Stella Creasy: I make no comment about the friendships the hon. Lady had, but does she agree that one worrying aspect of the debate on the payday loan industry—the evidence is clear—is that 80% of payday loans are for basics? They are for paying rent, and travel and food costs. People cut back as far as they can, so those costs

5 Sep 2013 : Column 529

are not equivalent to keeping up with the Joneses. It is important that we make that distinction—people are trying to cover unavoidable costs.

Tracey Crouch: I agree with the hon. Lady. To be perfectly honest, I was stupid. I learned a lesson. It took me seven years to pay back my debt. I learned that lesson thanks to the bank. I got to the stage of hiding from the bills and not going out. I was in a miserable place, and—the hon. Member for Islwyn will be pleased to hear this—Lloyds TSB took me aside and said, “Your credit rating is dreadful. You keep going over your overdraft limit. You will be in serious trouble if you don’t deal with this now.” The bank cut up my credit and store cards, which was incredibly upsetting, and put me on a repayment programme. The problem today is that banks do not necessarily provide the personal banking they did back in 1996-97 when I was getting myself into debt, and people are finding alternative ways in which to deal with their debt problems.

Mr Robin Walker: My hon. Friend is making an interesting speech. She mentioned being put on a repayment programme. Does she agree that one of the more pernicious things happening in the sector is that some high-cost lending companies are masquerading as a way out and as a repayment mechanism for debts? That needs to be carefully considered when it comes to regulation.

Tracey Crouch: I agree with my hon. Friend—I will talk about debt advice later in my speech.

We have heard a lot about charges for people who go into unauthorised bank overdrafts. I was recently charged for going into my authorised overdraft, which I found incredibly shocking. I did not know the bank could do that, but it did. The charge was the equivalent of taking out a £100 loan from Wonga for five days. I can see why people turn to payday lenders if they sometimes get charged by their bank for going into an authorised overdraft.

We need to be aware of people’s problems when it comes to debt. We should not judge people for getting into debt or for trying to get themselves out of it. We also need to be aware of the scale of the problem. I have two wards of deprivation in my constituency, and there is an increase in the number of people turning to payday lenders. The local citizens advice bureau tells me that the average debt in Medway is £43,000. It also tells me that people from more affluent areas are turning to payday lenders for the reasons the hon. Member for Walthamstow has outlined—they find it easier to meet their everyday needs by turning to those lenders.

When used correctly, those loans can be a help. When someone needs that short-term boost—when something is broken and they need to borrow £100—it is easier for them to go to a payday lender than it is to go to their bank. We need to be clear that such loans serve a purpose. However, problems arise when they are not used correctly. That is why we need to address problems such as rollovers, which the hon. Lady and the hon. Member for Sheffield Central have mentioned.

We need to be concerned about the proliferation of shops on our high streets. It is incredibly easy for the people to get the credit they need. Thank goodness payday lending companies were not around when I was

5 Sep 2013 : Column 530

in debt. Nothing would have stopped me going in to borrow £200 to get what I wanted. I have learned my lesson, but it took a long time to do so.

On the positive measures we could take, it is important that we consider sharing data. Real-time data are incredibly important. Currently, someone who has taken a Wonga loan in the morning can go to the Money Shop or Cash Converters or the next place on the high street in the afternoon and get money out. Nobody knows how much they are getting out on any given day. We also need to look at restricting access to online credit services overnight. Many years ago, I lay awake at night worrying about debt. When people come to see me, they tell me that they cannot sleep and are hiding from their bills. They know they can go online at 2 am, when they are not thinking straight, and access instant relief of their fears. We should look carefully at that.

We need to look at supporting our credit unions. I am a saver at both Medway credit union and Kent Savers credit union. Hon. Members should do all we can to try to help to promote them so that they are recognised in the high street. That is incredibly important. If that means using flexible business rates so that credit unions are encouraged to go into the bigger shops on the high street so they have that presence, we should do that.

Finally, debt advice is incredibly important. The Government are doing a great deal to promote free debt advice. I have worked to keep the Insolvency Service in Medway. It was under threat, but was saved thanks to the campaign. We need to recognise that there are experts who can help to inform people who are finding it very difficult to get out of the situation they have got themselves into.

We must not judge the entire payday lending industry by the bad mistakes we read about and hear about in debates such as this one. We need to recognise that it plays a role in our wider credit industry. As my hon. Friend the Member for Thurrock has said, we are at a crossroads. We need to ensure we go down the right route.

1.59 pm

Nick Smith (Blaenau Gwent) (Lab): I congratulate my neighbour, my hon. Friend the Member for Islwyn (Chris Evans), on showing leadership on this issue, and it is a pleasure to follow the hon. Member for Chatham and Aylesford (Tracey Crouch).

Each and every one of us has a responsibility to stop the emerging payday loan crisis. In my constituency of Blaenau Gwent, the number of payday loan applications shows no sign of slowing down. Data obtained from Wonga revealed that it gave out nearly 5,000 loans in 2012 to a population of 69,000. More than £1 million was predicted to have been borrowed. That is for one year, from one provider in one constituency. For a borough proud of its industrial heritage, proud of carving out its fortunes in the coal mines and steel, this is a desperate state of affairs. Blaenau Gwent can realise its potential in the years to come—it has done so time and time again. However, we cannot get back on our feet if we are hobbled by debt.

The High Cost Credit Bill goes a good way to stopping further damage to those trapped in a spiral of debt. We also have a duty to champion alternative providers such as credit unions, yet my constituency’s credit union has

5 Sep 2013 : Column 531

just 560 members, a number dwarfed by the thousands of payday loans. We must make a game-changing push to tell more people about these socially responsible services. We need credit unions that are fit for the 21st century. They need 24-hour access, whether through computer systems or smart phones; a walk-in, high street presence that is the equal of any bank; and a strong capital base supported by payroll saving from staff of local authorities and others. Only then can credit unions come close to offering a better deal for those most in need.

Another way forward could be for the Post Office, given its UK-wide presence and recent adoption of current accounts, to move into the market. It would be good to hear what the Minister thinks about that possibility. We also have a duty to support the next generation, with financial education in the classroom that will engage students with the real world and teach them about the consumer temptations that we have just heard so much about. How many of us here today understand our own mobile phone tariffs and payment systems? I do not see many Members nodding. For those already trapped by debt, we need to direct them towards the likes of Christians Against Poverty, services that can get people back on track rather than borrowing further.

It is easy to pass judgement on those who borrow beyond their means, but to do so ignores the fact that the demand for easy credit at a moment’s notice has never been greater. Our households are feeling the pinch, losing £1,500 a year in real terms. It is estimated that more than 1 million workers are living week to week on unpredictable zero-hours contracts. In short, this is a climate ripe for payday loan companies to step in and reap the benefits. A Bill and new regulators that do a much better job on high-cost credit arrangements and their providers would be a good step, but given all that has been said so far, we must do much more to address what is now becoming a massive problem.

2.3 pm

Sir Tony Baldry (Banbury) (Con): This has been a valuable debate, and I congratulate the hon. Member for Islwyn (Chris Evans) on securing it.

What has become clear during the debate is that there are two strands to this issue. First, there is the need for enhanced regulation, which my hon. Friend the Member for Thurrock (Jackie Doyle-Price) and others have talked about, and the Financial Conduct Authority and the Office of Fair Trading have a responsibility to step up to and deal with that. Secondly, each day Wonga makes 10,400 loans. When the Archbishop of Canterbury said that we had to compete Wonga out of business, a cheer went up. In the three years I have been fortunate to be the Second Church Estates Commissioner, I have not known an issue attract as much press interest—one morning I did about 20 radio interviews. All around the country, local radio and newspapers see this is as a serious issue. However, as my hon. Friend the Member for North Swindon (Justin Tomlinson) said, the fact is that each day there are large numbers of people who want to take out short-term loans that they hope to repay over a short period. Of course regulation has an important part to play, but we have to think about what we can do to enhance the competition.

5 Sep 2013 : Column 532

As many Members have said, this is a David and Goliath situation. The hon. Member for Blaenau Gwent (Nick Smith) said that we need credit unions to be fit for the 21st century. They need adequate IT platforms. After the Archbishop of Canterbury spoke, the Manchester credit union said that while having extra premises would be useful, credit unions needed an IT platform that is fit for the 21st century. We have to recognise that many credit unions are still at the starting gates.

My hon. Friend the Member for Worcester (Mr Walker) said that the credit union in his area collapsed altogether, and Worcestershire is a pretty prosperous county. Oxfordshire is an equally prosperous county, but it has pockets of high deprivation, such as Blackbird Leys in the constituency of the right hon. Member for Oxford East (Mr Smith), and at least three wards in my constituency are in the highest social indices for the south-east. We have a credit union that has only just over 1,000 members, which is less than 1% of the population of the city of Oxford. It has just £300,000 of members’ savings and £200,000 out on loan. The Oxford credit union is seeking to do all the right things: it has established a partnership with the south Oxfordshire housing association to help tenants; it rolled out prepaid debit cards to allow members to buy goods without using cash; and it worked with a fuel-buying organisation to allow new members to spread the cost of buying high-cost fuel. However, this House has to give much more thought to what we can do collectively to enhance the status of credit unions. Elsewhere in Europe, credit unions are a much greater feature. I was recently in Ireland for a family wedding and in practically every town I went to there was a prominent credit union building—they are part of the warp and weft of the social structure.

There is a disconnect here. Large numbers of savers in Oxfordshire complain that they get very little return from the banks for their savings. Are there not ways to encourage savers to invest in credit unions? The difficulty is that many people living in Oxfordshire would not think of joining or investing in a credit union. Are there ways in which one could give minimal tax incentives to people who invest in credit unions? If I let a room in my house, I can get up to £6,000 a year tax free. What if the interest on what is invested in a credit union, up to a certain amount, is tax free?

Finding an alternative financial mechanism to the banks and payday lenders will require an enormous amount of energy. The Archbishop of Canterbury says that he thinks it will take a decade to turn things around. It is welcome that the Government are investing £38 million in credit unions, but that is almost exactly the same amount that the main payday lenders spend on advertising in just one year. By and large, the £1 million that they make each week in profit is money that is leaving poorer areas of the country. It is not being spent in shops in areas such as Blackbird Leys.

When the Minister replies to this debate, she will obviously reply to the comments that hon. Members in all parts of the House have made about regulation, but we also have to focus on how collectively we compete Wonga out of business and how collectively we work out an alternative financial mechanism. That might also require banks changing their practices. As the House might know, the Church Commissioners are one of those competing for the new Williams and Glyn’s bank. If we win that competition, we hope to return to

5 Sep 2013 : Column 533

the sort of old-fashioned responsible banking that people remember from the 1960s. However, unless people feel able to access short-term loans for short-term needs, they will be pushed into the hands of the payday lenders or, even worse, the loan sharks. We therefore have a collective duty to try to work out how we get credit unions in this country funded and fit for the 21st century.

2.11 pm

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): This has been an interesting debate. I congratulate my hon. Friend the Member for Islwyn (Chris Evans) on calling it and all hon. Members who have spoken.

Owing to time constraints, I will not comment on most of those speeches, but I think we are all clear that there is a world of difference between those of us in this place, as well-off MPs, able to access interest-free credit cards or get loans at 5% or under these days, and many of our constituents, who have no savings and no credit record or a poor credit record, for whom the options are limited. It is important that there is a sector that can lend to people who have a crisis when the washing machine breaks down or, typically—I hear this a lot in my constituency—when they have to pay for a funeral, which is a huge expense, and have nowhere to go. We need to ensure that the system works.

I want to touch on some of the concerns, as I see them, and what needs to be done; to highlight some of the organisations in my constituency and how they work to achieve things; and also to pick up on the point that the hon. Member for North Swindon (Justin Tomlinson) made about the disgraceful withdrawal by the major financial institutions of products for poorer, riskier borrowers.

It is now harder even for people with good ratings to get products from the banks, as many of my local businesses will testify, while those who do not have a good credit record cannot get products from anywhere. We need to be careful, because the vilification of payday lenders means that there is a huge reputational risk for mainstream lenders entering the quick, short-term loan market. We have to think responsibly and in the round about how we act and how we ensure that there is something out there for those who will be a higher risk and will therefore face a higher cost. There is a place, as we have all agreed, for short-term lending of fixed sums at high rates.

