forward now. Largely, that has not happened in this Budget.”

People were looking in the Queen’s Speech for signs that Ministers understood what people were telling them—to change course and to put in place policies that will deliver an economy that works for working people and businesses, and the building blocks upon which a new economy can be built.

Did the Queen’s Speech deliver the change that people and businesses signalled they wanted to see? There are things that we welcome, subject to the small print being worked through. I have given the Business Secretary credit for ensuring that the Government established the Independent Commission on Banking. We are playing our part, in a cross-party spirit as far as possible, to

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implement its recommendations, and will look at the detail when it is published. The Government, by their own admission, said that they were bequeathed one of the best competition regimes in the world by this party. The Business Secretary will need to demonstrate that the creation of the single competition and markets authority—which he has just spoken about—will improve on that legacy, not squander it.

Our 2010 manifesto included plans to create a supermarkets ombudsman to protect farmers and food suppliers from unfair and uncompetitive practices by major retailers. The Government are taking that forward through the grocery adjudicator, which the Secretary of State has mentioned. We will work to ensure that the grocery adjudicator is given powers to ensure fair access across the supply chain. In office we set up the primary authority scheme—which he also mentioned—to help reduce the local regulatory burden on firms. The enterprise Bill will extend that to include more businesses, which is welcome. The Secretary of State also referred to the changes to parental leave. Again, we will look at the details, but on the whole, that does not sound like a bad measure.

We were told that the enterprise Bill would contain measures on executive remuneration—something the Secretary of State has just repeated. In order to build a more productive and responsible capitalism, it is important to ensure that we bring an end to rewards for failure and the excessive pay we have seen, which is bad for our economy and our businesses. On both sides of the House we agree that change and reform must be led by shareholders and investors with Government support. In office, we were the ones who introduced the advisory shareholder votes on remuneration reports, which have been causing a lot of news recently.

Mr Redwood: What approach would the shadow Minister recommend to the remuneration of senior executives and directors in banks with state shareholdings?

Mr Umunna: I would say that their pay should be linked to performance against criteria and specified objectives. Our argument in relation to RBS is that the Government are the biggest shareholder. They have lectured others about the need for greater shareholder activism, but it would be good to see it from those on the Government Front Bench.

However, despite all the things I have welcomed, in sum, it is business as usual for this Government. This Queen’s Speech signals little change in approach. For the person looking for work, this Queen’s Speech offered no hope; for individuals, families and firms faced with increasing energy and water bills, and rising transport costs, it offered no hope; and for sound and successful small businesses struggling to get by in this recession of the Government’s making, it offered no hope. However, listening to the Business Secretary, one would think that the Queen’s Speech had been positively received. I do not know who he has been listening to, but this is what our business leaders have said about his Government’s Queen’s Speech. On Friday, Justin King, the CEO of Sainsbury’s and a member of the Prime Minister’s business advisory group, which is meeting as I speak, said:

“Consistency is what gives confidence. Unfortunately, what we have seen over the past couple of years is something that could not be described as a consistent pursuit of a clear policy”.

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In other words, uncertainty—created by the Business Secretary’s Department and all across Whitehall—is reducing businesses’ confidence to invest for the long term. On Saturday, the director general of the British Chambers of Commerce said:

“there is a big black hole when it comes to aiding businesses to create enterprise, generate wealth and grow”.

Business people are clear: what they want is a Government who will step up and work in partnership with them to create the conditions for private sector growth. What they have got is a Government who step aside and leave business to struggle on alone.

What was the Government’s response to those comments by business people? Step forward the Foreign Secretary. Yesterday—in what the Business Secretary described as “commercial diplomacy”—he said:

“I think they should be getting on with the task of creating more of those jobs and more of those exports, rather than complaining about it. There’s only one growth strategy: work hard”.

What on earth does the Foreign Secretary think this country’s business owners do all day? His message is clear. He is saying that the fact the economy is not growing has nothing to do with the Government’s failed economic policies. He is saying that it is not growing because the people in all our businesses out there are not working hard enough. How out of touch can the Foreign Secretary be?

Mr Evennett rose

Mr Umunna: Perhaps the hon. Gentleman will tell me whether he thinks the businesses in his constituency are working hard enough.

