“Taken together, the proposals are likely to see a greater focus on cheaper, easier measures and a correspondingly diminished role for Solid Wall Insulation in ECO delivery.”

It continues:

“However, the Government is clear that SWI represents a major challenge for the nation’s housing stock, with nearly eight million households of solid wall construction, of which only 3% per cent have wall insulation.”

The Government set a sub-target for solid-wall insulation that is about half the estimated target in the original ECO plans.

Of course, no one told the dozens of local authorities, housing associations, and insulating companies that that was in store. Trusting the word of the Department, they did exactly the right thing in getting the best result possible from the areas that ECO was supposed to concentrate on, namely the uplifting, area by area, of those hard-to-treat homes, using their local skills and considerable efforts in developing partnerships to do so. After all, we know that area uplift worked well under the community energy saving programme and the carbon emissions reduction target. There were better results overall in value per treatment—a large chunk of the target was reached area by area—than by searching randomly for individual properties to uplift.

I will add our local programme in Southampton to the pot. In November 2013, the council announced a £30 million programme to make energy improvements to more than 2,000 council properties in Southampton over the next 18 months. It included cladding of high-rise buildings, cladding of system built non-cavity homes, and a district heating scheme alongside. That would, by the way, create between 600 and 900 jobs, as well as safeguarding 300 jobs locally. That was a partnership between the city council, a property services company and an obligated energy company. That was all very rosy, except that as soon as the Government announcement was made and it rapidly became apparent to energy companies that the obligations as previously constructed were being thrown out of the window, they drew back from progressing the scheme. It may be that some of the programme can be saved, but the prospects of thousands of residents of Southampton having possibly life-changing reductions in their energy bills in the near future, of some of the worst insulated properties in the city being transformed and of carbon efficiency in buildings in the city taking a leap forward are possibly wholly and at least largely off the agenda right now. It is the same in many other places across the country.

David Mowat (Warrington South) (Con): I am listening carefully to what the hon. Gentleman is saying, and he is making some good points. He is talking as though the ECO—or the CERO part of the ECO, which I think is the thrust of his comments—has been totally revoked. What has happened, however, is that it has been extended by two years. The fact is that we were at 7% completion after 67% of the time period. In a sense, are the Government not just reflecting what is happening on the ground in a sensible way and allowing things to happen a little more slowly? That could be called a failure, but it is sensible, notwithstanding what we heard about Nottingham. I

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did not follow what was said on ECO versus the green deal. I also do not understand the thrust of the hon. Gentleman’s comments.

Dr Whitehead: The hon. Gentleman misses the point about the carbon content of ECO and how that is stretched out over the time period. Energy companies can therefore decide that they do not need to undertake the obligation in the way they did previously. That is the crux of the matter and that is why the target has gone down from having 180,000 solid-wall homes by 2015 to having 100,000 by 2017. Even with those changes, it would have been possible to keep that carbon content by not invading the green deal with the changes to the proposals and by having a front-loaded system, which the Department could have worked out.

David Mowat: I did understand that. The part of ECO that has been extended and strengthened is the part that looks at those in particular fuel poverty. The middle section, the carbon saving community obligation, has been strengthened. The hon. Gentleman is right that the CERO has been weakened, but that just reflects reality.

Dr Whitehead: The CSCO has not been strengthened. It has been stretched out at the same level over a longer time at the expense of the CERO, which has had to fund most of the money to enable the CSCO to remain even at its previous level. I do not understand whether the Department understood what it was doing when it made these changes. If it understood, stood by and did not put any remedial measures into the consultative document, it wilfully let a large section of ECO fly out the window, along with all the previous targets. If the Department did not understand what it was doing, that is possibly an even worse prospect. Either way, the programme could have been saved with a slightly different way of revising the ECO programme, but the Department allowed a large proportion of the work on solid-wall insulation and hard-to-treat cavity homes—we all know that they are an absolute imperative target for the country over the next period—simply to go to waste.

I hope that a number of these programmes can be retrieved in one way or another, but the fact is that we now have an ECO that is a shadow of its former self. In the process, it has left large numbers of people in hard-to-treat homes. Local authorities, housing associations, companies and people who thought they would get jobs are all bewildered as to what will happen. That cannot be a good outcome, when the review was supposed to ensure that affordable energy would be coupled with even more affordable energy through the insulation programmes. The final, savage irony is that a programme to save people a lot of money on their energy bills has been thrown out of the window by a green levies review that was supposed to save some people money on their energy bills. I hope we will not forget that when we debate this issue. I hope that the Minister can explain exactly what his Department was doing when it undertook the change and whether he will contemplate undoing some of these changes, so that the programmes can at least partly go ahead to do what they were originally intended to do.

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3.39 pm

Graham Jones (Hyndburn) (Lab): It is a pleasure to serve under your chairmanship, Ms Dorries. I congratulate my hon. Friend the Member for Nottingham South (Lilian Greenwood) on her tenacity and on securing today’s debate.

In the brief time available to me, I want to concentrate on my constituency and the businesses in it. Hyndburn has some of the oldest, coldest housing stock in the country. Hyndburn council recently launched a warm homes energy company obligation scheme that is now under threat before it has even begun. The businesses in the green economy in my constituency that were innovating and creating jobs as result of the ECO are now concerned about their future and the ECO’s future funding.

The ECO is of particular help to places such as Haslingden and Hyndburn and cutting or even rolling back the scheme will have a disproportionate effect in a constituency such as mine. There is a perverse reality to the Government’s action in that the rolling back of the ECO will help my constituents not by insulating their hard-to-treat homes and saving them thousands on heating bills over decades, but through a comparatively small reduction in their heating bills.

Hyndburn has some of the poorest quality housing stock in the country, with 41.5% of total dwellings built prior to 1919—well above the English average of 23.6%. Some 60% is old, terraced stock and includes hard-to-insulate, Victorian, stone properties. The historic stone façade prohibits external insulation and insulating inside walls is difficult. How do people insulate the inside wall of a rear kitchen or a bathroom, let alone around bay windows and doors? The scale of the problem of cold homes in Hyndburn is chronic.

As a result of the age of the stock, 50.2% of category 1 hazards in Hyndburn are due to excess cold. Of category 2 hazards, the number of properties suffering from excess cold is a staggering 78.5%. Hyndburn borough council’s 2009 housing condition survey noted a 24.5% rate of thermal discomfort compared with the English average of 18.3%. As a result, fuel poverty, as one would expect, is at 20.4% compared with the English average of 13.9%.

The housing stock in my constituency is exactly the kind that is most in need of insulation and energy-efficiency measures. According to studies, nine out of 10 stone terraced properties of that age have hard-to-treat cavities that would benefit from the ECO. The prevalence of hard-to-treat cavities in Hyndburn is precisely why the ECO presented such an opportunity to my constituents and other local councils across east Lancashire to tackle insulation, fuel poverty and the UK’s climate change obligations. My constituency is a beneficiary of an ECO scheme, but the recently launched “Warm Homes Hyndburn” is now under significant threat.

Benefits come not only from insulating individual properties. Isothane Ltd—one of its directors is here today—is an innovative company located in Altham in my constituency and is a market leader in the insulation of hard-to-treat cavities. One of its products, a high thermal insulating foam with high bonding qualities, offers the insulation market a world-beating product. If supported, that type of company and product in the green economy can provide innovation and future green jobs.

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The company is fully behind the National Energy Foundation’s opposition to the ECO reforms. The NEF believes that cuts to the ECO will mean not only poorer health conditions for people living in the uninsulated homes found in my constituency, but job losses in the energy efficiency industry. Isothane Ltd is engaged in several local authority projects that are in receipt of ECO funding and a reduction in such funding will clearly and directly impact on the company. The company and the industry are being hit not only by reductions in the ECO, but by how the ECO is funded, which is creating a huge disincentive. It is a double whammy. Mervyn Kirk at Isothane told me that

“Isothane has received no funding whatsoever for the work undertaken so far in preparation; publicity materials, canvassing and surveyors’ costs have all been paid direct”

by the company. He continued:

“All ECO funding is claimed retrospectively, so any work undertaken in schemes such as this is at considerable expense and risk to the installer.”

That is an important point.

The insulation industry had been given a clear incentive and direction of travel by the Government and had begun to invest and to create employment. By letting energy companies off the hook, however, the Government have created uncertainty and, according to the National Energy Foundation, have put thousands of jobs at risk. The Government took the decision on the questionable premise that it will lead to energy bill savings. Why have the Government injected uncertainty and then proceeded to hold a retrospective consultation? Are they considering abandoning the reductions and reversing the policy or is the consultation a simple rubber-stamping exercise? The situation is resulting in misery for those people living in hard-to-treat properties in Hyndburn and Haslingden. They will no longer get insulation and will continue to spend way above the national average on energy bills; they are effectively being punished for living in such properties.