We heard on the Public Accounts Committee about how Provident works. For many people, it is a psychological thing. A nice woman—they are nearly all women—comes to the person’s door and asks for the money. It might be £185 to borrow £100, but it never goes up: even if someone misses a payment, there is no penalty. Many of my constituents—they are often the same sort of people, and rely on meter keys—do not want the surprise or worry of a bill they are not expecting. I agree with the hon. Member for North Swindon that there is a worry about secondary selling, but that certainty and direct contact are important.

It is interesting that ABCUL—the Association of British Credit Unions Limited—has sent round a note about interest rate comparisons, which says:

“A £300 loan over 52 weeks from Provident Financial home-collected…at 272% APR costs £246 in interest while the same loan from a credit union at the maximum 26.8% APR costs £38 in interest.”

5 Sep 2013 : Column 534

However, it is not really right to make the comparison, because if the credit union went round to people’s doors in person, there would be an increase in the cost and the interest rate would be much higher than the 26.8% quoted. We need to be careful when comparing products to be aware that there are different products out there. I agree with all colleagues that the focus on APR and percentage rates is confusing for people. We need to change that—I will touch on my suggested changes at the end.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) mentioned BrightHouse, which has a really invidious system, providing high interest on credit via purchases and then tacking on insurance. Indeed, the insurance costs for one item of furniture or a television can be as much as the insurance for a whole household, yet it is sold in a shop-front environment in places such as Dalston Cross shopping centre. Worse still, BrightHouse is often recommended by social landlords. When someone moves in and says, “But I’ve got no furniture,” they are often told—by people who are not qualified to give financial advice—“Oh, why don’t you just go down to BrightHouse?” They think they are giving shopping advice—often, probably in good faith—but have no idea that they are indebting their tenants for a long time to come.

On the high street in Dalston, we have every type of high street lender that could be imagined, from the legitimate banks to the loan sharks, who do not exactly have shop frontages, and the swish, nice-looking frontages of the Money Shop, Oakam and so on. I want to touch on Oakam, which has an interesting business model that is different from many of the other high street lenders. It is based on an American model, which is fairly newly arrived in the UK, and works with people who are themselves fairly newly arrived in the UK who are trying to build a credit record or set up a business, but do not have access to credit from mainstream institutions. Typically, someone from Poland—we have a lot of Poles in Hackney—or people from parts of west Africa, having arrived in the UK, will spend six months building up their credit record at a higher interest rate than many others, but then move to the high street bank over the road to get a loan. Oakam provides a service that people need—it is at a higher interest rate, but people know what they are doing. Oakam says that a lot of its customers are clearly building their records.

Fair Finance is a social enterprise that gave evidence to the Public Accounts Committee. It has a base in Hackney and provides face-to-face loan advice, but has taken nearly nine years to reach break-even point. One of Fair Finance’s worries is that if interest rates were capped, it would have to provide loans to people at higher levels and further indebt them, so if someone came wanting to borrow £5,000, it might have to call it £10,000 to cover their costs, because it costs a lot. Fair Finance has a model that trains advisers to sit face-to-face with someone, talk them through all their financial issues and ensure they can manage the loan and the repayments. Fair Finance feels that talking face-to-face is one of the reasons why it gets the money back.

We have talked a lot about credit unions, too. As a Co-op MP, it saddens me that too often we see credit unions failing. Having to save before a loan is one issue. In Hackney, our credit union collapsed. We are now working with the Tower Hamlets credit union, which

5 Sep 2013 : Column 535

has taken over the space. One of the challenges was that a lot of people were basically using the credit union as a bank account for their benefits. They never really saved and were therefore never able to take out a loan, although they had no great interest in taking out a loan either. The service quality was poor, and too often the credit union was badly managed and there was a lack of advertising, as is the case for other credit unions. We need to work with the credit union sector to get it to step up to the mark. If credit unions are to compete with flash shops such as the Money Shop, which people can walk into and get good quality service—whatever the issues with the products—they need to remember that people will shop around.

I want to touch on what needs to be done and to refer colleagues to the Public Accounts Committee report, which the hon. Member for Thurrock (Jackie Doyle-Price) highlighted. I will not repeat them, but its recommendations clearly show that there is an issue with a lack of regulation from the regulator. The work of the regulator—we now have a new regulator, so there is some hope in this—needs to focus more on consumer protection, ensuring that those with a licence to lend have the right protections and checks in place, so they do not over-lend and over-extend people. There should be a limit on roll-overs. There is sometimes talk as though everyone is always rolling over all the time. There are legitimate payday lenders that limit roll-overs. We need to recognise that there is a range of providers.

There also need to be proper affordability checks. People should not be able to walk down the high street and get three payday loans on the same day. The whole point about the speed of many payday lenders is that they can make online checks quickly, so the system needs to be updated. It is interesting that one’s own credit record is sometimes not updated very quickly, so there is a basic IT issue. Continuous payment authority is an invidious system and needs to go. We also need a change from APR to clearer costs. These are all things that need to be done.

Let me end on a cautionary note by quoting Mark Hannam, the chair of Fair Finance:

“Those who campaign on this issue need to decide whether they want a well run, well regulated market with a few dominant providers (who are very profitable); or a highly diverse and less well regulated market, with lots of smaller providers who are under less pressure to treat their customers well. From the consumers’ point of view, the former seems a better outcome.”

When we look at regulation, we need to be careful that we do not throw the baby out with the bathwater.

2.19 pm

Guy Opperman (Hexham) (Con): The question that this debate is making patently clear is whether it is the responsibility of the state to look after those who cannot look after themselves. It has also been made patently clear in the brilliant opening speech of the hon. Member for Islwyn (Chris Evans) and in other contributions that there are many different practical and relatively immediate measures that could be introduced to address the problem of high-cost credit. They include restricting advertising budgets, implementing a greater degree of financial education, doing more work on shared data, addressing the question of interest rates and improving

5 Sep 2013 : Column 536

debt advice. I endorse the comments of the Public Accounts Committee and urge the Financial Conduct Authority to do more, as requested.

I believe that everyone agrees that the Archbishop of Canterbury was right when, in July, he championed the cause of credit unions and criticised the payday loan companies. He was right to say that we needed to “compete” the payday lenders out of the market. I welcome his comments, but I would argue that this debate has shown that although we all support credit unions, they are not necessarily the mechanism by which we will succeed in competing the payday lenders out of the market.

There is cross-party agreement on specific measures that can be taken to address the problem of high-cost credit, but I suggest that the mechanism by which people ought ultimately to borrow on a long-term basis is local community banks. They have all the flexibility, the clout and the borrowing power of a bank, as well as all the sympathetic community approach of a credit union, and the amalgamation of all those qualities will produce the best way forward.

Richard Graham: My hon. Friend will be aware of the resurrection of TSB as a brand in a market in which it previously had a good reputation for providing small loans and deposits to people in local communities. Does he see this as offering opportunities in that space?

Guy Opperman: Indeed I do.

I held a conference in Gateshead only a few months ago. It was attended by 170 delegates who were trying to set up local community organisations to address the lack of lending in their communities. They wanted to enable such lending by local, trusted providers, rather than by nameless, faceless, computer-led organisations based in London, Frankfurt or wherever. The smaller providers such as the TSB, the Hampshire bank and the Cambridge and Counties bank that are beginning to be set up are clearly the way forward.

No one should dispute that the expansion of credit unions is an extremely good thing. I welcome the changes in the way in which they are to be run; the Government should take credit for that. All Members of Parliament should become greatly involved in their credit union; I certainly support the Hexham credit union, which was set up with the help of the Churches in Northumberland. However, I question whether the credit unions alone will be able to address the problems of high-cost credit. In regard to interest rates, credit unions have clearly adopted a fantastically successful approach—their lending rates are so much better—but their deficiencies might mean that it is difficult for them to go forward. None the less, debates such as these on Wonga or on the private Member’s Bill introduced by the hon. Member for Sheffield Central (Paul Blomfield) have substantially raised public awareness of credit unions in the House and in our local communities.

I want briefly to talk about local community banks. For far too long, under successive Governments, we have been dominated by the big six or seven banks. I welcome the idea of a Church bank put forward by my hon. Friend the Member for Banbury (Sir Tony Baldry), but the kind of long-term community banking that he

5 Sep 2013 : Column 537

referred to has disappeared from our high streets and rural communities. That has had a detrimental effect on the ability to lend and to get credit.

The Government have rightly addressed that problem. It used to be incredibly difficult to set up a bank. It took in excess of £50 million and the process was highly regulated, even though the smaller banks in question were in no way comparable to a Barclays-style bank. The Financial Services Act 2012 changed the approach taken by the then Financial Services Authority and its successor organisations involved in regulation, and I strongly support those changes.

Reference has been made to the platforms required to set up a credit union or a community bank. Those requirements are now changing dramatically, to enable much greater interchangeability between pre-existing accounts held with the big seven banks and those held with credit unions or community banks. The mechanisms by which we can set up those organisations are improving, and many groups now wish to get involved. They include not only local communities but local authorities and individual businessmen with a philanthropic approach to their local community. Some universities, and even the Army, are considering getting involved. There are tremendous opportunities in our local areas to set up and expand these organisations.

Over the coming winter, we will all be faced with the issue of the energy costs that our constituents will face. In my community in the north-east, we have 24% fuel poverty, and a large swathe of the community is totally reliant on either oil or liquefied petroleum gas. That is an unregulated market, with all the problems that that entails. We have now formed more than 14 separate oil-buying clubs to try to address the cost of the oil. However, the requirement to buy 500 litres involves a very large financial outlay, often when oil is at its most expensive, and we are looking at ways to address that. The credit unions are certainly being encouraged to be the providers in those circumstances.

I hope that we will all try to expand our credit unions, using the plethora of good advice on regulatory changes, and to support our constituents who need assistance on this issue.

2.27 pm

Mr William Bain (Glasgow North East) (Lab): It is a pleasure to be called to speak in the debate. I congratulate my hon. Friend the Member for Islwyn (Chris Evans) on securing it, and the Backbench Business Committee on scheduling it to take place in the Chamber today.

I was particularly struck by the honest and frank contribution from the hon. Member for Chatham and Aylesford (Tracey Crouch). I was also pleased to be reminded by my hon. Friends the Members for Blaenau Gwent (Nick Smith) and for Hackney South and Shoreditch (Meg Hillier) of the context in which our constituents face difficulties with high-cost credit. There was a danger that we might forget that these problems do not occur in a vacuum. The reasons for people being forced into using high-cost credit include the decline in wages, which has accelerated over the past three years. We have seen a £1,500 real-terms reduction in the mean level of wages over that period and, as we discovered yesterday, the median wage in Britain is now £3,300 less than it was in 2006-07.

5 Sep 2013 : Column 538

The presence of the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson) on the Treasury Bench prompts me to talk about the context in which the debate is taking place. She and I are parliamentary neighbours, and there is a road—Colston road—that divides her constituency from mine. On one side of that road, in my constituency, is the ward with the highest level of child poverty in Scotland, at 51%. On the other side of the road, in the hon. Lady’s constituency, the level of child poverty is only 9%. That is a yawning gap. I have constituents visiting my office who are in dire need of food because they do not have enough money to get through the day. That explains the surge in the use of high-cost payday lenders in my constituency and those of many other hon. Members across the country.

We have heard that the average APR for payday lender loans is about 1,737%, but some of our constituents are facing an APR of nearly 5,000% on even relatively small loans. In many parts of Glasgow, this demand for high-cost credit is, in my experience, clearly linked to financial hardship and the lack of available alternatives for finance. We saw previously that crisis loans proved to be a stop-gap, but even in the run-up to the period during which the arrangements were devolved by the DWP to local councils—and, in Scotland, to the Scottish Parliament—we saw the significant pressures caused by cuts in crisis-loan funding. Between 2011 and 2012, crisis-loan funding fell by almost £90 million, which led to an explosion in demand for payday lending, particularly in Scotland.

In recent months, the Resolution Foundation has evidenced a number of key facts that show the extent of financial exclusion across our country. About 4% of UK households have no bank account at all; one in 10 does not have a current account; and it has been estimated that people on very low incomes pay a poverty premium of around £1,000 a year just to access basic financial services. Some 7.8 million in our country are unable to access mainstream credit, while 60% of adults among the poorest fifth of the population would like to save just £10 a month, but are unable to do so. Growing numbers of people are only a broken washing machine or a broken fridge away from stepping over a very steep financial cliff indeed, while 3 million households in social housing do not have any contents insurance despite the fact that they are twice as likely to be burgled as people who live in privately owned properties.