Mr Evennett: Does not the shadow Minister feel guilty that, under the last Labour Government, of whom he was a big supporter, there was high taxation, a great deal of regulation and red tape and a lack of a trained work force? The Labour Government never helped small and medium-sized businesses; nor did they allow reward for success.

Mr Umunna: I say to the hon. Gentleman that I am proud to be a shadow Minister for a party that saw 1.1 million new businesses created during its time in government. I am proud to be the shadow Business Secretary for a party under whose Government Britain was rated the best place for doing business in Europe and fourth best in the world. I must also remind him that the UK has fallen from fourth to seventh place on his watch.

Nicholas Soames (Mid Sussex) (Con): Would the hon. Gentleman accept that the Foreign Secretary was saying that we have to do better with our exports? We have done much better this year, as the Secretary of State pointed out, through our commercial diplomacy, and the hon. Gentleman is wrong to sneer at that. It is a fact that we do not export nearly enough from this country, or nearly as much as we could.

Mr Umunna: If only the Foreign Secretary’s comments had been limited to those that I have just cited. There was more, however. Asked whether they amounted to a modern-day call to our people to get on their bikes,

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echoing the call from the noble Lord Tebbit back in the 1980s, the Foreign Secretary said:

“Well no, it’s more than that. It’s ‘get on a plane, go and sell things overseas’…It’s much more than getting on the bike. The bike didn’t go that far. ‘Get on the jet.’”

I know that senior members of this Government have a penchant for hanging out with people who own yachts and jets, but most business people in this country do not have those things or mix in such company. Chris Romer-Lee, the director and co-founder of an award-winning architecture practice here in London, said to me yesterday that his firm is working flat out and has been doing so through these bad economic times. He said that

“to suggest we could work harder is insulting.”

That is what a business person said to me yesterday.

Julian Smith: The legislation that we are discussing today deals with deregulation. Will the shadow Business Secretary tell us about his proposals to lift the burdens on British business?

Mr Umunna: I will come to that. As I have said, the primary authority scheme that the Secretary of State has mentioned was something that we introduced when we were in government, and I support the proposal to extend it.

Mr Sheerman: Before my hon. Friend leaves the pronouncements of the Foreign Secretary, I want to ask him whether he heard Lord Digby Jones speaking on Radio 4 this morning of the Government’s decision to “decimate” and “cut” UK Trade & Investment—the trade and investment arm of the Foreign Office. Is not that a reflection on the Foreign Secretary, who is not working very well or very hard himself?

Mr Umunna: I think that UKTI needs to do a hell of a lot better, as my hon. Friend suggests. Actually, I think that this Government need to work a hell of a lot harder before they start lecturing others. It is not that we disagree about the need to increase our exports, but let us take a step back. The Government’s economic policy is one of expansionary fiscal contraction. Their idea is to hack off parts of the public sector and take away things that the Government do, and they expect the private sector automatically to step in and fill the gap. I do not think that telling business people that they are whingeing and not working hard enough is a way to inspire them to do what the Government expect of them.

Ian Paisley (North Antrim) (DUP): Was the hon. Gentleman as perturbed as I was, two weeks before the Gracious Speech, to hear another Cabinet Minister suggest that he wanted to put a certain industry out of business? That industry raises £12.5 billion a year for the Exchequer in customs and excise duty payments. Will the hon. Gentleman defend the tobacco industry, which employs 6,000 people in this country and generates millions of pounds in PAYE and revenue for the Government?

Mr Umunna: We want all those sectors that have a competitive edge to have a comparative advantage for this country, providing jobs and opportunities when more than 2.6 million people are out of work. We want to see those sectors thrive.

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Given the recent omnishambles, one would have thought that Ministers might stop and think before attacking those to whom they look to grow our economy. Far from it, however, as so far we have mentioned only the Foreign Secretary. The Secretary of State for Communities and Local Government also waded in to the row, in typical diplomatic fashion, saying that he agreed with what the Foreign Secretary had said, while the Defence Secretary—it is a shame that he did not stay in his place after his statement—then accused businesses of being whingers. The problem is that Ministers seem to inhabit a different planet from the rest of us. It is not that our businesses are not working hard enough; it is that there is a lack of demand and weak confidence flowing from the Government’s mismanagement of the economy, which has helped to tip us into a double-dip recession.

