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Westminster Hall

Wednesday 17 December 2014

[Mr Adrian Sanders in the Chair]

BMI Pension Fund Compensation

Motion made, and Question proposed, That the sitting be now adjourned.—(Dr Thérèse Coffey.)

9.30 am

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Mr Sanders.

The issue that I will address today is complex but it potentially directly affects many hundreds of people throughout the UK, including many people in the Edinburgh and Lothian area. In fact, one of my constituents is affected, and they have asked me to raise the issue in Parliament. I am glad to have this opportunity to do that, because the issue has wide implications beyond those who are directly affected by it.

The issue is complex, and I will therefore have to spend a bit of time setting out the background to it. I am sure that those hon. Members who are taking part in the debate will be familiar with the subject and its history, but many of those listening outside this place will not be so aware, so it will be helpful to set out some background.

Let me start with the history. BMI—British Midland Airways—was, as Members will know, a major UK airline. It operated from a number of UK airports, and that geographical spread across the UK is reflected in the Members who have shown a particular concern about the issue. They are from the Lothian area, from London, from Northern Ireland and from the east midlands itself, where the former headquarters of BMI was situated. I know that all of them have been in correspondence with Ministers over a considerable period.

As Members will also know, from about 2009 the airline went into a complex set of changes of ownership. Those changes were stimulated by a decision of the major shareholder and founder of the airline, Michael Bishop, who is now a Conservative peer, Lord Glendonbrook. He exercised an option that resulted in Lufthansa becoming the 100% shareholder of BMI. However, under UK pensions law, at least as applied by the Pensions Regulator at the time, that did not mean that Lufthansa took on any legal obligation to fund the BMI pension scheme.

In due course, Lufthansa decided to sell BMI. However, part of the condition of the sale that Lufthansa agreed with the International Airlines Group, of which British Airways is a major component, was that responsibility for the pension scheme should be removed from BMI. There was a solution proposed by Lufthansa initially, but it was not approved by the Pensions Regulator, for reasons that I will not dwell upon here; they are not directly relevant to the subject matter of the debate.

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In any event, the outcome of all these comings and goings was that the BMI pension fund, and therefore the Pension Protection Fund, received £16 million from Lufthansa. In addition, Lufthansa provided a further £84 million to top up members’ benefits outside the PPF, even though it did not appear to have a legal obligation to do so.

Mr Iain McKenzie (Inverclyde) (Lab): It is a pleasure to serve under your chairmanship today, Mr Sanders, and I congratulate my hon. Friend on securing this debate. Does it seem to him that that move in this takeover was a calculated one to strip 80% of the pension away from those long-serving employees?

Mark Lazarowicz: Well, that was certainly the outcome in many cases; that was what happened to the pension scheme members. Certainly, it was clear that part of the agreement that Lufthansa reached with the companies taking over the former BMI operation was that effectively the pension scheme responsibility would not go with the airline, which is very concerning and, as I have said, has much wider implications beyond the BMI pension scheme, although I am obviously concentrating on that today.

The arrangement by Lufthansa to top up members’ benefits outside the PPF seems, on the face of it, relatively generous. However, hundreds of staff in the BMI pension scheme will lose substantial sums in pension money, and I understand from the British Air Line Pilots Association that there are now some people in the Monarch Airlines pension fund who are in similar circumstances. Hundreds will lose out. At least 30 of the BMI pensioners and 13 Monarch members will lose more than 50% of their expected scheme pension, and that is taking account of the top-up payments from Lufthansa. Her Majesty’s Revenue and Customs has decided that although those top-up payments do not in any sense compensate for the full loss of pension entitlement, they must be taxed. That decision is wrong, and addressing it is the purpose of raising this issue today.

The tax treatment is, of course, intimately bound up with issues about the PPF, which is a wider problem that the Government also need to address. I will try to tackle both the immediate and the broader issue, in so far as I can in the time available this morning.

The Government response to the concerns that have been raised by a number of members of the BMI pension fund scheme has so far been, in general terms, one of sympathy. They are basically saying, “'Well, the tax rules are the tax rules and they must be applied, and that’s really all there is to it.” However, that is not in any sense a satisfactory response—not in the slightest. Ultimately, the tax rules are what Parliament—we as MPs, and our colleagues in the Lords—decide them to be, and the Government have frequently taken action to deal with other situations where the application of the tax law has seemed unfair or inequitable in its outcome.

For example, a couple of years ago the Government decided to impose VAT on building alterations to listed buildings. However, because that change would have hit churches and other places of worship particularly hard, the Government set up a special scheme to allow grants

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to be paid to those bodies to pay for the costs of extra VAT. When the Government want to find a way round the rules, they can do so.