We have heard about the scale of the payday loans market over the last couple of years, and the average loan is between £265 and £270 and borrowed over 30 days, but we have also seen an explosion in the market in recent years, with between 7.4 million and 8.2 million new loans in 2011-12, up from an estimated £900 million-worth of new loans in 2008-09.

The debate has been useful in focusing the eyes of the Government—and, I hope, those of the Competition Commission, too, in its inquiry—on the need to take concrete action on misleading advertising, the irresponsible roll-over of loans, about which my hon. Friend the Member for Walthamstow (Stella Creasy) spoke so lucidly, the targeting of vulnerable customers and the unfair treatment of customers who are in arrears and default. It is the charges for these defaults on which I believe urgent action is particularly needed by the Competition Commission and, perhaps, by the Financial

5 Sep 2013 : Column 539

Conduct Authority next April when it takes over regulation of this sector. The Bristol study, which reported to the Minister’s Department, said that having tighter lending practices and a restriction on default charges could result in short-term lenders exercising less forbearance than they currently do on lenders who are very much in need.

I am pleased that we have heard such a focus on credit unions in this debate. I recently held a summit of small credit unions in my constituency, and they came up with practical suggestions about how the Government could help. They told me that, in their view, the Government’s fund through the DWP does not do enough to support small, community-based credit unions. They consider that the lion’s share of the funding had gone to the larger credit unions and said that the smaller credit unions were often run exclusively by volunteers, and they lack IT expertise and permanent staff. Credit unions from Haghill, Ruchill, and Greater Milton and Possilpark in my constituency have told me about the huge impact they could have and the huge extension in services they would be able to provide to constituents if only they had the possibility of having a staff member on board.

Meg Hillier: Does my hon. Friend not think that that is one of the problems and it is why people go to those other companies? With credit unions, on a customer service level, they often get what seems to be a second-rate service.

Mr Bain: My hon. Friend is absolutely right in the sense that community-based credit unions often have much more personal knowledge of the people who use them and who save in them, and it can often lead to much more responsible lending practices, borrowing and issuing of loans.

My local credit unions also said that it was very important that the savings-loans link was maintained because it encouraged a sustainable business model and lending. They welcomed the fact that finance for a financial education worker was available, which they said had been pulled in the past sometimes after just six months, and argued that the Government needed to be much more consistent in their support. They raised an important final point—that credit unions are often seen as low priority in comparison with banks when customers become bankrupt. They asked the Government to think about reviewing the law in this area to bring them equality of treatment, which would very much help the credit unions’ provision of services.

The hon. Member for Banbury (Sir Tony Baldry) mentioned the influence of the credit unions in Ireland, which is also true of Australia, Canada and the northern states of the US. We need to expand the services available and end the stigma that has led credit unions to be seen as of second order, which they are certainly not.

2.36 pm

Neil Parish (Tiverton and Honiton) (Con): It is a pleasure to follow the hon. Member for Glasgow North East (Mr Bain). He made an interesting point, especially when he talked about some payday loan companies charging up to 5,000% interest, for which there is simply

5 Sep 2013 : Column 540

no justification. However leafy our constituencies might be—mine is quite a leafy one—there are pockets of deprivation in them and people who really need credit, but they need it at a competitive rate.

I would like to go back to the basics. For three or four years, we have had a 0.5% base rate, and the Governor of the Bank of England is hopeful that that may well stay at that level for another three years. How can anybody, legally or illegally, offer loans at 5,000% or 6,000% interest? That has got to be wrong. The old adage that we can have an umbrella if the sun is shining but that it will be taken away from us if it starts to rain is, as far as finance is concerned, correct.

I feel hugely passionate about this issue. I welcome the comments of the Second Church Estates Commissioner, my hon. Friend the Member for Banbury (Sir Tony Baldry) about the involvement of the Church of England and the Archbishop of Canterbury. One thing that the Church of England certainly has got is a great deal of assets. If people have assets, they can borrow money at a very competitive rate. I would say in all honesty to the Church of England that there is a real role for it in credit unions and community banks because they can borrow money at an effective rate, and if they lend it out at a much more competitive rate, that will help people in need.

Many Members, certainly including my hon. Friend the Member for North Swindon (Justin Tomlinson), have spoken about the need for a levy on the industry, and I agree that we need such a levy so that people can have proper financial advice, as they often go from company to company and shop to shop, being charged enormous amounts as they do.

Mr Robin Walker: I entirely agree with my hon. Friend. Does he agree that it is extraordinary, indeed outrageous, that there has to date been a levy on banks and a levy on credit unions, but not a levy on payday lenders? Does he not find that situation impossible to explain?

Neil Parish: I could not agree more with my hon. Friend. I would have thought that this wonderful Government of ours must be looking at such a levy—and if they are not, I am sure that they will do so immediately. We have got to do something about this problem. Yes, some might argue that we are saving people from themselves, but in this case, we have to do that. If people are in dire need of a loan to see them through to the end of the week or month, they should not be charged two or three times the value of that loan.

Of course, it is not just a question of whether the loan is repaid. People may reach a stage at which they are unable to repay it, and charges will then be levied for non-payment. The loan will be rearranged, another fee will be added, and they will end up paying five or six times the amount that they originally borrowed, or perhaps even more. That cannot be right. In any sort of capitalist system—or whatever system we have—there is a need for profit, but there is no need to extract money in a way that almost constitutes extortion. Someone who arrived in this world for the first time and observed that it was possible to charge such amounts of interest, or indeed—let me be blunt—to steal such amounts of money from people, would say that those who did that should be locked up. We must do something about it.

5 Sep 2013 : Column 541

As well as the people who cannot repay their loans, there are people—although not so many—who are addicted to borrowing money, not just from payday loan companies but from, for instance, store cards that they can use in shops. They must be given more access to advice, and restrictions must be placed on the amount that they can borrow. If people are such a credit risk that they must be charged enormous amounts of interest because companies believe that that is the only way in which they can get their money back, we should ask whether we are helping those people by giving them the money.

A number of Members have rightly pointed out that, in this day and age, people need to be able to gain access to money online and from their mobile phones. Members may tell me that I am a little bit old-fashioned, but I am not certain that the ease with which credit can be obtained at any time of day or night, and regardless of people’s state of mind, is helpful. I think that it merely drives people deeper and deeper into debt.

I respect where the Government are coming from. When I last spoke about this issue, I went for the payday companies big time, and I still have them in my sights because I believe that they are making enormous profits at the expense of the very poorest members of society, but I also understand that there is a role for them. Nevertheless, they must be controlled. Their wings must be clipped.

Ian Lavery (Wansbeck) (Lab): Does the hon. Gentleman agree that there should be a cooling-off period? The problem seems to be that many people who are desperate for finance can get hold of £500 on the internet before they have even put down their laptops and arrived at the hole in the wall. If there were a cooling-off period of, say—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. Interventions must be short. As the hon. Gentleman knows, the debate on the north-east will follow this one, and his intervention has eaten into the time for it by giving the hon. Member for Tiverton and Honiton (Neil Parish) an extra minute.

Neil Parish: The hon. Member for Wansbeck (Ian Lavery) has raised a good point. There are laws requiring a cooling-off period when, for instance, people buy shares in holiday accommodation, but that does not apply to loans of this kind.

There is a great deal that we can do. We must help people to obtain credit, but we must also help them to obtain advice. I agreed with much of what was said by my hon. Friend the Member for Hexham (Guy Opperman), but I agreed particularly with what he said about community banks. We will not be able to cure everything by means of credit unions, however good they are and however important the part that they play may be. I agree wholeheartedly with the Archbishop of Canterbury on one point: we need to be able to compete the payday loan companies out of business.

We have had an extremely good debate, which has not been vastly political. I do not think that any Government has come out of this smelling of roses. We must do something about the problem, and we must do it on a cross-party basis, because at the end of the day, we want to help our constituents. We want to help them to get to the end of the week, or the end of the month,

5 Sep 2013 : Column 542

but we do not want to land them in greater debt and greater problems than they had before taking out their loans.

I am certain that Ministers are listening to what is being said, and I look forward to the summing up of the debate. It has been made clear this afternoon that we are hugely concerned about the interest rates and other penalties that are being levied by payday loan companies, and we look forward to hearing what the Government are going to do about it.

2.45 pm

Ian Murray (Edinburgh South) (Lab): I congratulate my hon. Friend the Member for Islwyn (Chris Evans) on securing this debate about an increasingly problematic issue. He said that he had raised it in his maiden speech back in 2010, and I am sure that since then he has contended as strongly as many other Members that the problem has become worse rather than better.

Many Members on both sides of the House have campaigned tirelessly on behalf of their constituents who have suffered at the hands of legal loan sharks. My hon. Friends the Members for Makerfield (Yvonne Fovargue), for Blaenau Gwent (Nick Smith), for Hackney South and Shoreditch (Meg Hillier) and for Glasgow North East (Mr Bain) all deserve special mention, as does the dogged determination of my hon. Friend the Member for Walthamstow (Stella Creasy), who has just returned to the Chamber, and who has kept this issue high on the political agenda.

I commend my hon. Friend the Member for Sheffield Central (Paul Blomfield) for his private Member’s Bill, and for his superb contribution to today’s debate. The Bill attempts to provide a regulatory framework for high-cost payday lenders, and I shall say more about it later. I agree with the hon. Member for Chatham and Aylesford (Tracey Crouch) that the Government should adopt some of its provisions.

This has been a fantastic debate. There is clearly a consensus, not only in the House but among key organisations representing consumers and the debt support industry, that action is needed, and needed now. The hon. Member for Worcester (Mr Walker) was right to point out that there was cross-party support for such action. The issue has also been prominent in another Parliament, the Scottish Parliament, where Kezia Dugdale MSP has run the very successful Debtbusters campaign in an attempt to pressurise the Scottish Government to use their powers to assist. Unsurprisingly, they have so far refused to do so.

The pace at which the high-cost credit industry has grown is extraordinary. That is no doubt largely due to the cost-of-living crisis—my hon. Friend the Member for Glasgow North East referred to the desperation that drives people to food banks, and my hon. Friend the Member for Blaenau Gwent mentioned the problems of insecure employment in his constituency—but it must also be attributable to the attraction of the industry to countries with weak regulatory environments. Indeed, some commentators have described the regulatory environment in the United Kingdom as a “payday loans haven”. My hon. Friend the Member for Makerfield drew attention to the failure of the voluntary code in the sector.

5 Sep 2013 : Column 543

It is a struggling economy, with ever-rising prices and stagnating wages, that is driving people towards high-credit borrowing just to meet the demands of everyday costs. Last year, Which? found that 60% of people who were using the high-credit market were doing so for everyday purposes. That shows how acute the cost-of-living crisis has become. There is a market for access to such short-term credit, as we have heard in the debate, whether that be for a broken washing machine or for the commuter whose car breaks down. Those problems cause unexpected shocks to families’ budgets and they can be helped by the short-term credit market, but as my hon. Friend the Member for Walthamstow said, many companies make most of their money through a small percentage of people who are forced to become repeat customers. It is becoming clearer that vulnerable people are being targeted and exploited by this industry; they find themselves drawn into a spiral of debt and are using such lending for everyday purposes. Many Members have told of their constituents’ experiences in that regard.

The harsh reality of the pressures of rising living costs is highlighted by the rising number of people using the StepChange Debt Charity. It has reported that more than 30,000 people contacted it in the first six months of 2013, which is the same number as for the whole of 2012.

While the high-cost credit crisis has deepened, month by month this Government have failed to take any meaningful action, and it is clear that consumers need protection now. The Minister with responsibility for the industry has played her part in that failure, despite the cross-party consensus which has been mentioned. Her payday loans “summit” in July, which she called the industry to attend, was slammed as a sham by many and what it actually achieved is unclear.

I ask the Minister to answer the following questions when she responds to the debate. Did she lambast industry executives for their continued flouting of their own good practice customer charter, as Citizens Advice has shown? Did she challenge industry executives, whose advertising spend rose by 26% in this year alone? Did she even ask them about capping the total cost of credit? If the industry is doing all the positive things it tells us it is doing, why will it not give the Government and the FCA its lending data so that we can determine whether or not we can trust what it says? We urgently need to put in place sensible and measured policies which will protect people. If we do not do that, ever more people will be affected.