Mervyn Kirk also said:

“In general, when ECO funding levels were around £85+ per carbon tonne, the majority of properties were able to have specialist insulation installed at no cost to the occupant as long as we were able to encourage neighbouring properties to sign up, i.e. blocks of 3 or 4 properties together…but as funding dropped to around £60 to £75 per carbon tonne, this became unworkable. The funding levels have since plummeted further and there is no confidence about levels of funding for ANY hard-to-treat cavities beyond the end of this month.”

For the record, the month in question is March 2014—this month.

I was told recently by Michael Morrall of Dyson Insulations, which was managing the ECO project in Hyndburn and installing insulation, that because the borough of Hyndburn is so densely stocked with properties of random stone cavity construction, the hard-to-treat carbon emissions reduction obligation of the ECO previously made insulating cavity walls a “fantastic opportunity” to make a change to people’s lives. Cuts to the CERO obligation have driven down the available funding, which has drastically changed the viability of installing the measures without a substantial contribution towards funding shortfalls from occupiers or local authorities. It is worth putting on the record that Hyndburn council has experienced some of the deepest cuts in the UK and is one of only seven authorities to be given a

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temporary rebate to cap the cuts at the maximum possible, so I do not know where local authority funding will come from.

Mervyn Kirk of Isothane Ltd also said to me:

“As the available funding levels have been gradually reduced by the energy companies, the ability for us to offer free specialist insulation to address fuel poverty and improve energy efficiency standards in traditional terraced, stone-built property has become less and less viable. Hence the current situation where homes have already had surveys undertaken, but we can only install where the gap between ECO funding and costs are met elsewhere. In the Burnley target area”—

Burnley is a neighbouring authority of Hyndburn—

“there are too many properties requiring additional funding to be able to stretch the limited resources available.”

In effect, that means that the scheme will be wound down before it has started. In a deprived area with a cash-strapped local authority and stone-built terraced properties, that could effectively kill off the scheme.

The situation stands in stark and embarrassing contrast with what the Government have said previously. In a letter that I received late last year, the Minister stated, particularly of the “Warm Homes Hyndburn” scheme:

“These are just the sort of projects that will be required to tackle the challenge of effectively insulating hard-to-treat properties.”

Fast forward just four months, however, and the Government are actively and knowingly taking steps that take us in the opposite direction and make it more difficult to achieve energy efficiency in my constituency’s housing stock. It has been a monumental shambles from the Government—the only things that have been injected are cynicism, confusion, disappointment and anger into those affected by the changes. Why has the Minister’s position changed in the short time between writing to me before Christmas, when he said that such a scheme was required in Hyndburn, and now, when he is overseeing its whole demise? Did he consider the effects that such changes would have on constituencies such as mine, or was that just an afterthought?

I must finish on this. Did the Minister see “Newsnight” two weeks ago? It showed some of the worst housing in Britain in Hyndburn. I am sure that all who saw that were shocked that such conditions could exist in this country. People on benefits were living in stone-built terraced properties with rising damp and cold in every single room. Every window and every door was mouldy. Will the Minister come to Hyndburn to understand why the old ECO scheme was so important to my constituency? Will he visit Isothane Ltd to see the opportunities that the green economy brings?

3.50 pm

Kerry McCarthy (Bristol East) (Lab): I congratulate my hon. Friend the Member for Nottingham South (Lilian Greenwood) on securing the debate. As other speakers have identified, unless problems relating to proposed changes to the energy company obligation are quickly addressed, there is a real danger that it will not help the households that it was set up to support. In the limited time I have available, I would like to mention concerns raised with my office by Toby Parker, the chief executive officer of Sustain, a successful Bristol-based

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small business that, as part of a range of services, delivers energy-efficiency programmes across the country under the energy company obligation.

Sustain was a leading provider under the previous energy supplier obligation regimes: the energy efficiency commitment, the carbon emissions reduction target and the community energy savings programme. When those came to an end, it invested in preparing for the ECO and the green deal. It recognised that getting those programmes up and running would take time, but, in the words of its chair, Julie Baddeley, in a letter to the Energy Minister last year, it took

“much longer, and was more complex, than any of us had envisaged”.

About 5,500 jobs were lost in the insulation industry nationally as a result of the poor transition from CERT and CESP to the green deal and the ECO, and a number of firms went to the wall. The constant chopping and changing causes considerable uncertainty in the sector. The Department of Energy and Climate Change has acknowledged that the recent proposed changes are creating uncertainty, which is affecting delivery on the ground and has resulted in a contraction in demand. That particularly affects areas outside London and the south-east, such as Bristol, where the market comprising small and medium-sized enterprises and sole traders is important for job creation and economic growth.

The energy companies are trying to reduce the costs of their obligations under the ECO, which the Government hope they will pass on to the consumer by reducing energy bills by between £30 and £35. Sustain, which is currently in contract negotiations with the energy companies, tells me that companies are stamping down on the price that they have to pay for carbon. Its chief executive says that the price is being pushed so low that it could have serious unintended consequences. First, it could reduce the quality of installations. He says that companies that work in a quality way will struggle to achieve results in that budget, which will, no doubt, lead to more complaints about poor quality work.

Secondly, the chief executive is concerned that, in all probability, customers benefiting from the carbon savings community obligation or the home heating cost reduction obligation will be expected to pay more towards the cost of those schemes, as the measures are not fully funded. He says:

“whether intentional or not, this will happen”.

Will the Minister provide assurances that that is not the Government’s intention and, if so, what steps he is taking to address that problem? Mr Parker says that, in an industry reeling from shocks, people are putting in suicide bids. In order to survive, companies are willing to deliver at those rates, but he doubts whether it is possible to have high-quality carbon reductions at rock-bottom prices.

Critically, Mr Parker has serious concerns about the effect of Government changes that have both reduced the CERO target for energy companies by 33% and also made it easier to achieve that target. That is pushing down both the volume and the price, with the result that many energy efficiency companies are questioning whether they can make the scheme work. He feels that either one or other of those changes would have resulted in a significant price reduction, but both taken together could pull the rug out from under the energy efficiency

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market. Has the Minister received similar representations from other companies? I am sure that Sustain is not alone in its concerns. What steps is he taking to resolve those concerns?

I would like to finish by making some wider points about the likely effect of the proposed changes to the ECO, which reflect some of the concerns raised by my colleagues. I am concerned that the problems derive from the Government’s decision to focus on reducing green levies on energy bills in response to the challenge set by Labour’s proposals for cutting energy bills. Essentially, the changes let energy companies off the hook as they do not need to spend a penny on delivering savings to the consumer. In fact, they place them in the driving seat in pressing for reductions to their obligations under the ECO, as it is for them to decide how much of any savings they make will be passed on to the consumer in reduced energy bills.

Changes to the ECO also fail to address one of the key reasons for energy prices, which is the fundamental lack of competitiveness in the energy market. We already know that the ECO is overly bureaucratic, poorly targeted and helping far too few homes. It is not sufficiently focused on those households that need it the most: less than half its funding actually goes to people in fuel poverty. The proposed changes will not improve that situation. The measures under review in the consultation suggest that the ECO will continue to favour those who can afford to part-fund measures, as well as those with larger properties.

The Government’s two flagship energy efficiency policies, the green deal and the ECO, are simply not strong enough devices for improving the energy efficiency of Britain’s housing stock and tackling fuel poverty. In the UK, we have some of the most draughty, poorly insulated housing stock in Europe. Statistics from the shadow DECC team show that a home in Dudley uses four to five times more energy than a typical house in Malmo, Sweden, where the temperature is 7° C colder on average. Figures from the Bristol-based Centre for Sustainable Energy show that there are 5,857 households living in fuel poverty in Bristol East alone.

Shamefully, 31,000 people died needlessly during the winter of 2012-13, 80% of whom were among the over-75s. That was a 29% increase on the previous year and it was estimated that a third of those deaths were caused by homes that were not warm enough. We have been lucky that this winter, although very wet, has been warmer so far.

As part of the recent cold homes campaign, I heard shocking stories from constituents. Some faced impossible choices between heating their homes and eating. I heard from one woman whose husband is extremely ill. Cold homes not only particularly affect people with a health condition, such as her husband, but deny people the most basic of comforts. In her e-mail, she said:

“all we would like is to be warm in our home”.

In this day and age, I do not think that that is too much to ask.