On another pensions issue, a very relevant comparison can be made with the case of Equitable Life. In that case, although it appeared that the Government had no legal obligation to pay those people whose pensions had been hit by the Equitable Life fiasco, as a result of political pressure they of course set up a fund to pay out compensation—I think it is £1.5 billion in total—to Equitable Life policyholders, which Members across the House had called for. Of course, the payments to the Equitable Life pension holders will be tax-free, because the Government passed a law to say that that would be the case. Yet the Government are trying to distinguish between the logic behind the Equitable Life scheme decision, and that behind the BMI pension fund scheme decision.

In that context, I will quote a previous Minister, who told the House, or perhaps wrote in a letter—I am not entirely certain—that:

“Following an Independent Commission report, The Equitable Life Act”—

That is, the Equitable Life Pensions Act 2010—

“came into effect in December 2010 authorising the Government to make payments to the Equitable Life Payments Scheme. The Act provides that payments under the ELPS are tax free.”

He said, or implied, that there was a contrast with the BMI case, by going on to say:

“The £84 million payment made by Lufthansa is a voluntary payment intended to compensate BMI Pension Scheme members for the reduction in pension benefits they may face due to the BMI Pension Scheme entering the Pension Protection Fund. Where the payment is made into a registered pension scheme, it is subject to the registered pensions scheme tax legislation. As such, the payments will benefit from receiving tax relief when it is made, but that relief is subject to the normal limits within the annual and lifetime allowances. The ELPS payment and the payment made by Lufthansa are therefore fundamentally different and cannot be compared in this way.”

As I have pointed out, the two cases are “fundamentally different” because the Government passed legislation to make them fundamentally different, and not because they are, in essence, fundamentally different. These are both cases in which people lost out because of circumstances beyond their control, and we have a moral duty as Parliament and as Government to respect that in the case of the BMI pension fund holders as well as in the case of the Equitable Life pension fund holders, and indeed in other cases.

Dr Eilidh Whiteford (Banff and Buchan) (SNP): I congratulate the hon. Gentleman on securing this important debate and I also apologise to him, because I will not be able to stay for the duration. He is making a really important point about the Lufthansa deal. I share his concern about the individuals affected, but does he agree that there are implications beyond this individual deal for staff of other companies that might seek to do copycat deals?

Mark Lazarowicz: Absolutely. I have made that point already and I will touch on it briefly again. Certainly, this raises much wider issues.

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Just as the payments quite rightly made to the Equitable Life pension scheme members were compensation—they were not a direct benefit arising from the scheme—similarly, the BMI pension fund members have lost out through no fault of their own, and I believe they require better treatment. The Equitable Life experience shows that where the Government decide that they want, for political reasons, to compensate those who have suffered adversely through circumstances beyond their control, they can find a way to do so. I believe that they should do so for the BMI pension scheme members.

Mr Nigel Dodds (Belfast North) (DUP): I, too, congratulate the hon. Gentleman. He is making a relevant and important point about the difference in how Equitable Life payments and these payments are treated for tax purposes. When I wrote on behalf of some people in my part of the world, in Northern Ireland, who are affected by this, the Financial Secretary to the Treasury wrote back:

“As I am sure you will appreciate, HM Revenue & Customs has to apply legislation consistently, and does not have discretion to waive rules passed by Parliament.”

We accept that entirely, but the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) is right to say that the rules are what the Government and Parliament decide. In this case there is inequity and it needs to be addressed.

Mark Lazarowicz: I agree. That is precisely my point.

I ask the Minister to take a number of steps and, if she is not prepared to agree to them today, perhaps she will at least consider them and come back to hon. Members at a later stage.

First, it is right for the Government to ask HMRC to review the application of the tax rules in this case. The trustees of the BMI pension fund did lobby for the rules applying to the then annual allowance limits and the lifetime allowance rules to be disapplied in the case of the BMI scheme, because of the special circumstances of the scheme. I should not have thought that it was impossible for it to review the rules, given the special circumstances, notwithstanding the legislation that applies to pensions more generally.

Secondly, if HMRC will not review the position, I ask the Government to consider legislating to make a change for this particular case. Again, the Equitable Life scheme is a model that can be followed.

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Will my hon. Friend provide some clarification to help me with questions that I may later ask the Minister? I recall that he questioned a former Exchequer Secretary about this issue in Parliament, who offered to set out more detail in writing. Did my hon. Friend receive that information? Would anything that came out of that be helpful in this debate?

Mark Lazarowicz: The Minister sent me a letter that I think was received by all hon. Members who wrote to him about the issue. It was helpful, but I do not think it added anything particular with regard to the concerns that I am raising.