Let me talk about some of the issues raised by Members today and by my hon. Friend the Member for Sheffield Central in his private Member’s Bill. First and foremost, we must have a cap on the total cost of credit, including charges and defaults. In her wonderful speech, my hon. Friend the Member for Walthamstow highlighted how that could be done. Last year, we proposed an amendment to the Financial Services Bill to give the new FCA the clear powers to do that, and it is a shame that the Government rejected it—only for the Lords, including the Archbishop of Canterbury and other Cross Benchers, to persuade them that it was the right thing to do.

5 Sep 2013 : Column 544

Although the Government are reluctant to over-regulate in the credit marketplace, they must lay down to the regulator some clear foundations about what they are looking to do. First, there must be a crackdown on irresponsible lending, for which an affordability framework needs to be put in place. The FCA also needs to introduce measures to stop small debts becoming large debts. That should include addressing roll-overs and a limit on default charges. They should also consider a cooling-off period, as my hon. Friend the Member for Wansbeck said. The FCA needs to collect some transactional information, too, so that we can be clear about how the market is operating. The Government and the FCA should introduce a live database as well, so that payday lenders can do proper credit and affordability checks in order to protect borrowers. That is the only way we can overcome the hurdle of the industry being accused of not doing proper affordability checks. There should be strong warnings on all advertising so that customers are aware of the risks and costs. My hon. Friend the Member for Makerfield said that her children had been told to boo when the adverts appear on the television; perhaps we should add those boos to the adverts themselves.

Borrowers experiencing difficulty should be automatically signposted to a free debt advice service. The continuous payment authorities should be reviewed, too. The Minister must tell the FCA to look at that, in particular with regard to the high-cost credit industry.

This has been a wonderful debate, but I am sorry we have not had time to explore some of the issues in greater detail. The Minister has said:

“Payday lenders are on notice—if they don’t take action to fix their problems they will face further complaints and further sanctions.”

Can she honestly say to the House today that she is doing everything in her power to make sure that the market is regulated properly? I would challenge her on that, because I do not think that she is doing that. The House has spoken clearly—not just in this debate, but in many debates on high-cost credit over the past 18 months to two years—and it is time the Government acted.

2.53 pm

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson): We have had an excellent and constructive debate, and I thank the hon. Member for Islwyn (Chris Evans) for introducing it and the Backbench Business Committee for allocating time. I appreciated his welcome for the action the Government have already taken, such as on the research into advertising and the FCA strategy that we are due to see soon with the publication of its rulebook. I understand and appreciate his concern about the speed of change, and the frustration he feels. His party colleague the hon. Member for Edinburgh South (Ian Murray) said the pace of growth of the payday lending industry has been extraordinary. The Government and regulators have, of course, been working to keep up, and I think we have seen in recent months that that has been happening.

Various alternatives have been mentioned. One of them was the possibility of introducing low-limit credit cards, and I have explored that with the UK Cards Association and others in the industry, as I think it could be one of the alternatives that might work. Of

5 Sep 2013 : Column 545

course, it would not work for everybody; as we have heard, some people who take out payday loans are keen to make sure that they get something quickly and with that level of convenience. Indeed, some may not pass the credit scoring that would be required for some of those credit cards. That underlines the importance of the affordability assessments, because people are currently passing the checks by payday lenders and perhaps some of them should not be.

My hon. Friend the Member for Thurrock (Jackie Doyle-Price) talked about the PAC report and the importance of this House sending a clear signal to the FCA that it expects it to use its powers to intervene where there is poor practice, and I absolutely agree with her. We do expect that, and I have made that abundantly clear to the FCA. Today’s debate has also been very helpful in making it clear exactly how strongly the House feels about this issue. I am sure that the FCA will be following this debate, but just in case it is not, I will happily write to it to draw it to its attention. Indeed, next week I will be meeting Martin Wheatley to have further discussions on this issue.

My hon. Friend mentioned that she was disappointed that the Office of Fair Trading had failed to use its powers to revoke licences. That was true at the point at which the PAC took evidence from the OFT, but she will be pleased to know that since that report was published it has revoked three licences—so those powers are being used.

I commend the hon. Member for Walthamstow (Stella Creasy) for all her campaigning on this issue; we had a positive meeting to discuss it earlier this week. Obviously, the profitability of payday lenders has been high up in the news this week, and we agree on the level of profits being derived from default fees, roll-overs and so on. That is why it is so important that the Competition Commission is investigating this market. It has already begun its investigation, issued its issues statement and invited comments from interested parties by later this month.

We discussed in detail the other day the points that the hon. Lady made about total cost capping. I appreciate that we perhaps have a difference of opinion on where exactly the evidence points, the possible negative impacts of fees being charged elsewhere—a displacement effect—and whether or not there would be less sympathy for lenders than difficulty. That said, it is vital that the FCA has that power and has the evidence. Her point about ensuring that the FCA can get off to a flying start when it takes on the responsibility in April 2014 is important. I have been keen to ensure that it is able to do that, and it has said it is prioritising the issue.

On the hon. Lady’s point about data sharing in the industry, I encourage lenders to liaise and share their data with the FCA in advance of its taking over that responsibility. The OFT has a data-sharing agreement with the FCA, so data that it has can be shared, with all the appropriate confidentiality protections in place, as one would expect. It would be helpful if the industry would share further data with the FCA, and when we had the summit the industry indicated its willingness to be as helpful as possible. I hope that it will be able to take that up.

Stella Creasy rose—

5 Sep 2013 : Column 546

Jo Swinson: I appreciate that the hon. Lady wishes to intervene, but as time is so short and as I wish to respond to other Members’ contributions, I will not give way. I hope she will forgive me.

My hon. Friend the Member for Worcester (Mr Walker) talked about the importance of ring-fenced bank accounts, where payments for rent and bills can be set to one side. The Government are working with consumer groups and banking organisations to see whether more of those types of accounts can be provided, because they can be an important budgeting tool.

The hon. Member for Makerfield (Yvonne Fovargue) has campaigned for her constituents on high-cost credit issues for a long time. She rightly highlighted concerns about CPAs and the way in which banks have treated them, because where individual customers decide to cancel a CPA, that should be honoured. She will be pleased that the FCA took up that issue seriously once it came into being earlier this year. It now has agreement with the high-street banks that they will ensure that when a customer asks for a recurring payment to end, that will be sufficient to cancel the arrangement. Furthermore, if any payment subsequently goes through by mistake, the customer will be refunded immediately. That will not solve all the problems on CPAs but it is a good start, in terms not only of dealing with the problem, but by showing the FCA’s recognition of it and its willingness to act.

My hon. Friend the Member for North Swindon (Justin Tomlinson) has a strong record on campaigning on financial education, and he highlighted the issue of convenience and the importance of price information. He also rightly highlighted real-time credit checking as a key area. I found interesting his idea of a levy on the industry to enforce that kind of credit checking. The industry is examining whether it can do that itself and I hope it will do so, but it is important that the Government keep all ideas such as his in mind, in order to be able to do that in future.

The hon. Member for Sheffield Central (Paul Blomfield) had his private Member’s Bill and we had a good debate on this subject in July. Today, he asked about the date for the consultation and I can confirm that we still expect that to be in September. I cannot give him an exact date, but he does not have long to wait. We look forward to the FCA’s report.

My hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) made a frank and moving speech about some of her own experiences and highlighted the human side of the argument—hiding from bills and lying awake at night worrying about debts. It is important that we bear that in mind when we discuss these issues.

Let me pick up on the points made by the hon. Member for Blaenau Gwent (Nick Smith) about whether post offices could play a role in supporting credit unions. There is scope for further work there.

The hon. Member for Banbury (Sir Tony Baldry) wanted to chime with the Archbishop of Canterbury’s call to compete Wonga out of business. The fact that the hon. Member for Islwyn summed up the relationship between credit unions and the payday lending industry as like that of David and Goliath was particularly appropriate given the Church’s intervention. I was pleased to meet the Archbishop of Canterbury on this issue along with my right hon. Friend the Secretary of State.

5 Sep 2013 : Column 547

It will not be a short-term solution, which is why regulation is also important, but it is part of the long-term answer.

The hon. Member for Hackney South and Shoreditch (Meg Hillier) made considered remarks about the importance of there being different products in the market and the certainty that home lending, for example, can provide to some customers. She was also right to highlight some of the problems with some of the hire purchase agreements through companies such as BrightHouse. Although they might not technically be high-cost credit because the APR is not sufficiently high, the length of the loan means that customers can end up getting a raw deal.

Issues of financial education were highlighted by my hon. Friend the Member for Hexham (Guy Opperman). My parliamentary neighbour, the hon. Member for Glasgow North East (Mr Bain), talked about the Colston road divide and the important issues facing small credit unions. My hon. Friend the Member for Tiverton and Honiton (Neil Parish) highlighted the issues of the spiral of debt.

We have had a positive debate. I share the concerns that have been raised and Government and regulators are acting. The OFT has taken action and 19 of the 50 top lenders have left the market. Three further licences have been revoked. The FCA will have strong new powers from April, the Competition Commission is investigating and the House is right to keep up the pressure. I commend those hon. Members who have taken time this afternoon to put forward concerns on behalf of their constituents.

3.2 pm

Chris Evans: I will not keep the House for long, as I hear a number of north-east accents around me from Members who are waiting for the next debate to start.

I congratulate everybody who took part in today’s debate. It is a case of the House at its best. It has been an informed debate, as Backbench Business Committee debates always are, and I echo many of the comments made by both the Opposition and Government Front Benchers. We want to see a sector that delivers for the consumers who need that. We are seeing consensus among everybody in this House that we need not just regulation but better regulation. We have a real opportunity through the FCA and I hope that we do not blow it.

We have seen a manifesto for action today that everybody in the House can support. I thank the Committee again for allowing us the time for the debate, I thank everybody who has taken part and I am heartened by what I have heard from those on the Front Benches. I look forward to further action in the future.

Question put and agreed to.

Resolved,

That this House has considered high-cost credit.

5 Sep 2013 : Column 548

North-East Independent Economic Review

3.3 pm

Mr Nicholas Brown (Newcastle upon Tyne East) (Lab): I beg to move,

That this House has considered the North East Independent Economic Review report.

It is not often we get a chance to discuss English regional affairs, so I am grateful to have the opportunity to do so today and to focus on the north-east economic review, an independent review of the economy in the North Eastern local enterprise partnership area.

The debate is important for two reasons. First, it is about the most important single issue facing the north-east of England. The region, including Teesside, has the highest rate of unemployment of any part of the United Kingdom at more than 10%. That equates to more than 83,000 people, of whom 24,415 are young people. Long-term unemployment has increased by 8.6%, or more than 2,300, in the past year. In my constituency, approximately 3,000 people are looking for work, nearly a third of whom are aged between 18 and 24. Those people want to work, but the jobs are simply not available.

The debate is also important for every English region that has a local enterprise partnership. Although the report that we are considering is not the only one of its kind—I think that Manchester has produced something similar—it is clearly relevant to other UK regions that face similar problems.

There is no sustained political disagreement about the problems facing the north-east of England, which is why I am pleased that our debate has been supported by my hon. Friend the Member for Bishop Auckland (Helen Goodman), the hon. Member for Hexham (Guy Opperman) and the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith). When I was Minister for the North East under the previous Government, I found that it was possible to get a broad consensus among all those who had the region’s best interests at heart.

The report identifies the key problems that the region faces, but it is weaker on what to do about them. The issue at the heart of all this is what we should be doing to bring down high rates of unemployment and to ensure that the citizens we represent have a chance of a job, a decent wage and a secure future in the north-east of England—including in Teesside, for the avoidance of doubt.

While the report focuses largely on structures, I would have preferred it to focus on outcomes. It could have offered practical ways forward, but it focuses on process and reorganising functions. I think that a better approach was the one adopted by the previous Labour Government, with the regional Minister, local authorities working with that Minister through the Association of North East Councils, and essential economic development input coming from One North East, the independent, business-led development agency. Given the need to reduce public expenditure, it would have been better to refocus the development agency on its core business, rather than abolishing it.

There needs to be single-minded focus on broadening and deepening the region’s private sector employment base. Promising individual projects were in the pipeline

5 Sep 2013 : Column 549

when I was regional Minister—I believe that they are still in place—so they should be assessed and pushed forward with a sense of urgency. There should be political leadership from an individual Minister appointed to focus on this issue. The crucial point is that such a Minister will have access to the great Departments of State and can act as an advocate for incoming private sector investment. Other parts of the United Kingdom with similar problems have their own economic development bodies, local political decision-making bodies and ministerial champions at Cabinet level. That is true for Scotland, Wales and Northern Ireland, and the north-east, including Teesside, needs a ministerial champion of its own.