3.57 pm

Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): It is a pleasure to serve under your chairmanship once again, Ms Dorries. I pay tribute to my hon. Friend the Member for Nottingham South (Lilian Greenwood) for

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securing this important debate. She is passionate about this issue and she was eloquent about what the Government’s changes to ECO have meant for her area. She was kind enough to invite me to visit the work in Clifton that she described today, which was a brilliant scheme. It was cross-tenure and cost-effective, it looked beautiful and it created local jobs. The only problem was that it was ending, owing to the decision the Government took before Christmas to cut back on ECO. At a time when so many people are concerned about rising energy bills, Minister, how can it make sense to cut back on insulation and energy-efficiency measures?

I welcomed the Minister’s earlier intervention. We should be clear that people who signed contracts in good faith but who have had those revoked owing to changes in Government policy should get that work done. Either the energy company should honour the obligation that it signed up to, or the Minister should step in to ensure that that work is done.

However, we know that the green deal for communities, or whichever funding pot the Government wish to use, simply cannot plug all the gaps created by the announced changes. A number of extremely good speeches today have highlighted the problem. I am sorry to hear that the hon. Member for Southport (John Pugh) is feeling depressed, although I note that there was a Liberal Democrat conference at the weekend that is almost certainly to blame for that. He raised a crucial issue: the functioning of the brokerage. That is slightly beyond the remit of the debate, but if the brokerage is providing prices to do a boiler job for less than £1,000 and, if at present, the rate is at 6p per £1 saved, that work cannot be done without either a contribution coming from the person receiving the work, or the work simply not being done to the requisite standard.

My hon. Friend the Member for Southampton, Test (Dr Whitehead), with his customary expertise, traced the fingerprints of blame to the notorious Prime Minister’s Question Time and the review of green levies. There is no doubt that this is one of the worst examples of policy being made on the hoof, with serious ramifications for people up and down the country.

My hon. Friend the Member for Hyndburn (Graham Jones) raised in particular some of the innovation in hard-to-treat cavities and the work of Isothane, a company with which I am also familiar. The Minister often says that he wants to create a market to end energy efficiency being generated simply by subsidy. I say to him that the innovation is taking place but will be undermined by the changes that are going through.

My hon. Friend the Member for Bristol East (Kerry McCarthy) talked about job losses and the impact of the changes on SMEs. She articulated well the genuine sense of desperation that now exists because of the changes. Following the autumn statement I was disappointed by how the Minister and others in Government defended the changes, which have undoubtedly caused thousands of people to miss out on work that they were promised, and many people to lose their jobs, as well as causing consternation to businesses that have taken investment decisions based on Government policy. I would like the Minister at least to acknowledge the hardship that has been created. Selling the changes as

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a simple extension of the policy or a way of offering greater certainty to industry is, frankly, an insult to those people who have been adversely affected.

The only people who seem happy about the changes are some of the energy companies—I say some, because there are some that have been extremely good on reaching their obligations under the scheme. In the main, however, the changes are poor and short-sighted. In the brief time available, I will use the Government’s own impact assessment to outline just how bad the changes are.

The biggest change the Government have announced is on solid-wall and hard-to-treat properties. I think this information will answer the questions raised by the hon. Member for Warrington South (David Mowat). The Government have not just reduced the CERO target, but have allowed cheaper measures to fulfil that obligation and added a permitted carry-over from over-delivery on previous schemes. The result is that ECO will not now deliver much at all for hard-to-treat homes.

I find it baffling that the Government have decided to make changes to the part of ECO that was beginning to show signs of progress, and that covered schemes such as the area-based scheme in Clifton, to which my hon. Friend the Member for Nottingham South introduced us. I ask the Minister to think back to our early exchanges on ECO. It was those sorts of schemes, surely, that he was citing in its defence. I know he is a fan of area-based schemes. There are obvious advantages in delivering energy efficiency on that scale—the costs are lower and more people take up schemes when they see the scaffolding go up. What is his assessment of how the changes will affect schemes such as those?

Huw Irranca-Davies: My hon. Friend makes an important point. There has been a great deal of talk about large-scale, area-wide schemes, but there are other aspects that the Government ought to be supporting, such as the co-operative approach. I recently visited south Staffordshire community energy scheme, which worked in concert with the Energy Saving Co-operative and Lichfield district council. It focused on four properties initially but had a plan to roll the work out. There was tremendous success for the initial four properties, but that group is waiting for the Minister to give clarification before it can do any more, and so has stopped. The stability has gone.

Jonathan Reynolds: I absolutely agree with my hon. Friend. I know that when the Minister responds he will say that the minimum target set for solid-wall insulation is just a minimum and could be exceeded, but, quite frankly, if we look at the cumulative impact of the changes, no more than that statutory minimum of solid-wall jobs will be done. I raised that point with him when we considered the Lords amendments to the Energy Bill and also at the most recent Energy questions. The impact of the changes means that the number of solid-wall jobs that are done will not be anywhere near what is needed.

As many Members have said today, that is a major problem for the UK, and no one will solve it for us. The Minister modestly suggested that he was responsible for the boom in the solar industry, and I agree that what has happened on domestic solar installations is absolutely

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brilliant—I am trying to get some solar photovoltaic panels on my own roof. He would surely admit, however, that part of that success has been the drop in unit costs that has come from other countries getting involved in manufacture, particularly China. That will not happen with solid-wall insulation or any hard-to-treat insulation. That is a problem for which we have to find a solution in the UK.

If the Committee on Climate Change wants us to do 200,000 solid-wall jobs a year, 25,000 a year is simply not good enough. My hon. Friend the Member for Southampton, Test hit the nail on the head when he said that if we look at the objectives, the key issue is that ECO was created to do that hard-to-treat work. The policy is constructed around starting to meet that challenge, yet mid-programme the Government have now changed the objectives, leaving us with a bit of a mess.

David Mowat: I cannot let the hon. Gentleman go much further after his comments on solar. We have heard so much today from the Opposition about fuel poverty yet every time there is a Division in the House on whether we should take an option to reduce or increase energy bills, Opposition Members always vote for higher bills. Solar PV was a great example of that: when the Minister tried to reduce the solar tariff from six times grid parity to four times grid parity—something we did two years ago—to a man and woman the Opposition voted against the measure. Yet now they stand up and talk about fuel poverty. It is not rational and it will not do.

Jonathan Reynolds: If we got into an extensive debate about the solar industry I am sure you would rule me out of order, Ms Dorries. If the hon. Gentleman is concerned about affordability of energy bills, one way that we can guarantee that bills will come down is if people use less energy. That objective is delivered through energy efficiency measures, insulation and the kind of work that was going on in Clifton until the Government made the changes. To withdraw from that work in order to deliver cheaper bills is surely illogical.

David Mowat: I completely agree that greater energy efficiency is the best way of reducing energy bills. We are an outlier in terms of the efficiency of our housing stock—although not in terms of our energy costs, which makes the Opposition’s freeze proposal even more opportunistic. The point I was making is that whenever we vote on energy costs the Opposition vote for them to be higher and as a result are not credible.

Jonathan Reynolds: I completely disagree. We could and should have a lengthy debate about energy companies overcharging as that issue is obviously there—people can see that and our policy is designed to rectify it. That makes the changes to ECO even more illogical. The Government have reacted to our policy, which is sensible and which a lot of people like a great deal, by trying to cut back on energy efficiency, to try to claim that energy bills will be cheaper. If the Government are serious about lowering bills, surely the obvious way to do that is to continue with energy efficiency measures. It is illogical for them to cut back on efficiency to claim that they are saving people money on their energy bills.

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In the time available I will address two further points. My next point is about the impact the changes to ECO will have on jobs. The impact assessment predicts that there will be between 7,000 and 14,000 fewer jobs as a result of the changes. That has already begun to happen and a lot of companies have already contacted me about the measures they have had to take. In particular, apprenticeships have suffered a great deal—that is certainly the case in Nottingham. When I visited a scheme there, the apprentice I saw was working on his own property—a marvellous bit of PR from the scheme, but it was brilliant to see such work taking place. Those people should have lengthy careers ahead of them, given the amount of work we need done by the industry they have gone into. For them to miss out or lose their jobs because of Government changes to policy is extremely unfair. So far, the Government have not acknowledged the impact on jobs at all, despite the fact that the impact assessment does. I hope the Minister will comment on that.