Joseph Johnson (Orpington) (Con): Does the hon. Gentleman recognise that UK gilt yields are at an historic low, and that we would be taking a tremendous risk with them if we moved away from an economic policy that no less a person than the Governor of the Bank of England has described as the “textbook response” to the situation this country faces?

Mr Umunna: That quote has already been used. I would say two things to that. The hon. Gentleman, who studies these matters keenly as a writer for The Financial Times, will know that Christine Lagarde, the head of the International Monetary Fund, has said that to have a credible fiscal policy, we need growth. The problem is that there has been no growth since the comprehensive spending review. Secondly, we have had historically low interest rates on our sovereign debt and, of course, we control our own monetary policy, which has helped matters.

Michael Fallon: Was the Governor of the Bank of England wrong?

Mr Umunna: I am not saying that the Governor of the Bank of England was wrong. What I am saying is that we need growth for a credible fiscal policy. Many, including Government Members, would not necessarily argue that the Governor has always been right, particularly during the 2008-09 crisis.

The people have spoken, our businesses have spoken, families up and down this country have spoken, but the Government do not want to listen, so they persist with the same failed economic strategy, the same failed approach, exemplified in their Finance Bill carried through from the last Session with its granny tax, caravan tax, pasty tax and tax break for millionaires.

What of measures to put in place the building blocks for our economy in the long term? Was any change signalled in this Queen’s Speech? The Business Secretary famously wrote to the Prime Minister and the Deputy Prime Minister about industrial policy, outlining his and their failures. He quite rightly argued in his letter for Government to adopt an industrial policy. He said he sensed that there was “something important missing” from what the Government were and are doing—and that was “a compelling vision” of where the country was headed beyond deficit reduction. He rightly said, too, that

“market forces are insufficient for creating the long term industrial capacities we need”

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and that

“we should be willing to identify British success stories as identified through success in trade and explicitly get behind them at the highest political level.”

That is precisely what we did in government in respect of the automotive industry—and we are now reaping the rewards from that.

The problem for the Business Secretary is that the Chancellor and the Prime Minister do not buy into active government and industrial policy. To their names we can add that of the Foreign Secretary as another roadblock to the active Government and industrial policy that those who own and work in businesses want to see. What evidence is there in the Queen’s Speech that the Business Secretary has been able to exercise any influence over these roadblocks to bring about a change of approach? None whatsoever.

The Business Secretary’s letter identified our energy and low-carbon industries as an important sector. We are told—the Business Secretary mentioned it—that the enterprise and regulatory reform Bill will include provisions to set up the green investment bank, which is an essential component of an industrial policy for a low-carbon economy. According to conventional definitions, however, a bank is an entity that borrows and lends money. Given the absence of those capacities and capabilities, we are left not with a body that can be called a bank, but with a fund. That is the only proper name that we can give to this initiative. It is not planned to become a bank until 2016, and will do so then only if public sector net debt is falling as a percentage of GDP at that point, which is by no means certain.

Often cited by the Business Secretary as evidence of an industrial policy, or industrial strategy, is the regional growth fund, and that was exposed as a complete shambles by the independent National Audit Office on Friday. The Deputy Prime Minister and the Business Secretary have been going around the country boasting that the scheme will create half a million jobs. What did the National Audit Office tell us on Friday? Only 41,000 jobs will be created, and many of them would have been created in any event. The House will remember that the Government abolished the future jobs fund on the basis that it was too expensive. It was claimed that each job created from that fund cost £6,500. How much did the NAO tell us each of these jobs has cost us? Up to £200,000.

While I am at it, let me thank the Minister of State, Department for Business, Innovation and Skills, the hon. Member for Hertford and Stortford (Mr Prisk)—who has been chuntering from a sedentary position—for the letter that we all received from him inviting us to encourage businesses in our constituencies to bid for RGF money last week. In that letter, he said

“my officials are ready to help”


“there will be plenty of opportunities for bidders to meet the appraisal team to discuss their ideas before the bidding deadline”.