In my time as regional Minister, I was able to intervene effectively at the heart of government. I was able to intervene on the region’s side in crucial debates about Nissan, its battery manufacturing facility and the new electric car assembly line to sit alongside that. I worked behind the scenes—we were not allowed to say anything in public—in the campaign to find a future for what was then the Corus steelworks at Redcar. I worked closely with the North East of England Process Industry Cluster, and secured central Government support for public transport initiatives on Teesside and for the Newcastle metro. I also championed the north bank of the Tyne’s industrial strategy, as well as a partnership between the regional development agency, Newcastle city council and North Tyneside council that brought new industrial jobs to the Tyne. A substantial amount of work was undertaken with small and medium-sized employers and an effective Business Link organisation, which I am sorry to see go.

The principal recommendations of the LEP report involve creating a leadership board that is made up of the leaders of the seven local authorities and that will lead on the three functions of transport, economic development and skills training. I understand that the Government support those recommendations because they are similar to their existing policy, but I note that our ministerial presence has been upgraded so, if I have got that wrong, I am sure that the Minister for Universities and Science will tell us when he says a few words.

The recommendations in the report involve organisational change, with no very clear-sighted view of where there would be an improved outcome following the change. They also strike me as being labour intensive. Each local authority leader, perfectly properly from their point of view, will want their own advisers in each of the three policy areas. Tellingly, the report talks of “capacity building” and “joint teams of officers”, with senior leads

“from each Government Department and Agency”.

Mr Kevan Jones (North Durham) (Lab): Does my right hon. Friend agree that the one thing missing from the report is the fact that many local authorities, including my own in Durham, have had to take £209 million out of their budget during this period? The capacity for officers to take up these tasks will be very difficult.

Mr Brown: It would certainly be impossible for local authorities to do what the report suggests. My hon. Friend’s point is correct. If extra resources were to be supplied to enable them to do so, frankly it would not be the first priority for expenditure in local authorities, all of which are very hard-pressed at the moment even

5 Sep 2013 : Column 550

without taking on extra functions without the resources to carry them out. Let us remember that the recommendations, which effectively are for extra civil service support, be it central or local government—as I read the report, it is both—come just after the Government have closed the Government office for the region.

Of course there is a case for the seven local government leaders to meet. In effect, this replicates, but for a smaller area, the arrangement that pertained under the last Labour Government through the Association of North East Councils. Local authority leaders already take a close interest in economic development questions in their council areas, and they work with others when there is a common interest. But is not the lead on economic development supposed to lie with the LEP, not the local authority leaders alone? The local authority leaders are already all represented on the board of the LEP. What is the relationship between the two supposed to be?

A better approach to the Tyne and Wear passenger transport authority would be to amend the existing arrangements rather than create a whole new authority. The existing authority has the advantage of involving councillors who are not the leaders of their authority and can give the time to specialise in transport matters. Nexus and the integrated transport authority are already working hard to push ahead with many of the recommendations in the report, including smart ticketing and a consultation on a quality contracts scheme.

Similarly, I do not understand, and the report does not explain, what the specific input of the local authority leaders into skills training is expected to bring. The justification in the report is that the local government leaders know their own areas the best and therefore are best placed to identify skills needs and shortages. I am not sure that this is true. In any event, local authority leaders have a great deal to do already, and to demand that they specialise in skills and training issues as well as economic development and transport policy seems to me unreasonable.

A combined authority does not give the region any more access to Government, and it is Government who have the power and hold the purse-strings, and that is more so now than under the previous Government. We have had the LEP up and running now and that has not enhanced the region’s direct access to Government, where the big decisions are made. The LEP has had the lead on the enterprise zone policy for almost two years now. I am not an advocate of the policy, as I made clear at the time, but if it can be made to work, I want it to be made to work. But there is not much evidence of it working so far.

Andrew Griffiths (Burton) (Con): The right hon. Gentleman talks about there not being much evidence of the policy working, but we should celebrate good news. Will he join me in congratulating Nissan on the great news today of the £250 million investment in its new car line, and the 1,000 jobs that go along with that? Let us celebrate good news for the north-east.

Mr Brown: I am happy to join the hon. Gentleman in that. Nissan is one of the great hopes for the region. It has the potential single-handedly to make a substantial impact on the employment issues in east Durham and in the city of Sunderland. When I was the regional

5 Sep 2013 : Column 551

Minister, I was a great enthusiast for the potential that was there and a great champion of it, and I was able to take its case to the heart of Government. I hope that that helped to bring about the arrangements that are now in place and the success the company now enjoys, but we should never lose sight of the fact that the principal reason for Nissan’s success is the management and the work force. I think that everyone in public life in the north-east wants it to succeed, will fight its corner and stands ready to help. I hope the issue will never divide us when we look for the way forward for our region.

My principal criticism of the report is that it is all about process, rather than outcomes. It is repetitive and has a scattergun approach to initiatives. For example, there is a flurry of ideas around one of the most pressing issues: the need for venture capital and the continuing difficulty in getting banks to lend. That problem is not unique to the north-east, but it has a particular impact on us because we are trying to develop the private sector in our economy.

The report proposes a range of initiatives, including exploring the potential for a regional business bank, a north-east access-to-finance scheme, an investor readiness programme and a north-east finance and investment board. It also proposes what are described as “new investment plans”, a “front of house system”, “client relationship management”, “re-location” schemes and a “North East International” body. There is a flurry of initiatives, but what does it all mean? Do they overlap? I cannot tell. At least, it is not clear from the report.

The report also restates existing projects as if they were new initiatives. I have already mentioned such cases in relation to transport, but there are other examples, such as the “Open Innovation and Growth Centres”, that are already working or have already been announced.

The report mentions in general terms desirable ideas and principles, such as an increase in apprenticeships, greater foreign direct investment and more young people from the region going to university. All those outcomes are desirable and none of these issues is new but, crucially, while stating that they are desirable, the report gives no indication of how best to achieve them. At the very best, the report’s recommendations would deliver administrative change for our region in a few years’ time. The need for action is now. Yet now the Government are actively sucking demand out of the regional economy by changing the national funding formulae for local government, the national health service, policing, transport and infrastructure investment, to our region’s disadvantage.

What the region needs is a politically led and determined drive, involving everyone who wants to help—this really should not divide us—to develop the private sector economy in the region. We have done a tremendous amount to help ourselves as a region, but the scale of the problem is such that more needs to be done. As well as determinedly driving forward the projects that we know are there, there is a case for a short-term emergency response to the emerging problem of long-term youth unemployment. Only central Government can do that. The Chancellor and the Business Secretary could explore incentivising the region’s small and medium-sized employers

5 Sep 2013 : Column 552

to take on an extra young person, or more than one, if only to prevent the corrosive and demoralising effects of worklessness and defeated ambition among the young.

In my view, things were moving in the right direction under the structures and leadership of the previous Labour Government. The report confirms that by setting out the region’s progress in the last growth cycle with 67,000 extra jobs, gross value added increasing by 57%, and tens of thousands of jobs created through greater foreign investment. The north-east was moving in the right direction, with the fastest growth rate of any English region, although admittedly from a more modest start. That was delivered under the former economic development structures, which would have worked well to get us through the economic downturn. The report is quick to offer new structures but gives no assessment of how well the old ones worked. In short, it correctly identifies the issues facing the region but is insufficiently bold in offering a way forward.

Several hon. Members rose—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. The time limit on Back-Bench speeches is seven minutes.

3.19 pm

Guy Opperman (Hexham) (Con): It is a pleasure to follow the right hon. Member for Newcastle upon Tyne East (Mr Brown). I suggest that we should be very proud of the report, and very proud in the north-east. As we all agree, it is the most beautiful of regions, and certainly not desolate. It is blessed with a positive balance of payments, as the North East chamber of commerce and the businesses constantly make clear to us.

Not only was the region the cradle of the industrial revolution, but this year we are leading the way. First, in the spring we had the January declaration in the north-east, which made a significant contribution to how we visualise the type of country we wish to be. Secondly, in April we had Lord Adonis’s report, which is fundamentally business-led, with the most pragmatic of Labour politicians at its head; he is someone we can genuinely work with. I am happy to say that I worked with him and supported what he was doing in creating the report. Thirdly, in June, we had the banking conference in Gateshead which a group of us organised to try to facilitate bank lending in a multitude of ways, ranging from a business bank to a local enterprise partnership infrastructure bank to community and local banks—different types of lending and expanding on credit unions that will address the fundamental problem of the lack of bank lending and finance to create the private sector jobs that we all so wish for.

The north-east is leading the way. The right hon. Member for Newcastle upon Tyne East is right that Manchester has produced a derisorily small and not very good report. We have produced a proper report that deals with what all 39 local enterprise partnerships have to do—address specific plans for a strategic economic plan within a particular time scale. Every Member of Parliament and every person in this country will have to address the problems that we are leading the way on. That is very significant. The north-east is not sitting back and accepting the state of things as they are; the north-east is making the case for change.

5 Sep 2013 : Column 553

The strategic economic plan must be submitted by the end of March 2014, and it requires a Government response at a certain stage over the winter. It affects businesses, universities, local authorities and anyone interested in transport, housing, schools or skills—pretty much everybody. I cannot speak to every part of the report in seven minutes, but I can say that I support its broad thrust. The most important part concerns the development that has taken place over the past year-plus with the local authorities all coming together and forming the combined authority. It is absolutely vital that we go on this journey. I take the point about the Association of North East Authorities being a type of combined authority, but it is nothing like what we are going to have in future.

Mr Kevan Jones: That is a structural change, although I am not opposed to it. To be fair to the north-east councils, they have a very good track record, across the political divide, of working together. However, the hon. Gentleman cannot get away from the fact that his Government have already taken some £240 million from the local authorities covered by the LEP area in the past two years, and that is before the next round of cuts. How does he expect those councils to come up to the mark as the Government are asking them to do?

Guy Opperman: The hon. Gentleman need not take my word for it; he can listen to the author of the report and the business men and business women who believe in the north-east being able to cope with those difficulties and strongly make the case that there is optimism to be found there.

The next step as regards the combined north-east local authority is to pick a leader. I would certainly support having a mayor.

Grahame M. Morris (Easington) (Lab): The hon. Gentleman is talking about a champion—a mayor—to lead the LA7, or strategic authority—[Interruption.] I am not canvassing for the job; I am going to suggest a job for the hon. Gentleman, actually. On that basis, does he support the idea eloquently expressed by my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) that we should have a Minister for the north-east as an advocate who did precisely that job at the heart of Government? Perhaps that would be a good job for the hon. Gentleman.

Guy Opperman: I am delighted by the recommendation for promotion, but as the hon. Gentleman knows, that is way above my pay grade and way beyond my decision-making powers.

Ian Lavery (Wansbeck) (Lab): Too modest!

Guy Opperman: I am happy to be modest on this occasion.

A mayor is someone working from the bottom up and driving the region forward. A Minister in the Government—I say this with no disrespect to the work of the Minister on the Front Bench or any replacement—is here for at least four days a week and unable to drive things from the bottom up. However much the Member of Parliament who was the Minister would like to be in touch with everything that is going on, it must surely be

5 Sep 2013 : Column 554

accepted that someone local needs to be driving it forward. That is certainly the case with the Mayor of London and the mayors of Paris, San Francisco and other regions, and they have been successful. It is, however, a matter for debate, which is what this process is about. A legitimate debate is taking place about how to make progress. Tomorrow I and 400 other delegates will discuss the report’s individual parts at the International Centre for Life in Newcastle. I am not suggesting that anything is set in stone, but one thing is clear: the north-east is leading the debate about where the structures should go.

In the limited time available, I want to endorse the comments made about transport. I recently met staff representatives from Newcastle airport and I welcome the developments there and the attempts to expand transport.

Clearly, future growth must be engineered through education and skills. We cannot plan for the future without more of the brightest and the best getting involved in initiatives such as Teach First and acting as role models for local children. As it stands, the north-east has only a third as many of those dynamic individuals as London. We need to motivate children from all economic backgrounds to apply to Russell Group universities. One of the report’s targets is for 35% of the area’s secondary schools and 40% of its primary schools to reach the top quartile, and it sets out some very good ways, such as Teach First and the north-east schools challenge, to achieve that. It is good that we are encouraging university technical colleges to build links between academia and industry and take advantage of the north-east’s unique characteristics.