The changes severely reduce the Government’s commitment to tackling fuel poverty. When CERO was predominantly concerned with delivering solid-wall and other hard-to-treat measures, the funding would naturally have gone to low-income areas, in particular social housing estates built at a certain time to certain construction standards. However, now that low-cost measures are to be included, will the Minister say what safeguards will be put in place to make sure that the funding does not go to households that could afford to pay? That would be incredibly disappointing, given that one of the already disappointing features of ECO was its modest ambitions for reducing fuel poverty.

The Government are simply not ambitious enough about energy efficiency. The energy companies know that the Government will not hold them to account for failing to meet their obligations. I note in particular that whereas before the changes a fine could be levied on energy companies for failing to meet their targets, they will now no longer face a fine, but simply a rule-based system for increasing targets. It seems that the energy companies will be let off the hook again.

The changes to ECO are poorly judged and fatally undermine much of the original purpose of the policy. I do not accept or understand the Government’s claim that they will lead to a bill reduction of £35. The changes will have severe ramifications for the green deal. The failure of the green deal and ECO to dovetail as they were intended to—their “limited blending”, as the impact assessment puts it—serves only to highlight that further. The Government have again caved in to the energy companies when instead they should be rectifying the serious problems in our energy market, and ensuring that we meet the challenge of improving the UK’s dreadfully insulated housing stock.

The people losing out from this decision by the Government, whether in Nottingham or Southampton, or the other examples given by hon. Members today, are often those who need help the most, and who have been told they were going to receive it, only to learn that the Government have let them down again. The figures are stark: 14,000 lost jobs, 440,000 fewer homes insulated and 2.2 million tonnes in carbon savings forgone. The ECO is this Government’s policy, the changes are this Government’s changes, and the consequences, be they

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in lost jobs, work that now will not take place or the decimation of the solid-wall supply chain, are also the responsibility of this Government. Ministers have got it badly wrong. They need to accept that and think again.

4.9 pm

The Minister of State, Department of Energy and Climate Change (Gregory Barker): It is a pleasure, Ms Dorries, to serve under your chairmanship today. I congratulate the hon. Member for Nottingham South (Lilian Greenwood) on securing this debate and creating an opportunity to discuss our policy on driving home energy efficiency in some of the most difficult to treat properties and some of our poorest and most vulnerable households. She and I may not always agree on the best mode of delivery, but I admire her tenacity on this issue.

I want to reiterate the point that I made in my earlier intervention. I am not in a position to offer guarantees or to spell out details today, but I had a positive conversation with the chief executive of Nottingham city council yesterday. I am pleased with the constructive way that they worked with my officials at the Department of Energy and Climate Change following the meetings that the hon. Lady helped to facilitate. The council is looking more positively at the green deal and working to submit a bid under the green deal for communities, and I look forward to announcing the result of those bids. I am glad to say that there has been a strong response from more than 80 local authorities. We have already announced the first tranche of street-by-street roll-out of the green deal and it is receiving a positive response.

I want to make a general point. The thorough retrofit of Britain’s housing stock is a challenge and is not easy. The hon. Member for Nottingham South and the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), who speaks from Labour’s Front Bench, are absolutely right. I am absolutely committed to the street-by-street roll-out. It is the engine for delivering whole-home retrofit in the most cost-effective way, but I am afraid that that was totally absent from the points raised by the Opposition. I commend them on their concern for the fuel-poor and the will to improve the housing stock of their constituents, but it is at best misinformed and at worst disingenuous to pretend that there is some bottomless pit of money when they represent the party that left us with the biggest peacetime deficit in our country’s history and brought us to the edge of financial ruin. What is more, during the last Parliament they drove up the number of fuel-poor people, which peaked in 2009—the last year of the Labour Government —at 5.5 million. Since then, on any measure, that number has fallen under the coalition Government and, according to the latest figures, it now stands at around 4.5 million.

It is wrong to suggest that energy efficiency is a universal panacea. I am a huge advocate of energy efficiency, but it is delivered at a cost, and it is not fair to deliver policy ambition on the backs of the fuel-poor. ECO is funded by consumers—every single customer. It is not funded by general taxation, and to some degree it is, like the CERT and carbon capture and storage programmes, which Labour introduced, regressive because it falls on the fuel-poor as much as the wealthy. It is unfair to disregard the cost of those programmes.

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The coalition Government have acted clearly to reduce the cost of Labour’s levies on fuel bills to help to lighten the load of the fuel-poor and hard-pressed consumers. We removed from bills the cost of the £1 billion CCS programme, which the Leader of the Opposition introduced when he was Secretary of State for Energy and Climate Change, and now fund it more fairly and equitably from general taxation. We removed from domestic bills the cost of the renewable heat incentive, the final part of the domestic scheme, which will be launched in the spring, to the tune of hundreds of millions of pounds. Likewise, we responded to the escalating cost of ECO.

The Opposition must make a choice. Are they in favour of the £50 reduction in energy bills, or are they not? They owe it to their constituents and voters to make it very clear whether they will put those costs back on to energy bills. Are they saying that they would restore the ECO measures and in so doing drive up bills by at least £50 instead of freezing them? There are hard choices to make. Of course, we all want retrofit of the housing stock. I think we could all agree on the desirable measures, but they come at a cost and we must be fair to everyone and talk about how they will be funded.

It is true that it seems inequitable or unfair to cut the cost of ECO, which means that some people will wait longer for improvements to be installed, but bills will fall for millions of people. The improvements we are talking about will be installed in the homes of a few thousand people. We must be realistic. Progress was made under the last Labour Government, but they left millions of homes requiring substantial intervention to bring them up to what we would all regard as 21st century standards.

Dr Whitehead: Does the Minister accept that ECO is a carbon-saving obligation in the first instance, the funding of which follows? It would have been possible, even if the overall funding envelope had been kept as it was, to make changes in the carbon obligation in such a way that these programmes might have been saved. That is an entirely different point from the one he is making about whether one should abjure savings on energy bills as a result of trying to keep costs up overall.

Gregory Barker: I think we are talking slightly at cross purposes. Let me correct the idea that the ECO target has been obliterated, killed or put to bed, as anyone who listens to the Opposition could be forgiven for believing. The fact is that ECO has not reduced certainty; it has increased it. Labour’s CERT programme was year on year. It ran for 12 months, and was then extended for another 12 months. It was a hand-to-mouth programme. ECO now offers unprecedented transparency and long-term certainty for the insulation industry because we have extended it and guaranteed it up to 2017.

We have not simply stretched the target from 2015 to 2017. From 2013 to March 2015—27 months—we expect to deliver a saving through the scheme of around 14 megatonnes of carbon. In the period April 2015 to March 2017, to which we have extended the scheme, an additional 12.4 megatonnes will be saved, a cumulative total of 26.4 megatonnes, not 14 megatonnes. It is wrong to say that we have not extended ECO or that we

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are not offering long-term certainty against which companies in the supply chain can invest and set their business model.

We have given a clear message to companies in the supply chain that we cannot simply install the measures regardless of cost. We cannot reach our ambition to install solid-wall insulation at current prices, which is why we are trying to create a competitive market and to introduce new private sources of finance. We are trying to introduce greater competition and innovation to drive down the cost of the measures.

Although it is very early days for the green deal and ECO market, we are seeing real pressure on costs, not from the big energy companies but from the disruptive new entrants—the small and medium-sized enterprises, family business and entrepreneurs that are coming into the market. We should celebrate the fact that prices for solid-wall insulation are coming down. I have seen companies that are not only bringing down the cost of these measures but increasing the quality of the product, and the quality and choice of the offer to consumers. [Interruption.] The fact is that I have seen a lot of solid-wall insulation where what people end up with is homes that look like they have been airlifted from East Germany. The people who do it take out all the character and just put on some uniform fascia. In fact, what people increasingly want is choice. They do not want to see character obliterated from their home. They want to see improvements. I am glad to see that we are getting that sort of innovation into the scheme.

I understand where the Opposition are coming from in their desire to retrofit homes. I understand their ambition to improve the efficiency, warmth and comfort of homes, but unless they can cost that out and be honest with the electorate about how much it will cost and how much of the burden will fall on the fuel-poor and on hard-working families, they are just a pressure group; they are not worthy of being considered the Government. We are making those choices and laying out the whole picture for the electorate. We have to balance the costs to hard-working families with the benefits to the few that will receive ECO.

Jonathan Reynolds: The Minister is saying that solid-wall and hard-to-treat measures cannot be economically funded through this programme. Given that this policy is his own policy, when did he become aware that it was unworkable to try to deliver those kinds of measures under the scheme?