There is, of course, a small snag. The NAO told us that the fund started off with 12 economists seconded from other Departments to process these matters. They all returned to their home Departments before due diligence on the first round of bids began, and the fund had no dedicated administration budget. Let us hope that there are some officials left for us to see.

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Tristram Hunt: When it comes to industrial policy, is my hon. Friend as worried as I am by the lack of a strategy for intensive energy users in the Government’s plan? There is nothing in the Queen’s Speech, or in the Budget, to protect our steel and ceramics industries, which are vital to a low-carbon future.

Mr Umunna: My hon. Friend is right. I know that his constituency contains some of those industries.

The Government refuse to heed the call of businesses to get our economy going, and they refuse to adopt the active industrial strategy that we need. Instead, we have a Chancellor who is seeking to play the same old Tory tunes and watering down employee rights as a substitute for a proper growth strategy, along with a Business Secretary who is at best seemingly powerless to stop the Treasury juggernaut, and at worst going along with its nonsense on employee rights. We do not yet know what form the changes to employment law contained in the enterprise and regulatory reform Bill will take. All that we have been told to date by the Business Secretary’s Department is that the Bill will

“Overhaul the employment tribunal system, and transform the dispute resolution landscape.”

The Business Secretary alluded to that earlier. However, reforming the employment tribunal rules of procedure is one thing; making it easier for companies to hire and fire their workers, as the Government have spun it in the media, is quite another.

In March, the Business Secretary told the House that we already had the most flexible labour market in Europe, a claim that he repeated today. He also said that ours was the second most flexible labour market in the OECD. However, in an opinion piece which appeared in The Telegraph on 7 May and which was referred to by the hon. Member for Stone (Mr Cash), there was the Business Secretary parroting his Tory masters’ line.

“Britain is no longer a lone voice in the push”

for an even more “flexible labour market”, he told us. He then proceeded to round on the working time directive, which he condemned for being “'wasteful”. What has happened in the interim? Why the change of tone? I think that the Business Secretary has been got at.

Let us consider what the working time directive does through the working time regulations that give it effect in UK law. It ensures that workers have at least 11 hours’ rest in any 24-hour period. It ensures that workers have one day off in any seven days. It guarantees four weeks’ paid leave a year, and the right to a rest break of at least 20 minutes during a working day of six hours or more. I know that Ministers do not think we are all working hard enough, but I did not envisage that they would seek to tamper with those basic rights to a modicum of time off and a rest.

Vince Cable: Is the hon. Gentleman not aware that the individual opt-out of which I was speaking was defended for over a decade by the last Labour Government?

Mr Umunna: I am well aware of that, and will the Secretary of State tell us exactly what he has a problem with in the working time regulations?

Vince Cable: If the hon. Gentleman is following this matter closely, he will know that there has been a series of judgments by the European Court of Justice that,

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unless repealed, will add very considerably to the burdens faced by companies, and that that was fully recognised by his party when it was in office.

Mr Umunna: So, in contrast to what seems to be in the Secretary of State’s Telegraph piece—I have a copy of it to hand—he has no problem with the working time regulations; instead, he simply has a problem with ECJ cases. [Interruption.] For the benefit of the record, the Secretary of State is saying he does not have a problem with the working time regulations. So why on earth is he publishing an article in The Telegraph saying

“the tide is turning against EU bureaucracy”


“Britain is no longer a lone voice in the push for deregulation”?

Who is that designed to please?

The reason we are in recession is not our employment law regime; it is this Government’s policies. [Interruption.] The Chief Secretary chunters from a sedentary position about the Labour Government. He has been in power for two years now. When he became Chief Secretary to the Treasury, he inherited a situation in which, as I said at the beginning of my speech, growth was rising, unemployment was falling and a recovery was setting in. Now, after two years at the Treasury, he is presiding over an economy that is in a double-dip recession. We will take no lectures from him.

The reason our economy has not grown is not our employment regime; it is this Government’s policies. The Secretary of State should be working to make it easier for firms to hire people—for example, by giving all micro-businesses who take on extra workers a national insurance break—not enabling firms to fire people as they want, with all the instability that that brings.