On apprenticeships, I am pleased to say that I have made my limited, modest contribution by employing an apprentice—not as an apprentice MP, I hasten to add, but as an office manager. There should be greater incentives to encourage everyone to take on an apprentice, and the report eloquently notes specific measures that could enhance the situation.

On local community banking, at our June conference at the Sage in Gateshead 170 people came together to discuss how they could turn around their local economies and get local communities lending. On larger infrastructure, the local enterprise partnership could run the infrastructure bank. There is no reason why community banks could not be backed by local authorities, universities or the Army, which is looking at them. If we can get regional and local lending to address not just the high-cost credit issues that were discussed in the previous debate, but the issues of bank and mortgage finance, that would be a great deal better than the present, patently insufficient system whereby the big seven banks are remote, London-based and computer-run, and totally unresponsive to and not located in the community.

I cannot finish without raising two particular points. First, I welcome the comments of Northumberland county council on the need for a rural deal so that the report does not just deal with the urban centres. It needs to be for the countryside as much as for the urban centres. Secondly, a survey by Business Quarterly, which is available online, found that there is great confidence that this north-east independent review will address some of the region’s economic needs.

5 Sep 2013 : Column 555

I support the review and will discuss and debate its benefits tomorrow. We must acknowledge that the north-east is leading the way.

3.29 pm

Julie Elliott (Sunderland Central) (Lab): I endorse what my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) said about wanting a regional Minister again. Having worked very closely with the regional Minister before coming to this place, I know that it was a huge asset to have somebody in the House who was responsible for our region. As somebody who was very involved in the campaign for a north-east assembly and regional government, I found it interesting to hear a Conservative politician calling for a mayor—an elected politician to speak up on behalf of the region.

The report identifies many of the problems in the region, but a lot more work needs to be done on the solutions. It demonstrates that the north-east economy has a solid foundation on which long-term growth can be built. The north-east has a good record of creating jobs. Some 67,000 jobs were created between 1998 and 2008, which was more than in any other region. The north-east is also a trading powerhouse for the UK economy. In 2011-12, it was the only area in England to record a goods trade surplus. That is a real achievement. Our excellent export record is a result of the high levels of foreign direct investment in the region over the past 10 years.

Of course, the north-east economy has several key structural weaknesses that will continue to hinder economic growth and job creation if they are ignored. The two central problems are that there are too few private sector jobs and too few highly skilled, highly paid service sector jobs. That leads to lower productivity and income levels across the region that are simply too low. The north-east has just 38 businesses per 1,000 working-age residents, whereas the national figure is 60. That lack of businesses is a major factor in the high levels of unemployment in the region.

Despite the abjectly chaotic regional growth fund and the dissolution of our successful regional development agency, One North East, the north-east continues to be a driving force in the re-emergence of the British automotive industry. As the hon. Member for Burton (Andrew Griffiths) said, Nissan is a huge success story. It is based in Sunderland, but it benefits not only Sunderland but the entire region.

The Nissan plant employs 7,000 and a further 30,000 people are employed in the supply chain. In the main, those are very highly skilled jobs. In 2011, the Nissan plant in Sunderland produced more than 480,000 vehicles. Nissan has invested more than £3.6 billion in Sunderland since 1984 and it continues to invest in innovation, most recently with the Nissan Leaf, bringing further investment and jobs to our region. Having lived in the region all my life, I have to say that Nissan was brought there not by one person, but by all the parties and all the people who are involved in industry in the north-east. The Nissan plant demonstrates the importance of the UK’s membership of the European Union to the creation of jobs in the north-east. The uncertainty around a referendum is not helping investment and is creating problems.

5 Sep 2013 : Column 556

Universities have a huge role in bridging the gap between education and graduate employment. I have no issue with the Russell Group, but we have excellent universities in the north-east and not all of them are Russell Group universities. As is noted in the report, the Institute for Automotive and Manufacturing Advanced Practice and the university of Sunderland have developed a centre of excellence in low-carbon vehicle technology, which trains graduates with the skills that large employers such as Nissan require. AMAP has introduced the first master of science qualification in low-carbon technology, allowing engineers in the LCV industry to study part time and gain vital advanced qualifications in that fast-growing industry.

On the banks of the Wear, on the site of the old shipyards, the university of Sunderland hosts the Institute for International Research in Glass and the Ceramic Arts Research Centre. The National Glass Centre is part of the university and it offers a glass and ceramics degree in which students can work with professionals in state-of-the-art facilities. That is a fine example of education working with industry to develop the right skills, abilities and network of contacts to build a career.

As has been said, participation in higher education is lower in the north-east than in the UK as a whole. Something needs to be done about that. The increasing adoption of science, technology, engineering and maths qualifications is vital if we are to provide the highly skilled work force that our advanced manufacturing sector needs. Employers often report problems in recruiting people with the right skills. It is vital that we enable more employers to take on long-term apprentices to produce people with the qualifications at level 3 and above that are needed.

Rebalancing the economy is not a meaningless platitude, nor does it mean hampering London’s competitive advantage in banking and finance. It simply means recognising that growth, jobs and rising productivity in regions such as the north-east are vital if we are to see sustainable, long-term economic growth nationally. I urge the Government to take note of the report, empower councils and give LEPs the powers and access to finance that they need to form partnerships with SMEs and universities, so that they can help make the north-east the economic powerhouse it clearly has the potential to become.

3.35 pm

Ian Swales (Redcar) (LD): I congratulate those who have secured the debate. For a small but beautifully formed part of the country to be discussed in the main Chamber is terrific. I bring apologies from my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith), who unfortunately cannot be here as he is on Justice Committee business. He certainly wanted to be.

I welcome the high-quality report. I was slightly surprised at some of the critical remarks about it in the opening speech, because I understood it to be a bottom-up initiative by a lot of people in the region, and therefore a good summary of what was happening and what should be done. Lord Adonis said in his report that he had been immensely stimulated by being in the region and meeting various people, and had left “full of optimism”. That is certainly the spirit in which we should see the future.

5 Sep 2013 : Column 557

I welcome the five key aims set out in the report, especially the one about the skills agenda. We saw in the news today that Dyson had said it would employ 2,000 more people if only it could find the technical and engineering staff that it needed. It is frustrating for me, in an area of high unemployment, constantly to meet employers who say that they cannot find the people they need. We also need more entrepreneurs in the north-east. That is not well covered in the report, but we have one of the lowest levels in the country of entrepreneurship and small and medium-sized enterprises. There is plenty of room for growth there.

As a Tees valley MP, I look at the report through the lens of that area, and I would make one observation that is meant to be helpful. The report is quite heavy on structures and low on dynamism and the private sector. I know that there are real issues in the North Eastern local enterprise partnership area, but Tees Valley Unlimited is different in that the local authorities come together in the LEP rather than as a separate group. That leads to cohesion and also gives the LEP a strong mandate for action. It remains to be seen how the north-east’s structures will work in future.

Of course, our region has been hit hard by the decline of traditional industries, but it is recovering. As has been said, it is the only region with a net trade surplus, and we are benefiting from the Government refocusing on manufacturing. Recent figures show growth in manufacturing, and Redcar steelworks had record production just a few weeks ago. The Government are also making more effort on foreign trade, which is benefiting our region, and we can all do our bit. As chair of the all-party group on the chemical industry, I was pleased to lead the north-east process industries trade mission to India in March.

The Government have been working hard on the north-east in many ways. Enterprise zones have been mentioned, and I am delighted that those in the Tees valley have already attracted 10 new companies and more than £400 million of investment. The regional growth fund was derided earlier in the debate, but let us remember that it is genuine regional policy. Only the areas that really need the money are getting it. The north-east is a huge beneficiary—in rounds 1 and 2, the two LEP areas got nearly one third of the entire country’s projects.

Mr Kevan Jones: Is it not a fact that in the last year of the regional development agency, it had an annual budget of nearly £250 million? Now the Government have taken that away, which the hon. Gentleman voted for, and there is a bidding game in some areas. Some of the decisions that are being taken are difficult to justify given the deprivation that exists and the support that areas need, but they are perhaps being taken for political reasons. The idea that the regional growth fund somehow replaced what was taken away is complete nonsense.

Ian Swales: I accept the hon. Gentleman’s point about the amounts of money concerned, but of course we were left in a situation where the Government were basically bankrupt. It is excellent that instead of spraying money around all the regions of the country, the Government have picked the regions that actually need it. The limited amounts of money are coming to areas such as the north-east. The recent announcements of

5 Sep 2013 : Column 558

EU funding are of course welcome, and I congratulate the Government on taking only a small slice of it, as opposed to the 50% slice that I believe the previous Government took. The EU’s recognition of Tees valley and County Durham as areas needing special assistance is welcome, because it will result in large amounts of money. There is more to come from the EU youth unemployment funds, because we qualify on that ground too.

The hon. Member for Burton (Andrew Griffiths) said we should celebrate good news. It was great to see the ground being broken for the Hitachi factory a few weeks ago. It already has its first orders. We have heard about the effect that Nissan has had on the north-east. Hitachi has the potential to be a similar success story, with the supply chain as well as the company itself. We should celebrate that.

As the briefing for hon. Members states, the North Eastern local enterprise partnership is the fourth biggest. It is working on a huge number of activities. Were my right hon. Friend the Member for Berwick-upon-Tweed in the Chamber, he would certainly mention the need to continue with rural broadband investment for Northumberland, and to build on the recent Government announcement on dualling the A1.

The overall region is stronger with two LEPs based on the two main conurbations. I have spoken in previous north-east debates on how I believe that the Tees valley lost out under the old arrangement. The statistics are clear on that. I congratulate Tees Valley Unlimited on its work. As well as enterprise zones and successful regional growth fund bids, it has an economic strategy and a business plan. It is aiming to have 25,000 extra jobs over the next 10 years. It has launched a £20 million contract catalyst fund, giving performance bonds for small and medium-sized enterprises; secured £12 million for a pinch point on the A19; and engaged with more than 750 local businesses.

We are getting much needed improvements to local bus and rail services, including a new rail station at James Cook hospital.

Andy McDonald (Middlesbrough) (Lab): The hon. Gentleman makes an excellent point on transport infrastructure, but, on TVU, does he share my frustration that we are not making the progress we should with the Tees valley metro, which would be a driver for our economy locally?

Ian Swales: I share the hon. Gentleman’s frustration—in fact, he has stolen the next sentence of my speech. One way in which we have suffered over the years has been the lack of serious efforts on Tees valley transport, particularly in respect of the metro. It remains a scandal that we have railway line passing within half a mile of the airport but no link to it.

We can see the effects of the improvements in my constituency. Unemployment is down by 8% in the past year and by 15% among the 18 to 24-year-old age group. However, unemployment is still way too high, as is long-term unemployment.

I and the North East LEP welcome pragmatism based on real geography. For example, the area I represent is firmly aligning itself with the Welcome to Yorkshire tourism brand. We are part of the historic county of

5 Sep 2013 : Column 559

Yorkshire. We have a race course that is marketed under the Go Racing in Yorkshire brand; a large slice of the Yorkshire coast; and part of the North York Moors national park. It is therefore right that we align with that tourism body. I wish the North East LEP well—it is important for all hon. Members that it succeeds—and welcome the joint meetings that are taking place on matters of common interest such as transport and finance.

The threat from the EU was mentioned. The hon. Member for Stockton South (James Wharton) is well aware of my dismay that he should raise that subject in the House. Even the uncertainty is incredibly damaging to the north-east. I have met business people who say that the uncertainty is not helpful. An exit would be utterly catastrophic for our region.

I hope that the joint meetings take place on a case-by-case basis and that we stop short of creating any new joint bureaucracies in the north-east. We need short steps from ideas to action. We already have successful businesses, great universities and institutions, a tradition of hard work and very strong communities. If we can build on the optimism of Lord Adonis, add more aspiration and talk our region up and not down, I am sure there will be a bright future.

3.44 pm

Chi Onwurah (Newcastle upon Tyne Central) (Lab): I congratulate my neighbour, my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown), and the Backbench Business Committee, on securing this important debate. The focus of my contribution will be on skills.