Gregory Barker: No; I obviously did not explain this properly. What I am saying is that we could not do the whole lot, the 7 million or so—I think that that is the figure, off the top of my head—properties that need to be done at this price, so what we are doing, as we work with other technologies, is getting the market going, using the green deal communities subsidy and the cashback that we have announced to jump-start the market and to fund the amount that we judge we can afford. That is in order to get the market working and to bring forward innovation; and as the market gets going, so we will see the price come down. We should use Government policy as a lever to drive down the cost, just as we have used Government policy in support of feed-in-tariff technologies as a means of driving down cost; and as costs come down, that should not be passed across in inflated

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profits to installers. It should come across in benefits to consumers, whether they are bill payers or people who are purchasing the technology. That is at the heart of the green deal.

We are trying to move away from the model that was used under Labour, in which there was 100% subsidy. Basically, what that meant was a glorified lottery. Millions of homes were substandard, and each year a lucky few thousand would win the lottery of insulation and get every single measure fully funded. I do not begrudge those home owners or people in the rented sector who had their homes upgraded, but that is not the fairest way of doing it. Yes, there are those who are fuel-poor who will never be able to make a meaningful contribution. We must accept that, but most people who fall into this category are capable of making a meaningful contribution to something that will add considerably to the value of their home.

Lilian Greenwood: My constituents back in Nottingham who are listening to these comments will probably be shouting at their radios and televisions. They will say to the Minister, “We are making a contribution to the cost of getting our homes insulated and we are precisely the sort of hard-working families that the Minister talks about.” They might feel somewhat let down by the sort of comments that he is making.

Gregory Barker: No. I refer back to my earlier comments: I think that there are grounds for optimism for the hon. Lady’s constituents. She is right: we have had to bear down on the cost of delivering ECO. However, we have put in place other measures, which will allow schemes such as that in Nottingham to go forward. We have already announced—

Mr Jim Cunningham (Coventry South) (Lab): Will the Minister give way?

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Gregory Barker: I will not now, as I have very little time left. We must ensure that we deliver value for money, but the hon. Lady is right: a number of her constituents are making a contribution. It is not easy to say exactly what the right level of contribution is, but I think that the principle is important and I salute the work that is going on in Nottingham, as I said. I am increasingly optimistic that schemes such as that and many others across the country will be able to be rolled out, as a result of our green deal communities fund and the increased cashback prices that we have put in place. Those have been warmly welcomed by the supply chain. We have seen a very substantial increase in the cashback offer. Up to £4,000 per household is now available for solid-wall insulation. That is up from £650. It is not a bottomless pit or a blank cheque. It comes from a pot that we judge we can afford in order to get the market moving. We will announce shortly a further tranche of long-term incentives that will encourage people to improve the energy efficiency of their home. That will show that the coalition Government are a genuine partner in that move and that we are trying to build a long-term, sustainable market for energy efficiency improvements.

However, part of that must be green deal finance working together with private finance, subsidy through the ECO and other pots. There is no silver bullet; there is no easy answer, but the situation is simply not as bleak as it is being painted by the Opposition. I understand that every time the Government change policy, that is a challenge for any business that depends on Government policy. We do look, wherever possible, to avoid unnecessary changes and to provide certainty, but the very fact that we have now extended the ECO scheme out to 2017 and put the cashback measures in place, together with the fuel poverty strategy—the first time that anyone—

Nadine Dorries (in the Chair): Order. I call Mr Tom Blenkinsop. Will other hon. Members please leave the Chamber quietly?

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Local Government Funding

4.26 pm

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): Good afternoon, Ms Dorries; it is a pleasure to be under your chairmanship for this important discussion. I appreciate that local government financing is a complex topic and one that I cannot do justice to in this short debate, but I am grateful to have been given the opportunity to highlight the gross disparities that regions face in the financing of local government.

When looking purely at settlement funding, it may appear that the differences are fairly small, with all regions besides London seeing their local authority funding cut by approximately 40% between 2010-11 and 2015-16. However, when we look at actual revenue spending power, we see that there is extremely large inter-regional variation. Revenue spending power takes into account a range of other sources of funding to local authorities and gives a more real—in this instance—sense of the disparities between regions.

The House of Commons Library has undertaken fantastic research that highlights my point. It has calculated the cumulative percentage cut in revenue spending power faced by each region between 2010-11 and 2015-16. Regions with high levels of deprivation and need face massive reductions, while regions with significantly lower levels of deprivation and need face much smaller reductions. The north-east faces an 18% cut, London and the north-west a 17% cut, Yorkshire and Humber a 16% cut, the west midlands a 16% cut and the east midlands a 12% cut. However, although they still face cuts, the south-west and the east of England face relatively small cuts of 9% and 8% respectively and the south-east faces a 6.6% cut.

In 2014-15, the 10 most deprived local authorities in England will lose six times more than the 10 least deprived compared with 2010-11, so while more deprived areas such as Liverpool, Hackney, Blackpool and my native Middlesbrough lose most, the Prime Minister’s own local authority, West Oxfordshire—one of the wealthiest—is seeing its spending power increase, as are other wealthier council areas.

Our constituents probably do not think much about the intricacies of local government funding formulae, but the consequences of the unfairness are real, significantly affecting our constituents and local communities. Both unitary authorities in my constituency, Middlesbrough and Redcar and Cleveland, have faced significant challenges and are set to face even more owing to the cuts imposed on them by the Department for Communities and Local Government.

Under a budget recently proposed by the independent mayor of Middlesbrough, Ray Mallon, 300 jobs are set to be axed and the Clairville stadium, the registry office, the TAD centre and the Middlesbrough teaching and learning centre are set to close. Elsewhere, services will be reduced, with the opening hours of leisure centres, for example, being slashed. That is not to mention the significant cuts and job losses that have already occurred in Middlesbrough.

The situation in Redcar and Cleveland is similarly bleak, with the council forced to reduce front-line services such as youth services and to make compulsory

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redundancies, as so many jobs have been lost that there are very few people left who are willing to take voluntary redundancy or early retirement.

Mr Jim Cunningham (Coventry South) (Lab): I had a meeting last week with the leaders of the seven districts that make up the west midlands. It is becoming abundantly clear that over the next two or three years, those authorities will no longer be able to provide even the minimum services required. The situation goes back about 25 years to when Nicholas Ridley said that the ideal local authority would meet only once a year to give out contracts.

The Government, particularly the Tories, think in generations, and when they come back into power, they pick up where they left off. More importantly, Coventry will lose 1,000 jobs over the next two or three years, and it will have to find some £50 million on top of the £20-odd million that it has already found. Children’s services will suffer as much as education. Coventry and the west midlands local authorities are in a real bind.

Tom Blenkinsop: The picture is similar in the north-east. For example, the leader of Newcastle city council, Councillor Nick Forbes, has talked about his fear that local authorities are fast approaching a cliff edge in terms of their ability to perform even statutory duties. I also received some interesting information from the Local Government Authority about other anomalies relating to capping, which I will come to later.

Redcar and Cleveland borough council should be applauded for protecting and supporting a local company, SSI UK—an employer of fundamental importance for Redcar, Cleveland and the surrounding Tees valley area. The firm invested heavily in Teesside Cast Products’ blast furnace, coke ovens, basic oxygen steelmaking plant and continuous casting plant.

I know the company well, having been a union official on its site. Until recently, it was unable to pay its business rates, which mounted up to some £19 million. If Redcar and Cleveland borough council had not taken on board that burden, it would have been difficult for the company to keep functioning. Fortunately, a settlement is now on the table, but if that settlement had not been achieved, the local authority would have had to cut a further £9 million on top of the cuts imposed on it, without any central Government assistance. We must praise the borough council for managing its already tight budget in difficult circumstances.

Locally, some Tories and Liberal Democrats have accused councillors of relishing and delighting in cutting front-line services, and have claimed that they are seeking to score partisan political points. That is clearly not the case. Councils are making cuts because the political settlement forced on them necessitates their doing so. If anything is partisan, it is central Government’s agenda and message, because Conservative areas generally receive much smaller cuts or even budget increases. I highlight the example of the Lord Chancellor’s local authority, Epsom and Ewell, which is receiving a 3.51% increase in non-ring-fenced central Government finance provision between 2011-12 and 2015-16. In the same period, Middlesbrough and Redcar and Cleveland face a cut of approximately 30%.

A similar accusation is often levelled at local authorities that decide that freezing council tax would leave them in an even more precarious medium to long-term financial situation. That is clearly motivated not by partisan

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factors but by the fear, common to many local authorities, that accepting such a freeze will leave a black hole in their finances in years to come.

Mr Jim Cunningham: Freezing council tax might sound like a good idea at the time, but the council tax payer will pay the price two or three years down the road. My hon. Friend must also remember that in addition to local authority cuts as we know them, cuts have been made to the fire service, to the police and to neighbourhood policing, even though the Government want to cut crime.