So there we have it: a Government who have tipped this country into a double-dip recession; a Government who will not listen, or take responsibility for the mess they have created; and a Government who tell our businesses and everyone else to work harder. Yet it is they who should change course and work a lot harder to provide the policies and leadership this country deserves and needs.

4.37 pm

Mr John Redwood (Wokingham) (Con): I remind the House that I offer business advice to a global engineering business and a small investor management business.

We meet today with the winds of danger blowing once again from the euro area. We meet to discuss measures in the Queen’s Speech to make Britain more competitive, to equip Britain better, and to produce more jobs and deliver more goods and services around the world. No one in this House would disagree with the aim. All the main parties agree that we need more economic growth. I think they all agree it is easier to get a deficit down when we are creating more jobs, getting people who are out of work into those jobs, and generating more income and activity, than when we are not. There is no disagreement across the Floor of the House about the aim.

However, when debating how we are going to get that growth and give the best possible support to the companies and individuals who create the jobs and make things happen, we must also recognise that there is a very

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threatening and menacing problem on our doorsteps. As we meet here today, we know that the Greek political parties may not be able to form a Government at all, or they may not be able to form a Government that can put through the necessary measures to meet the requirements of the EU and IMF loans in Greece. They may decide on new elections in some weeks’ time, creating a dangerous hiatus; and those elections may produce a Government who fully reflect the view of the Greek people, as expressed in the last election to a considerable extent, that they do not wish to co-operate any longer with the lethal mixture of policies that the euroland senior politicians have put forward.

That matters to the United Kingdom, not only because some of our exports and services are sold within euroland, but because, as members of the European Union, we will participate in some of the meetings about what kind of growth strategy Europe as a whole can develop, and we will be a party to some of the decisions that will determine the future of the euro. If the Greek tragedy unfolds such that the Greek state cannot meet the requirements, the European Union has to decide either to give in yet again and come up with another compromise, or that there has to be an early exit of Greece from the euro. It would be better for the British economy and for the future of euroland if an early exit of Greece from the euro were organised quickly, and in confidence up to the point when the necessary announcements must be made. I would not expect the British Government to confirm that that is their aim, but I hope that Ministers are working closely together, representing the greatest financial centre in western Europe and perhaps the world, with that in mind. The sooner the Greek problem is solved, the sooner we can get on with sorting out some of the wider problems in the European economy.

If it is decided to cobble together another compromise, massive headwinds against growth and prosperity in our continent will continue to blow forcefully. Will an early Greek exit be easy to handle? No, of course not. Will it be pleasant? No, of course not. But the Greek people have got to the point where they cannot take any more years of austerity, and in some way or another Greece has to be made competitive. If is it is completely impossible, as it seems to be, in a democracy to slash wages by the amount the German side of the argument seems to say the Greeks should slash wages by, other means have to be used: having a devaluation and having a new currency.

The United Kingdom has one big advantage in the crisis: we have our own currency, it is freely floating,and we are much closer to having competitive prices than Greece, Italy or Spain can possibly be within the euro. Any measures that my right hon. Friends can take to improve our competitiveness in order to create more export jobs, the better. How right Ministers are to see that there has to be a huge reorientation of British exports towards the emerging markets—to the faster-growing territories of Asia, Latin America and parts of Africa—because Europe is making such a comprehensive mess of its economy and its prospects. It is destroying hope and jobs on such a massive scale that our only hope as a country is to support and orient our businesses to where the growth is and where the opportunities are to be found.

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That means taking urgent action to mend our banks and to establish more competitive banking, with more money to lend to our companies, because they are going to need working capital and investment capital. They are going to need to gear up for the 2.5 billion Indian and Chinese who want to come to the world party, many of whom, I am pleased to say, will come to the world party and will be the market that replaces the European market, which is failing so visibly.

We also need competitive energy. Surely the Secretary of State would agree, at least in private, that if we wish to lead an industrial revival in this country or anywhere else, we need cheap and competitive energy in plentiful supply. We should not be saying, “Let’s make everything in China, so it does not score against our carbon dioxide totals.” Let us make things here. If we have cheap energy, we will have more chance. Modern manufacturing creates lots of jobs in marketing, legal work and promotion. It does not create many jobs on the shop floor because it is automated, which requires access to lots of cheap energy. That is what I want this Queen’s Speech to address: cheap energy, less intensive regulations—

Mr Deputy Speaker (Mr Nigel Evans): Order. I remind hon. Members that there is a six-minute limit on speeches.