I grew up in Newcastle in the ’60s and ’70s, a city and a region that valued engineering—making and building things. I remember the late Baroness Thatcher telling the country that engineering and manufacturing were the past. It was that relentless pursuit of a service-led economy that saw the level of employment in the north fall by 1.3 million between 1979 and 1987. The associated devastating impact on our communities is still felt today. It is not good for the north-east, or the UK as a whole, to have a deep and growing divide. A one nation economy needs an innovative and dynamic north-east. The region already has world class institutions, businesses, universities and of course people, not to mention—and they have already been mentioned—countryside and culture. As we have heard, we lead the way in exports and are increasingly becoming a centre for hi-tech and digital businesses. There is no better place to live, work or innovate.

The report found that we need an additional 60,000 private sector jobs to provide a balanced and sustainable economy, and that those jobs must be highly skilled and highly paid if we are to compete and prosper. That is a challenge I know the region is up for, given the right resources. In the decade between 1998 and 2008, as my right hon. Friend mentioned, and with the support of the regional development agency, the region added 67,000 jobs, many of them in the private sector. It is right that the seven north-east councils have come together to form a new combined authority. I look forward to working with it and the LEP to improve the skills

5 Sep 2013 : Column 560

landscape across the north-east. I welcome the North East LEP piloting a new skills development funding initiative, which will mean a greater say on skills funding in the region.

The report calls for a doubling of youth apprenticeships. If that is to be achieved, Ministers must allow more power and resources for skills to be devolved. If the Government are serious about localism—the evidence so far is not good—then Ministers have an opportunity to devolve significant power to the combined authority. Building the new economy that we want for our region requires an effective partnership between the public sector, the private sector and higher education, and it is vital that the structures are in place to support them. Unlike London, the devolved nations and even Manchester, the north-east has had no collective voice since the RDA was abolished to shout out our strengths or focus on our weaknesses. I, too, echo the desire of my right hon. Friend for a regional Minister.

The combined authority should have real power, knowledge and legitimacy over those in Whitehall who currently make decisions for our region. It must also have the resources. Structures are not enough—it needs the resources to build the new innovative regional economy that is set out in the report.

Ian Swales: Does the hon. Lady feel that extra power and resources should be focused on a group of politicians or on the public-private partnership—in other words, the LEP?

Chi Onwurah: The resources should be focused on our region. The partnership between the LEP and the combined authority should take control, as much as is possible under current structures, of our region’s future.

As we have heard, the fact that the Government have taken so much out of the region—£100 million has been taken out of Newcastle city council’s budget alone—does not make the task any easier; rather, it makes it much harder. What would help is control over the valuable European funds that are directed to the north-east, to ensure that they go to where they are needed. One area where the report falls down is in ignoring the importance of culture, inclusion and community. The people of the north-east are the north-east. They are an asset beyond a mere skills base. That is why the European social fund, currently administered by the Department for Work and Pensions, which focuses on extending employment opportunities and developing skills should be devolved. I understand that the DWP will match the fund only if it can control it. If that is the Minister’s idea of localism, it is certainly not mine.

There are too many people in the region who are too far from the jobs market to take advantage of the high-skilled economy that we want to build. Councils and industry in the north-east are showing the kind of leadership that we need, by working together—at long last, one might say—to form a new authority that will work with the LEP, universities, businesses and people.

Andrew Griffiths: I agree with the hon. Lady about the need to increase skills and training in the north-east. Will she therefore join me in congratulating the Government on increasing the number of apprenticeships available to young people in the north-east by 70% in the last three years?

5 Sep 2013 : Column 561

Chi Onwurah: I know that many other Members wish to speak, so I shall not say all that I would like about what the Government have done to the apprenticeship programme, by devaluing apprenticeships, as well as not supporting them for older workers.

Guy Opperman rose—

Chi Onwurah: I will move on to my closing remarks. We need leadership from Ministers and real power—

The Minister for Universities and Science (Mr David Willetts): I really must correct the record. What the hon. Lady said about apprenticeships is outrageous. We have spread apprenticeships across all age groups, including among older people. We are not devaluing apprenticeships; we are doing absolutely the opposite. We are saying that for an apprenticeship to be real, it has to involve genuine employment with an employer—that is what an apprenticeship means to most people—and we are insisting on that.

Chi Onwurah: The Minister should recognise that the changes made to the apprenticeship programme have not met with universal approval. Indeed, there is a report out today criticising the Government for changing the funding of apprenticeships for those over 24 years old.

We need leadership from Ministers and the devolution of real power, including over vital EU funding, which can help to boost our region and its people.

3.53 pm

Mr Kevan Jones (North Durham) (Lab): I congratulate my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) on securing this debate and the Backbench Business Committee on allowing it.

As my right hon. Friend said, the problem with the report is that it contains a lot of structures but very little action. It is action that we need now. The report has another fundamental problem, in that it divides the region artificially in half, talking about transport for the north part of the region. We are a small region, and one thing that we cannot do is put artificial barriers between parts of the north-east. People in my constituency work on Tyneside, in Durham and down on Teesside. That is one of the problems with the report.

The hon. Member for Hexham (Guy Opperman) said that he welcomed his involvement in the report. I say well done to him, because Labour MPs were certainly not asked for their involvement, although that did not surprise me at all, coming from Andrew Adonis. Indeed, he has come up with another structural solution, which is to have a mayor for the new LEP area. I do not think he could have come up with a more barmy idea, because it would do nothing to help the economic development of our region—not even the northern part of the north-east. Fundamentally, this Government do not believe in regional policy, so they have come up with two LEPs. They have no cash, but a nice report will be produced that will possibly gather dust, and also a lot of plaudits—that is certainly what I have seen over the years that I have been in the north-east.

A headline in the Newcastle Journal today, alongside a picture of Andrew Adonis’s smiling face, tells us that £1 billion is coming to the north-east. Only when we read the small print do we see what is really involved. It

5 Sep 2013 : Column 562

is £500 million of European money, but the real clincher is that it has to be matched by another £500 million, either from council money or from the private sector. That is a bit like someone winning a car on a quiz show, only to be told not only that it has no petrol in it but that they have to buy an engine for it as well.

It will be interesting to see where that other £500 million will come from, because local authorities are under a great deal of pressure. More than £200 million has been taken from the local authorities in the LEP area in only two years. Over the next financial quarter, Durham county council is going to lose £209 million. What are the Government doing with that money? They are giving it to their friends in the south of England. Let us look at the local authority cuts per head. Durham is losing £168.80. Wokingham is losing £26.53, and Surrey Heath—that place of real deprivation—is losing £24.54.

This Government have no regional policy at all; that is the problem. The report is fine when suggesting structures, but the fundamental problem is that there is no cash behind them. I pay real tribute to councils in the north-east, not just those in the northern part but those in Teesside as well. They have a long tradition—going back to well before the last regional development agency—of working with private industry and other sectors to help the north-east. Nissan came to the north-east because of the dynamism of those different sectors working together.

Ian Mearns (Gateshead) (Lab): The fact that Newcastle airport exists in its present form is due to a partnership of seven local authorities working together to provide a regional airport for the northern part of the region. Local authorities have been engaging in such processes for decades.

Mr Jones: That is right. I used to be a director of Newcastle airport. It did a remarkable thing under the previous Conservative Government: when they stopped local authorities raising money, it paid for an expansion costing nearly £27 million out of its profits. It had the foresight to do that.

If we are looking to local authorities to provide that extra cash, we must remember that they are under a lot of pressure. The chair of the North Eastern LEP prides himself on having only a small team around him, as though that were some kind of badge of honour. I do not know how the hell he is going to deliver the process if he is going to rely on local authorities to provide that extra funding, because the cash just is not there. Every time a grant is made from the regional growth fund, we hear announcements of so many million pounds coming from the Government to the north-east, but the real sting in the tail is that we never hear how much the Government are taking away from the region, including the £200 million a year that was going to the RDA, and the £2 billion-plus that the Labour Government invested in the north-east over 13 years.

The Government also talk about skills. Well, fine; but this is the same Government who have cut back on Building Schools for the Future. In Durham, for example, only seven of the 25 BSF projects have survived. In Darlington, seven out of the eight projects were cancelled, and 14 out of 21 were cancelled in Sunderland. I say to the authors of the report that it is no good talking about school initiatives when there are schools in the

5 Sep 2013 : Column 563

north-east that are crumbling around people’s ears and have water leaking in through the roofs. It is very difficult for teachers to teach in those conditions. Lo and behold, Mr Speaker—I come back to my favourite place: Wokingham—guess how many BSF school projects were cancelled in Wokingham. Not one.

It is no good the Conservative Government, with the support of the Liberal Democrats, arguing that they are somehow supporting the north-east. They are deliberately doing things that take resources away from the region. Local government funding is being skewed in favour of the south-east, and the benefits changes will have a disproportionate impact on our area.

The report appears to give tentative support for High Speed 2, although it does not actually do so, because it admits that the north-east will benefit the least. That is true: HS2 will be a complete disaster for the north-east of England. We have heard about a wish list of transport projects—including a Teesside metro and others—if HS2 goes ahead, but I would say forget it, as that will not happen. What we need is real investment and increased capacity on the east coast main line. Back in 1980, the then British Rail did an experiment, clearing all traffic off the east coast main line. Journey times from Edinburgh to King’s Cross came down to three hours, and from Newcastle to just over two hours. That is what we have to do—invest in that, not in the vanity project for which this Government have fallen. It was dreamed up by Lord Adonis, who I do not think has ever been elected to anything—apart from when he was milk monitor at school.

I wish this report well, but I fear that it will raise expectations, without delivering. What business needs now and what young people in my constituency who face a long term of unemployment need now is action. They do want to hear structural arguments and they do not want a glossy report, which might well make the authors feel good and get them a lot of press coverage locally. What we want is action. We had action when we had the RDA, which could step in and rightly did so when the economic downturn came—not just to help individuals but to help businesses in the constituency. There is now no access to that at all, and some businesses in my constituency are certainly struggling as a result of the lack of investment from banks and other lending institutions.

4.1 pm

Helen Goodman (Bishop Auckland) (Lab): It is a great pleasure to follow my hon. Friend the Member for North Durham (Mr Jones). I congratulate my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) on showing the same excellent leadership skills in securing this debate as he showed when he was a first-rate regional Minister. I also want to thank the Backbench Business Committee.

The north-east obviously has considerable economic strengths. My hon. Friend the Member for Sunderland Central (Julie Elliott) pointed out that car production and vehicle manufacture at Nissan is an extremely important facility, and the new Hitachi factory has come to the north-east partly because of Nissan’s success and because of the area’s links with Japanese manufacturers. We have the largest integrated chemical plant in the UK

5 Sep 2013 : Column 564

and, up to the last election, we had a very good programme on sustainable energy innovation, offshore wind and renewables. We are consequently the only region in the UK with a trading export surplus on trading goods.

It is also relevant to point out that the north-east is an extremely nice place to live, with great cities and beautiful countryside. I wish to commend the AONB—area of outstanding natural beauty—paper for proposing a partnership between the countryside organisations and the local enterprise partnership.

Pat Glass (North West Durham) (Lab): Does my hon. Friend and parliamentary neighbour agree that in our two constituencies, as well as across the north-east, there are areas of outstanding natural beauty, but our local authorities are no longer in a financial position to support or promote tourism in them because of the massive cuts to their budgets?

Helen Goodman: My hon. Friend puts her finger on the issue.

It would be fair to say that the North Eastern LEP’s independent economic review is a useful report. Its analysis of the state of the north-east’s economy is good; it highlights our strengths and weaknesses; and what it says about the supply side seems to reflect the consensus that has existed in the region for some time, particularly about the importance of skills and the need for higher skills if we are to secure more and better jobs. The proposal to increase apprenticeships is positive, but there is a question about whether, given the current state of the labour market, employers will be able to supply the work placements that are needed for them.

The suggestion that we build public-private partnerships between industry and education at every level from school to university is right, as is the point that we need to build on the clusters where centres of excellence already exist. We have been doing that at NETPark—the North East Technology park—in my neighbouring constituency. The report points out that it is important to build on our export links to Scandinavia, the Baltic States and Russia. It also rightly points out that a number of important infrastructure projects could fruitfully be invested in, especially transport projects. We are talking not just about the inadequate road links with Yorkshire, over the Pennines and to Scotland, but about the bus services that have been decimated recently. Something must also be done about connectivity and broadband. The hon. Member for Hexham (Guy Opperman) drew attention to the importance of access to finance. The distances to London and to Leeds are clearly problems for small and medium-sized enterprises in our region.