Tom Blenkinsop: I agree with my hon. Friend. There are other factors, which I will not be able to go into today, and local people often expect local authorities to pick up the slack. That slack has totally gone, however. We have gone beyond cutting into flesh, and we are now cutting into bone, as local authorities increasingly recognise. Tory-controlled local authorities feel that the Government are forcing them into a position where they have to increase council tax to secure their financial future. I believe 18 councils are in that situation. Indeed, the Prime Minister’s council, Oxfordshire county council, is proposing a 1.99% increase, as is the Foreign Secretary’s council, North Yorkshire county council, which is local to me.

We have to look across the piece. I will quote from an LGA briefing that highlights issues that the Minister must take on board. For example, the LGA says:

“Councils that have frozen their council tax could still face having to organise referendums, whether or not the increase in total council tax was a direct result of their financial decisions.”

The reason for that is:

“The extension of council tax referendums to include levying bodies risks perverse outcomes that will put growth generating investment at risk.”

That may affect things such as internal drainage boards, flood defence, integrated transport plans and pension authorities. We cannot discuss this in any depth today, but Government policy is increasingly to use the private sector rather than the state for people’s pensions. The LGA states:

“Pension authorities in some Metropolitan Counties and London operate the legacy pension schemes of the Greater London Council and former Metropolitan Counties. As with the rest of the Local Government Pension Scheme, there is little control over the costs of these which are increasing with each successive valuation.”

There will be consequences for pension policy, transport policy and floods policy.

Efficiency savings will go only so far to plug the funding black hole that central Government have imposed on local government. The scale of cuts faced by councils in the north-east has led some, such as Newcastle city council, to warn that in a few years’ time they will be unable to afford to perform all their statutory duties. I imagine that the Minister will tell us, as he and his colleagues have done many times, that the reason why local authorities in regions such as the north-east face larger cuts is that they receive more funding from central Government than do those in other regions.

That is a false argument for two reasons. First, those disparities exist not only in absolute figures but in percentage terms. Secondly, and crucially, regions such as the north-east receive more funding than those such as the south-east because their need is greater. If we

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were to take to its logical conclusion the Secretary of State’s argument that cutting in the north-east is fine because the region receives more to begin with, we would end up with total uniformity in per capita central Government funding to local government, irrespective of an area’s deprivation and need. Does the Minister agree that it is absurd to ignore or underweight deprivation in funding formulae, as his local government financing policies do?

I am conscious that the Minister may also say that the north-east and other deprived regions are receiving punitive cuts because of the need to rebalance the public and private sectors in those regions. Although there is a need further to develop the private sector and private sector employment in regions such as mine, does he agree that the lack of regional economic resilience is caused by long-standing structural issues that date back to the ’70s and ’80s, if not before, and that there is a real risk that disproportionate cuts to local government and the consequent job losses will reduce the aggregate demand in the region? Would that not hamper, rather than help, the development of the region’s private sector?

I realise that the problem is not purely a north-south divide; it is more complex than that, and many factors are involved. Issues such as rural deprivation affect parts of the north-east such as my constituency, while deprived areas of London are also being penalised. For example, the Government’s figures show that Lewisham, which is 31st on the index of multiple deprivation, will lose 9.6% of its spending power, or approximately £2.93 million, between 2013-14 and 2015-16. Its neighbour, Bromley, which is 203rd most deprived and Tory, will receive an extra £3.4 million over the same period.

Furthermore, there is considerable intra-regional variation. Deprived parts of the south, such as Southampton, fare much worse than areas such as Poole. That said, northern regions are more deprived, in general, than southern ones. As the Tory-led Government have made the political decision that deprived areas should face more cuts and a greater reduction in revenue spending power than well-off ones, northern local authorities are generally being hit much harder than southern ones. Currently, we do not have a one-nation system to determine how much funding local government should receive. We need a one-nation system of local government financing, in which need and deprivation are properly considered and in which local government is given the resources it requires to thrive and to help local businesses grow.

4.39 pm

The Parliamentary Under-Secretary of State for Communities and Local Government (Stephen Williams): I congratulate the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) on securing this debate and speaking up for his constituents—that is the duty of all MPs. I also congratulate him on getting the phrase “one nation” into his speech many times. He is an Opposition Whip, so I am sure it will be noted that he is working overtime to be on message.

The hon. Gentleman mentioned the economic resilience of the north-east, as well as the good work done by a particular steel company in Redcar.

Tom Blenkinsop: That would be SSI UK.

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Stephen Williams: I wanted to point out that my hon. Friend the Member for Redcar (Ian Swales) has an enormously positive track record on securing the reinvestment in and reopening of the steelworks in Redcar. Bearing in mind the employment growth at Nissan as well, the north-east economy seems quite resilient. The private sector seems to be thriving and new investment is coming into the region, which I hope the hon. Gentleman would applaud.

Over recent years, the Government have worked to reform the funding system that we inherited in 2010 to incentivise local economic growth and house building and give councils more freedom in how to spend their money and achieve savings. More recently, we have focused on how funding can support transformation right across locally delivered public sector services.

The Government want councils to do more for less so that the taxpayer gets a better deal. We have decentralised power and given local communities a range of new freedoms and powers, but there is more to do in order to save taxpayers’ money through greater joint working between local and central Government—not through higher charges or council taxes, but through innovation.

We have had to rebalance the economy, which has meant reductions in local government finance. I acknowledge the fact that local government has not been protected overall in central Government spending reviews. Other areas—such as the NHS and funding for schools—have been protected, but because local government spends a huge proportion of central Government money, the cuts that are necessary to rebalance the nation’s books have perhaps been felt more keenly in that area. Nevertheless, I acknowledge the hon. Gentleman’s points on that front.

We have had to make some difficult and tough decisions about the public finances over the past three years, but it was right that we took them. Our budget deficit is now sharply reduced. We are no longer the European Union country that borrows the most as a share of our national income—Spain currently holds that record—but there is still much more to do before we get the nation’s finances back on course.

We are encouraging local councils to go for local growth. We believe that local leaders are best placed to understand their local economies and the needs of their areas, so we are promoting strong local economies across the country and giving local areas the tools and incentives to drive up growth in their areas. The previous system made councils dependent on central Government for their income, and that relates in part to the heart of the hon. Gentleman’s comments.

Colleagues have described the previous system as giving rise to a begging bowl mentality. I have described it as a supplicant relationship between local and central Government, with local authorities beholden to central Government for income and, often, for power. What pots of money were given to local authorities were frequently ring-fenced, with lots of strings attached, by the previous Government. We have tried to sweep that all away so that over time local government can, increasingly, stand on its own two feet.

Tom Blenkinsop: The Minister will be aware that the Government’s growth plan involves local enterprise partnerships, which they demand apply for funding

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from a central pot in Whitehall. Most of that pot has not yet been given to LEPs. That has led to the Tees Valley Unlimited LEP saying only today that a radical rethink of the growth strategy for the local area is required if we are to go forward.

Stephen Williams: I will shortly come on to the north-east local economy and mention some of the funds that have gone to the region from central Government.

As I mentioned, savings on the ground can be achieved through the transformation of services, continuing to provide them to the public at a more efficient cost. There are 325 shared service agreements reported in local government, which it is estimated could save £280 million per annum. Our system means that councils that are open to new business will see the benefits of growth and be rewarded for building new housing through the new homes bonus, which will be worth almost £1 billion next year. In 2014-15, Middlesbrough will receive more than £1.5 million in new homes bonus funding, bringing the total earned by Middlesbrough since the scheme began to more than £4 million.

The hon. Gentleman referred many times to the differences between different authorities’ spending power around the country, but, on average, councils will have spending power worth £2,089 per household from April. There is protection for more deprived areas of the country—such as the hon. Gentleman’s constituency—and for areas that are most dependent on central Government grants. Such councils will continue to receive significantly more Government grant in 2014-15—Middlesbrough will have a spending power of £2,550. That is around a third more than Poole, an authority that the hon. Gentleman mentioned, which will have a spending power of £1,678 per household.

Tom Blenkinsop: Of course, that is the case now, but, bearing in mind the funding calculations for recent years and going forward, at what point does the Minister forecast that spending per household will equalise for those two authorities?

Stephen Williams: The Government have published their settlement for 2014-15, which includes the figure I have just given. We have given indicative figures for the following year, but, of course, no Government are able to extrapolate that far for future local government settlements. That will be an issue for whatever Government are in place in the next Parliament, but I would be surprised if local government support to Poole and Middlesbrough was equalised any time soon.