4.43 pm

Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab): I have a registered interest in higher education, Mr Deputy Speaker.

That was an interesting contribution from the right hon. Member for Wokingham (Mr Redwood). I did not agree with all of it, particularly about dictating to the Greeks what they might or might not eventually do on the euro. However, one thing is clear: we should wish the new President of France, as he will be from tomorrow, every success in trying to countervail the hegemony that the Germans are forcing on the eurozone. Fiscal austerity not merely as a mantra but built into future policies would be disastrous.

Let me make two or three key points. The many comments about rebalancing the economy are interesting. I remember the last major effort to rebalance the economy, which was made in the 1980s by Lady Thatcher. It virtually wiped out manufacturing industry in my city. The sad thing about the past two years is that the first rebalancing announcement made under the auspices of the present Secretary of State, who commands a great deal of respect in this House, including from me, pushed him into refusing Sheffield Forgemasters the advantageous loan it needed to expand dramatically on world markets. Some growth fund money has been offered, but we are not entirely clear how many jobs it will deliver and where.

The regional growth fund is a muddle. It lacks a clear direction about which sectors and which areas of our economy we should be putting most of our resources into, and about how credit easing might be focused meaningfully to ensure that people get the loans at a price that is affordable not just for very small businesses, but medium-sized enterprises such as Ideal Care Homes, a company in Yorkshire that has sought loans for a very good business creating jobs in the caring sector. Growth in such jobs is critical to those in our society who seek basic qualifications to work in an area of massive expansion as our population ages.

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In education, the contradictions abound. Why is the Secretary of State for Education downgrading design and technology and information and communications technology at precisely the moment we need to expand in education in those areas massively to equip our young people to take jobs in the knowledge economy? That brings me to higher education. The university of Sheffield, working with Boeing and others, has developed the advanced manufacturing research centre and advanced manufacturing park on the edge of Sheffield and Rotherham, making a positive contribution to real growth for real jobs in real areas. Its efforts to recruit people from across the world to come to the university, however, have been undermined by the actions of the Home Office. On the one hand, the Department for Education is undermining young people in preparing for their future, and on the other hand, the Home Office is undermining the ability of universities and higher education to deliver. Unfortunately, the Department for Business, Innovation and Skills has also failed to persuade the Government to give priority to the higher education Bill, which seems to have been kicked into the very long grass.

There is a total lack of focus on future skills. Now that the regional development agencies have gone, there is nobody—the local enterprise partnerships are not in a position to do this—to pull together all those who are committed to shaping a skills agenda for the future using light-touch planning for jobs that really exist, rather than pretending that simply expanding apprenticeships anywhere, at any price and in any sector, is the sole answer. I am totally committed to apprenticeships— my city was built on them—but large numbers of apprenticeships are being mopped up by the retail sector, taking Government resources to train people that that sector was already training, or had failed to train, using its own resources.

We need to prepare for the youth contract by using some of the money devoted to it to prepare young people who have been out of work for a long time to take the jobs that are on offer. Their soft skills and their social skills, as well as their ability to get up in the morning, turn up for work and be a regular, reliable employee, are undermined by the length of time they have spent unemployed. One in five young people under 25 is unemployed; that is a national scandal of the first order and that is what we should be addressing.

If we do not have room for such measures, I have a suggestion. Drop the ridiculous farce, the rotten piece of fish, that is the draft House of Lords Reform Bill and give us a chance to do something proper for the future of this country, on which all our children and grandchildren can rely.

4.50 pm

Nicholas Soames (Mid Sussex) (Con): I start by wholly agreeing with the right hon. Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) about House of Lords reform.

It is a great privilege to speak in this debate on the Queen’s Speech in the year of Her Majesty’s diamond jubilee, when all of us across this wonderful country will have an opportunity to celebrate the Queen’s exemplary attention to her duties over the past 60 years, when the Olympics will come to London, and when there will be vast opportunities for Britain to place itself at the centre of world interest.