It is not so much what is in the report as what is not in it that I find problematic. It was commissioned by the Deputy Prime Minister, and the authors seem to have been far too polite to criticise the abolition of the regional development agency and the loss of a regional Minister. The final section, entitled “Re-balancing the economy”, lists the milestones that have been set for the end of the first year. Every one of them relates to the rebuilding of institutional capacity. No one objects to the notion that local authorities should co-operate on transport policy or innovation, but what this actually means is that if all those aims have been achieved by 2014, we shall be back where we were in 2009.

5 Sep 2013 : Column 565

Furthermore, as was pointed out by my hon. Friend the Member for North Durham, the split in the region is completely nonsensical. A person in my constituency is just as likely to commute to Middlesbrough, and work in the chemicals industry, as to commute to Newcastle. The skills strategy needs to be for the whole region, not just for part of it.

The authors have also given little or no consideration to the purpose of economic development, which has a significant impact on the type of change. Another weakness is their failure to say enough about housing, although I was glad to learn earlier this week that the LEP is ignoring the omission and will invest further in housing.

The biggest weakness in the report, however, is surprising. Our noble Friend Lord Adonis has a reputation for intellectual rigour, but it is surely intellectually dishonest to fail to mention the scale of the cuts meted out to our region and their impact on the demand side of the economy. Supply-side measures are fine, but we must pay attention to the demand side as well. The unfair way in which the Government have addressed the fiscal deficit is extremely significant in our region.

Guy Opperman: I accept that the hon. Lady is perfectly entitled to criticise the ultimate author of the report, but there are contributions to it from a large section of the business, technical and other communities, and from a number of other authors including Heidi Mottram, Don Curry, Will Hutton, Bridget Rosewell and Jonathan Ruffer, succeeding the Archbishop of Canterbury. It is not simply Lord Adonis who has produced the report.

Helen Goodman: I agree. In fact, I have spoken to all but one of those people about that weakness in the report, which I think is a very serious problem.

The Chancellor’s switch from current to capital spending sounds brilliant. It sounds like common sense. However, only 1% of the £45 billion involved is coming to our region, although, as the report pointed out, there are plenty of potential projects there. PricewaterhouseCoopers has said that the 2010 round of cuts in our region amounted to £2.8 billion, or 7% of our total gross value added. According to further analysis carried out for us by Oxford Economics, the knock-on effect will be a further £1 billion reduction. If the International Monetary Fund is right, the second-round effect is equal to the amount of the cuts: £2.8 billion. That is totally unfair. The same level of cuts is being imposed on the southern European economies.

The Institute for Fiscal Studies believes that there will be 45,000 job losses, and Oxford Economics believes that there will be 68,000. The creation of 65,000 jobs to which the report refers will merely bring us back to where we were at the start of the process. No wonder we have the highest unemployment in the country. Added to the public service cuts I have just outlined, we have seen significant reductions in incomes to ordinary people in benefits. In my constituency the average working-age adult is losing £560 per year. The Government are taking £310 million out of my constituency. No wonder there are 70 empty shops in my constituency. No wonder 30% of the young people in my constituency have no job. No wonder the citizens advice bureaux, whose resources have been cut, say that debt is the biggest problem that they encounter.

5 Sep 2013 : Column 566

4.10 pm

Ian Lavery (Wansbeck) (Lab): If the Adonis review is meant to solve the great woes that our regions faces, I fear for future generations, and in particular for young people, because it does not address many of the problems.

I am delighted to be here with good colleagues and comrades on the Opposition Benches—and Members on the Government side of the House—discussing the real issues facing the region, but what is amazing is that we are scrapping over the crumbs from the table. Before the election, the region received funds from the regional development agency, which supported hundreds of thousands of excellent jobs. According to the Secretary of State for Business, Innovation and Skills, our RDA was a shining example among the RDAs in the country. There was a pledge not to get rid of the RDA in the north-east because it was so good, yet now we have two LEPs with very little power and even less finance, and here we are scrapping over a report that is trying to address the massive problems we face in our region.

What is the situation in Wansbeck? The proportion of jobseeker’s allowance claimants stands at 7%, compared with 6.7% at the north-east regional level and 4.5% nationally. Youth unemployment is a great problem. It is even more worrying that the proportion of 18 to 24-year-old claimants stands at 13.1% compared with 9.4% at the regional level, while nationally it stands at less than half that at 6.3%. These statistics are shocking, but they hide even more serious issues, such as the extent of the under-employment resulting from shoddy working practices such as zero-hours contracts and people working part-time because they are unable to find full-time work. We will never know, or get to grips with, the numbers involved and the extent of the problem. The consequences of this type of employment are disastrous.

It is, perhaps, because of where we are now that I offer, with some reluctance, my support to this review. Last year the largest private sector employer in Northumberland, Alcan, which was based in my constituency, closed its operation. The knock-on effect on the local community has presented an extreme challenge. Alcan has left behind a power station operated by RWE, which is not without its own challenges in terms of carbon targets.

Wansbeck, however, is not without its success stories. It is easy for me as a Member of Parliament to get up here and continually criticise, but we must press the views of, and the situation facing, the people in our communities. It is no good saying unemployment is fine in the region when it is not. When people say we should be talking up the region instead of talking it down, I say, “Give us a reason to talk it up.” That is what I say on behalf of the people I proudly represent.

In 2014 AkzoNobel will begin the manufacture of its Dulux and wider decorative coatings range from its new state-of-the-art plant in Ashington in my constituency. I am delighted with that, and I give due credit for it. We have also had a number of other successes with small and medium-sized enterprises. I had the opportunity to visit the All-in-One Company in the recess. It is a unique, small factory that specialises in custom-made onesies; I had not even heard of onesies, by the way. People get on the internet, design their own onesie, press a button and then get the onesie delivered to them. The place is absolutely fantastic. The beauty of it is that

5 Sep 2013 : Column 567

the person who started the company came from Oxfordshire and she said to me, “Mr Lavery, I was delighted to come to this region because the north-east was the only region that could deliver what I wanted. It had the right people and I think that coming to Ashington in your constituency was an even better idea.” That was a great credit to us, and we have some great people and great businesses in the region—small, medium and large.

Let me now deal with the skills shortages. In the time I have left, I want to place on the record my thanks and congratulations to Northumberland college, in my constituency. It is delivering a range of different things. It is now offering up to 28 different apprenticeship frameworks and has more than 700 apprentices. It is also leading the way locally, having established an employment skills forum, with the aim of driving up skills and employment in Northumberland. We are looking to increase employer and individual engagement and investment in skills; support individuals to gain sustainable employment by improving employability; and strengthen joint working between employers, employer groups, skills networks, universities, colleges, other skills providers and the local authority. The college has done a marvellous job. It is only a matter of a year ago that we could have lost a college that is much needed in the area of south-east Northumberland; it could have been subsumed into a huge university in the area, so I was delighted at what happened.

There is a huge need for the skills gap to be narrowed in my constituency. We have the people, but they are, sadly, unemployed, because the jobs just are not there. Where there are jobs we face a problem with skills. We have the colleges and schools now working together to try to encourage people to join. We have the employers now sitting around the table with the colleges and schools. We are now looking at the whole situation, hoping that we will eventually get together to make Wansbeck a place where employment succeeds.

4.17 pm

Grahame M. Morris (Easington) (Lab): First, I congratulate my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) on securing this debate, as well as all other right hon. and hon. Members who supported our bid for it, and the Backbench Business Committee for giving us an opportunity to discuss this important report. In the time available, I want to address some of the issues from the perspective of east Durham, as you might expect me to do, Mr Speaker.

Without being over-critical, and while acknowledging the contributions of everyone who has been involved in preparing the report, not least Lord Adonis, we might be able to offer some reflections that might be helpful in determining a strategy that can produce the best results possible in terms of generating the maximum jobs and growth in the region that we care so much about. As other right hon. and hon. Members have said, we need to address issues that concentrate on process. The one thing that stood out in my mind when I was looking at the report was that it is spatially blind. In other words, it does not concentrate on people or place. In an area such as mine, Easington in east Durham, which is away from the urban core, that will present a particular problem.

5 Sep 2013 : Column 568

I do not want to dwell too much on what has happened in the past, but it is important to inform our opinion and reflect on what has worked and what perhaps has not. Some policies, incentives and strategies have been successful, whereas others have been less so. The collective view, if I may venture an opinion, is that our regional development agency, One North East, which was abolished by the coalition Government, was pivotal in acting as a pole of attraction, not only to bring in overseas investment, but to encourage growth from small and medium-sized enterprises already located in our region. I could list a number of companies in my constituency that were helped by One North East.

Let me emphasise my support for the concept of a Minister for the north-east and pay tribute to my right hon. Friend the Member for Newcastle upon Tyne East for his sterling work in support of projects in the area. Some, such as the centre for creative excellence, did not come to fruition but it could have created more than 1,000 jobs and many hundreds of training places, giving a vista of opportunity to young people in east Durham. Sadly, however, that project is on the back burner, shall we say, because of a lack of funds. I will not go into the precise problems, but it looked at one point as though it would have come to fruition. That would have been a real boost not just for east Durham but for the region and for our further education colleges and universities.

It is important to audit our physical and non-physical assets. East Durham’s physical assets include advanced modern office and factory units, and road and rail transport infrastructure, including Seaham, County Durham’s only port. We have a modern multi-modal distribution terminal—ship, rail and road—and industrial and commercial land, including the large industrial site to which I referred earlier. We have an automotive supply chain and opportunities to develop port-related activities, including distribution. Those are assets on which we could build.

We also have people assets. The hon. Member for Hexham (Guy Opperman) said that not enough students from our region went to the Russell Group universities. We have some world-class universities in the region and many do not get the praise they deserve. Teesside has links and synergies with the chemicals industry, and Sunderland is one of the best universities for pharmacology. I am sure that there are examples from all our universities and they are a real asset that we should build on. Our work force are skilled, interchangeable and adaptable. All those things provide opportunities to develop new skills or more advanced skills for potential employees moving in to the area.

Given that we have a stock of physical and non-physical assets in east Durham, it is important that we market them effectively to potential investors. How we can best achieve that is the $64,000 question. The LEP must recognise that all economic growth and investment cannot be channelled into the urban hubs in the core cities. Although I welcome the establishment of the combined local authorities, they might need to consider particular needs and the targeting of sector-specific support in particular places, especially those on the periphery of the urban core. I am thinking, perhaps selfishly, about Seaham in my constituency and the former new towns, such as Peterlee, which are less strongly connected to growth centres. I know that there are other similar

5 Sep 2013 : Column 569

examples in other Members’ constituencies, such as Redcar. I feel that the LEP should have a stated commitment in its strategy to tackle what I describe as economic cold spots in the region—those that suffer particular disadvantage, such as east Durham and south-east Northumberland. I know that there are others.

We must also pay attention to what is happening in the EU. There will be a number of reports, including the fifth cohesion report, that will inform the next round of European regional development fund funding. We must take account of that and ensure that we have an effective place-based policy to get the maximum benefit from investment in goods and services to stimulate growth in our area.

There are issues with those not in employment, education or training and I hope that they will be addressed. Our own East Durham college should play a leading role in that.

4.24 pm

Ian Mearns (Gateshead) (Lab): Rather than going through the normal formalities and congratulations, I shall get straight on with my speech.

The north-east is not such a desolate place; in fact, it is a place of good news. We have heard the very good news this afternoon that Durham county cricket club now sits at the top of the county championship after defeating Sussex by 285 runs at the Riverside stadium. I was delighted to attend the fourth test match at the Riverside a few weeks ago when we had a good result and some excellent entertainment.

I am afraid that the north-east independent economic review was a lost opportunity as there appears to have been a lack of imagination and ambition, and of inspired and innovative ideas to build the north-east economy. The report sets out a north-east vision of “making, trading and exporting”, but I fear that it just encourages more of the same solutions that fell short of transforming our economy in the past.

There are many recommendations in the report, but mostly things that we as a region have been striving to achieve for many years. The problem is that it is a bit like extolling the virtues of apple pie without providing the means—the apples, the sugar, the flour, the heat and the rest of ingredients required—to produce the pie. It is all wishful thinking—

Ian Swales: Will the hon. Gentleman give way?

Ian Mearns: I am afraid that I will not.

There is no targeted support for key sectors such as tourism, advanced manufacturing and green energy, and no clear strategy for growth that recognises the enormous potential of the region and its people. Most importantly, there is no proposal for a co-ordinated strategic authority such as One North East, the former RDA, or for a Minister to lobby at the heart of government.