The hon. Gentleman mentioned central Government funding for local economic growth. We have provided substantial support to regeneration in his local economic area, Teesside, which has received £24 million from the regional growth fund and £8.6 million from the growing places fund. That has funded, for example, the Teesside advanced manufacturing park, where I am sure some of his constituents are employed.

The Government want local authorities to protect council tax payers in their area. Council tax constitutes a significant bill for many of our constituents. I would guess that many of the hon. Gentleman’s constituents feel very keenly about the council tax they have to pay in comparison with their energy and other utility bills.

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Under the previous Government, council tax more than doubled, but this Government have done everything possible to protect families from further rises.

Since 2010, council tax bills across England have been cut by 10% in real terms. Over the past three years, we offered sufficient funding so that councils could freeze council tax without losing income. We will do the same again for the next two years, with a further £550 million available to councils.

Tom Blenkinsop: I thank the Minister for his information, but in terms of local history, when his party ran Redcar and Cleveland with the Conservatives between 2003 and 2007, council tax was increased by 25%. In addition to that, the chief executive officer’s salary went from £83,000 in 2003 to £143,000 in 2007. Although council tax went up under the Labour Government, it was largely down to councils run by the Minister’s party and that of his coalition partners.

Stephen Williams: I will deal with the second point first. The Government have said that although it is up to local authorities—rightly so for all us localists—to set local government salaries, they should be aware of value for money for local taxpayers when setting chief executive and other chief officer salaries. Making a comparison with perhaps what the Prime Minister earns might be a good starting point to benchmark such salaries.

The council tax increased over the lifetime of the previous Government both in cash terms per household and as a share of the national tax base over that period. Although we can look at what happened on the ground in individual local authorities, it is undoubtedly the case that, right across England, council tax as a proportion of the total tax collected increased over that period, putting more of the burden of what is quite a regressive tax on local households. That is why the Government have been encouraging local authorities to freeze the tax, providing freeze grants to incentivise them to do so.

With the new funding, the average bill payer could have saved up to £1,100 for an average band D property over the lifetime of this Parliament. I hope that as many councils as possible will take up this offer in the last year of this Parliament to help local residents with the cost of living.

Councils can do more to transform services. Many councils have taken steps to make savings through common sense measures, but there is still much more that could be done. It is estimated, for instance, that £2 billion a year is lost through local fraud. Councils have a procurement budget, collectively, of more than £60 billion. Clearly, there are possibilities for savings to be made that would not adversely affect local residents. We want to see councils tackling issues before they start putting up tax bills or cutting back on services.

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Councils also have more than £19 billion in reserves, which could be there to cushion the changes that need to take place over the next few years. That is before we begin to consider the more fundamental transformation in services through models such as the troubled families programme, which the Secretary of State oversees with Louise Casey in our Department, or the whole place community budgets where the emphasis might be on innovative ways of working, such as early intervention and prevention, which I have been keen on for most of my political life.

Such programmes promise to be more effective and more efficient over time. We have set aside £200 million from capital receipts to support service transformation. We should remember that in 2014-15 there will be a further £330 million to continue this transformation, including a £200 million expansion of the troubled families programme.

Another big change in local government finance will come from the better care fund, which comes on stream in 2015-16. There will be £3.8 billion of pooled budgets at a local level to integrate health and social care—aggregating the money, but joining up services in a more seamless way. I am sure that we have all often had constituents coming to see us about the disjoint between the NHS and social services, and the better care fund will partially deal with that.

The hon. Member for Middlesbrough South and East Cleveland mentioned other comparisons and the differences between the authorities in his constituency and the Prime Minister’s constituency, and the Lord Chancellor’s local authority of Epsom and Ewell. They are, of course, district councils, so I do not think he was comparing like with like. I suspect that those relatively small district councils will have had lots of extra income through the new homes bonus, because new houses have been built in those areas. I think he is on safer ground when comparing unitary authorities and metropolitan districts, rather than small district councils in the south of England.

The hon. Gentleman also mentioned recognising poverty and need in the system. Of course, that is to some extent embedded in the system that we have now started to change. All those past settlements are embedded in the system. We are now expecting local government to grow their local economies. We have put in place a 50% retention of business rates. There was a time when the Treasury took 100% of local business rates away from local authorities and redistributed the money according to its own priorities. That system has now ended. There is a real incentive for Middlesbrough, Redcar and Teesside to grow their local economies, so that we can indeed become one nation.

I congratulate the hon. Member for Middlesbrough South and East Cleveland on raising the issues on behalf of his constituents. Councils across the country still have a great deal to do to transform their local services, but I am sure they are up to the challenge.

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International Military Sales Ltd

4.55 pm

Mr Ben Wallace (Wyre and Preston North) (Con): It is a delight to serve under your chairmanship, Ms Dorries. May I draw attention to my entry in the Register of Members’ Financial Interests? I have been the chairman of the all-party group on Iran for the past nine years, and I am a former overseas director for the aerospace company Qinetiq.

I want to highlight the relationship between International Military Services Ltd and the Ministry of Defence, and a specific case as it relates to Iran. It is a sorry passage in our history and the UK’s relationship with that country. It is not only a sorry story, but un-British in that the process that I will describe has been marred by double dealing and obfuscation. The Minister will be relieved to know that I am not talking about recent history; I am talking about way back in the 1960s and 1970s.

In the days of the nationalised defence industry, the British Government established a private limited company as its trading arm to sell weapons and aerospace equipment abroad and munitions to overseas buyers, mostly to other Governments. A lot has changed since then and the aerospace industry has been almost completely privatised. For that reason, in 1991 it was decided to wind up this little shell company that was wholly owned by the Government. It would have been wound up, but for one problem—a debt owed by that company to the Government of Iran, equivalent to between £400 million and £500 million.

The debt may explain why, 23 years later, the company still exists. What was the cause of the debt and what should we do to put it right? Between 1971 and 1976, the Shah of Iran paid up front—quite rare in those days, and even today—the equivalent of £650 million for 1,500 Chieftain tanks and armoured vehicles. When in 1979 the revolution deposed the Shah, Britain quite rightly ceased those exports until the country had settled down and we clearly knew its intentions.

However, we chose not to return the equivalent of the £450 million that Iran had paid us. Instead, we sold the tanks to Saddam Hussein, who then proceeded to use a number of those tanks against the people of Iran. I think it is widely accepted that the west’s support for Saddam Hussein was a catastrophic error. That period of history is well behind us, and I hope we will not make such mistakes again. However, since that time, and despite Iran’s attempts through the rule of law to access the funds owed, the UK has held on to them.

I am not here to urge the British Government to break the successful sanctions regime, but I am here to urge that we honour the debt once and for all.

Jack Lopresti (Filton and Bradley Stoke) (Con): I congratulate my hon. Friend on securing this debate. If the matter were to be resolved, what impact would it have on the sanctions that Iran has to adhere to, given what we know about some of their motivations and activities?

Mr Wallace: There would be no impact, because in this country we have the facility of the High Court. The funds are already held by the High Court on behalf of the Government, but should the High Court make a

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ruling, or a settlement be reached, they could be handed over within the parameter of the High Court and held until such time as they were unfrozen through the sanctions licensing scheme or made available as a result of a change to sanctions. This is not about releasing funds tomorrow morning to the Iranian Government, but about putting a wrong right, putting our relationship with Iran on a more open and just footing, and, hopefully, putting the matter right.

However, I am afraid that this matter does not quite end there, because Britain and Iran are signatories to the Permanent Court of Arbitration in the Hague, an international treaty whereby we effectively arbitrate over contracts. In 2001, the court ruled in favour of Iran to recover the debt. The onus is on the United Kingdom to honour its treaty obligations.

If we fast-forward to 2013, however, we find that Iranian officials, who had set out from Iran with UK visas issued by the Foreign Office, come to this country to access the services of the commercial court. On landing at Heathrow, their passports are removed from them, their visas are revoked and they are detained for a number of days in asylum centres. That was not a particularly British way to resolve an issue, especially given that we had only recently issued their visas. It was a worrying sign.

To date, the Home Office has not been willing to give me a full explanation of the reasons behind the officials’ detention. However, I am sure that the Home Office will be careful, because any court—any judge—would look very poorly on something that is done without a valid reason, as this case involves access to legitimate justice and our courts. Let me be clear: I am not seeking to change the sanctions regime and I am not seeking to hand this money over. However, in the current environment, in which we are trying to put UK-Iran relations on a better footing, I am seeking a swift settlement for all parties.

Across a range of areas, Iranian entities that are not under sanction and are not involved in any way with the Iranian Government are suffering as a result of the UK’s fear about extraterritorial US sanctions. That is because many of those sanctions, while they do not deal with US companies, have an extraterritorial reach that can unfortunately leave many British entities with a Hobson’s choice—trade with us or trade with Iran.

We are now in the rather perverse position in which the US Government are issuing letters of comfort to US banks to allow them to trade with Iran, and to allow them to have approved and licensed financial transactions with Iran, while our banks are receiving no such comfort or protection from the reach of Congress. American banks in the US are protected from Congress by the US Administration, but British banks are thrown to the lions.

As sanctions become a more common foreign policy tool—with some success; they have certainly helped to contribute to the process of Iran coming to the table—we in Britain should make it very clear that we will follow the rule of law, fill in the detail and ensure that sanctions are clearly adhered to. However, that does not discharge us from our outstanding obligations.

Previously, there have been numerous rulings in the UK, Germany and the US courts that clearly distinguish the difference between the discharge of an obligation by

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a party—in this case, the obligation of International Military Sales Ltd to the Iranians—and the payment of the funds to a designated entity. They are two separate issues and to conflate them, as people have tried to in the past, supposedly as a reason for not resolving this matter, is to put unnecessary and unreal barriers in the way.

I would like to hear from the Minister. I am grateful to him for coming to Westminster Hall today, because I am aware, as chairman of the all-party group on Iran, that Iran policy is way above my pay grade. It is made by the P5+1, and in No. 10 and the White House. However, I would be very grateful if the Minister at least recognised the importance of resolving this matter. We should wind up the company, which has existed in limbo for 35 years, and we should discharge the MOD’s obligation to a brass plate somewhere else in London. We can then put this sorry tale behind us.

5.3 pm

The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne): It is a pleasure, Ms Dorries, to serve under your chairmanship at this later than anticipated hour; I am grateful to you for keeping Westminster Hall open. I thank my hon. Friend the Member for Wyre and Preston North (Mr Wallace) for securing this debate. It is important that we have this opportunity to put on the record the Government’s position on the subject that he has raised today.

I know that my hon. Friend, who is chairman of the all-party group on Iran, has taken a keen interest in this matter since he joined the House. It is entirely appropriate that he should have secured this debate . He has raised the issue of a dispute, and it is important to try to get a little clarity on the record as to the nature of that dispute. It relates to a number of contracts—not to a single contract—between the Iranian Ministry of Defence, which I shall refer to as MODSAF, and International Military Services Ltd, known as IMS. I am pleased to have this opportunity to outline the Government’s position regarding the dispute. As my hon. Friend has acknowledged, I am, of course, somewhat limited in what I can say, given pending litigation in the High Court between IMS and MODSAF. The UK Ministry of Defence itself is not a party to those proceedings.

I will make a number of key points in responding to this debate. First, I wish to make it clear that the Government would like the matter to be resolved as soon as practicably possible, which I think was the main challenge laid down by my hon. Friend. We share his determination in that respect, not least because, as he said, the dispute can be traced back to 1979 and the demise of the Shah’s regime in Iran. At that time, IMS, a company wholly owned by the MOD, had approximately 60 contracts to supply MODSAF with defence equipment and services. The change in regime in Iran saw the cancellation and termination of those contracts, resulting in a number of legal disputes.

The vast majority of the disputed contracts were settled on 22 October 1990, but four contracts were not. The two largest of those four contracts involved, as my hon. Friend said, the sale of more than 1,000 main battle tanks and armoured recovery vehicles. These contracts were referred to the International Chamber of Commerce for arbitration. The ICC ruled on 2 May

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2001—more than 10 years later—in favour of MODSAF. By agreement between the parties, MODSAF agreed not to pursue payment of the awards until the outcome of a planned challenge to the awards by IMS. That was under the proviso that IMS paid, by way of security, a sum sufficient to meet the awards into the High Court. That payment was made in December 2002.

IMS subsequently challenged the ICC awards through the Dutch legal system, as the seat of the ICC arbitration, culminating in a final ruling on 24 April 2009 by the Dutch Supreme Court. The challenge by IMS was partially successful, in that the Dutch Supreme Court partially set the ICC awards aside.

The Government and IMS accept the ruling of the Dutch Supreme Court. However, there are legal issues that remain unresolved as to the precise amounts payable to MODSAF and crucially, as my hon. Friend said, as to how the sanctions regime that had been subsequently imposed impacts on the awards and the circumstances under which MODSAF is entitled to receive payment. These issues are subject to litigation, with a High Court hearing scheduled for June.

In addition, as I have already mentioned, there are other contracts under dispute. In relation to one of these, an infrastructure contract, the ICC tribunal ruled in favour of IMS on 28 January 2005. Prior to the Dutch Supreme Court ruling in 2009, international sanctions were imposed against the Iranian Government, in the context of their potential nuclear aspirations. In 2008, MODSAF itself was designated under the relevant sanctions regulations. Notwithstanding the recent sanctions relief included in the joint plan of action agreed with Iran, the bulk of the sanctions remain in place until a comprehensive settlement is reached on the nuclear programme. It would be inappropriate for the Government to comment any further on these issues, given the pending litigation.

However, the Government would like to see a final and appropriate resolution of these long-running disputes, and we hope that the recent progress in reaching an understanding on a variety of issues with the Iranian Government will facilitate that objective.

Mr Wallace: I am not referring specifically to this case. In general, given previous rulings, does the Minister not recognise that it is perfectly acceptable for a court to deal with the discharge of an obligation separately from how that obligation is then paid to an entity? They are not the same things.

Mr Dunne: My hon. Friend pre-empts the conclusions to my remarks, but I can confirm that we anticipate a resolution being possible, ideally without recourse to the High Court action in June. We would be happy to see the parties engage to reach a settlement on the outstanding issues before it gets to court. We think that can be done irrespective of the sanctions regime. Once a settlement has been reached to agree a final amount, the payment of that amount becomes a matter for the prevailing sanctions regime in place at that time. I agree that those are separate issues, but the ultimate payment cannot be made while the sanctions regime is in place.

I want to mention a couple of other factors that the House needs to be aware of. All the negotiations that have taken place on this matter have been conducted by employees of IMS on a confidential basis, in turn

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routinely channelled through legal representatives. Also, given the title of this debate, I should like to clarify the relationship between the Ministry of Defence and IMS. IMS is a wholly owned subsidiary of the Ministry of Defence; all but one of its 20 million shares are held by the Secretary of State for Defence and the other single share is held by the Treasury Solicitor. It is governed by the Companies Act, with accounts filed in Companies House. The company formally ceased trading in 2010 and now exists purely to resolve the disputes that I have already touched on.

Alison Seabeck (Plymouth, Moor View) (Lab) rose—

Nadine Dorries (in the Chair): I am sorry, Ms Seabeck, but because you were not here at the beginning of the debate, it is not in order for you to intervene. [Interruption.]

Mr Dunne: I should have been happy to take the intervention. If the hon. Lady has a point, perhaps she can make it to me afterwards.

Nadine Dorries (in the Chair): May I clarify that Ms Seabeck is not allowed to intervene in this half-hour debate because she is the Opposition spokesperson?

Mr Dunne: Thank you, Ms Dorries. We all learn something new every day.

IMS employs two part-time staff members and three directors. The position of the Ministry of Defence and the Treasury is that the company should be wound up

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once the final disputes have been settled. I think that that addresses a number of points raised by my hon. Friend.

My hon. Friend mentioned the incident that took place in January last year, in which three Iranian officials were detained and deported from Heathrow airport. The former Under-Secretary of State for Foreign and Commonwealth Affairs, my right hon. Friend the Member for North East Bedfordshire (Alistair Burt), wrote at the time to the UK legal representatives of those concerned, explaining that although it was not the intention of the Government to cause undue anxiety, since the attack on our embassy in Tehran in 2011, Iranian officials had not been allowed to visit the UK in their official capacity. The Government regret any distress caused to those involved. Following the softening of the sanctions regime, we think it would now be possible for Iranian officials to engage with IMS, either on neutral territory or, indeed, here again in the UK, if they were willing to return.

To sum up, the Government and IMS recognise and accept the rulings of the Dutch Supreme Court in this matter. A number of issues remain unresolved and are subject to potential litigation, but we hope that a final settlement can be agreed soon. The parties are not very far apart in financial terms, and we hope that they can come to a resolution without further recourse to the courts. I hope that I have explained the Government’s position on this matter.

Question put and agreed to.

5.13 pm

Sitting adjourned.