Thirdly, if the Government are not prepared to change the legislation, I ask them to consider making an additional one-off payment to the BMI pension fund scheme to

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allow payments to pension fund members to be topped up, to at least allow for the fact that tax has been taken off. A parallel to that is VAT on church buildings: although taxes were increased by the Government, a compensation scheme was set up to pay those churches, allowing them to pay the tax back to the Government. Things like that can be done when the Government want to.

Fourthly, I ask the Government to move ahead as quickly as possible with the proposals to allow an increased cap in the Pension Protection Fund for those with long service in the pension scheme. I am aware that this is a matter for the Department for Work and Pensions and that the relevant Minister has been pursuing it, but I hope that the Minister here today will urge her colleagues in that Department to introduce those changes speedily, to ensure that there is at least some benefit, hopefully to members of the BMI pension fund scheme, and to others, who are losing out because of the cap in the Pension Protection Fund provisions.

At a time of financial pressures, it might be said that it cannot be a priority for the Government to find money to top up pension payments to a group of workers who will have been relatively highly paid during their work life and will still receive a relatively high pension compared with the average paid for by the safety net of the Pension Protection Fund. I can see that argument being made. There might be those who are cynical and will say that, whereas millions were affected by the Equitable Life scheme, only a few hundred people spread across the country are affected here and that, bluntly, that is not going to make a difference in the general election next year. Indeed, that would be cynicism, because there is a matter of justice here: these people contributed to their pension over many years and are now going to receive much less than they expected.

To give an example of the sums lost, let me mention my constituent who raised the matter with me, no doubt because he is so concerned about what has happened. Even allowing for the Pension Protection Fund guarantee, he is facing a shortfall of £700,000 on his pension fund. He will receive about £134,000 from the Lufthansa scheme, so when allowing for the tax taken off the Lufthansa compensation, he will still be almost £600,000 worse off.

Let us bear in mind that the employer did not go bust, and the Pension Protection Fund had to bail out the pensions, as it was set up to do. In fact, the previous major shareholder sold his shareholding at a profit that some have estimated to be in excess of £200 million. He sold it to Lufthansa, which then sold the entire company—or most of it, to be precise: of course, bits of it were disposed elsewhere—to IAG. Lufthansa and IAG are both international airline companies whose fortunes go up and down but, bluntly, in most years their profits number in the hundreds of millions and billions of pounds and euros. These companies have not gone bust.

In the middle of all this activity, where some people and companies are making lots of money, the long-standing former staff of BMI are losing large parts of a pension for which they worked all their working life. Of course, through the levy they are paying to the Pension Protection Fund, other companies are paying the costs of compensation going to the scheme’s members, because

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the pension fund members are no longer receiving it from pension funds and, therefore, from the companies by which they were employed.

As I have said, there appears to be a similar development in the case of Monarch Airlines. Indeed, there is no reason in principle why this type of arrangement could not apply to other company pensions and to people at any income level, not just those who happen to be higher paid, as with members of the BMI pension fund.

Clearly, there is something wrong here, both in respect of the individuals affected by this case and what is happening more generally with regard to how the Pension Protection Fund scheme is used, and particularly in this case. The situation needs to be remedied. The Government need to act, not just for these pension scheme members, but to ensure that this practice is not taken up increasingly by other companies that see a way of escaping from their pension obligations when they choose to restructure or in other ways change the nature of their business and dispose of parts of their operations.

I have taken some time today, but this is an important issue, not just for those affected by these developments, but more widely. I hope that the Government will respond positively to the points that I have made.

9.48 am

Jim Shannon (Strangford) (DUP): I appreciate the opportunity to make a small contribution to the debate, Mr Sanders.

I thank the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) for bringing this matter forward. He clearly set out the scene for us all. Hon. Members are here because our constituents have expressed concern. We are aware of people from Northern Ireland who are equally disadvantaged because of what has taken place. This debate is of the utmost importance, because it deals with people’s futures and livelihoods. These are the kinds of issues that Members of Parliament ought to deliberate upon.

In 2012, the parent group of British Airways and Iberia, International Airlines Group, struck a deal with Lufthansa, the then parent group of BMI, to buy the company. The attraction of BMI lay in its control of 9% of the valuable slots at London Heathrow. That sets the scene. The matter then became difficult, and BMI employees found themselves disadvantaged. Originally, they thought the deal was a good one, but it clearly turned out not to be.

The deal saw former BMI staff lose £177 million from their pensions, because it was structured so that IAG could avoid taking on BMI’s final salary pension scheme, which was placed into the Pension Protection Fund. I am deeply disappointed that the Pension Protection Fund has not been able to act strongly on behalf of BMI staff. When the Minister replies, she may wish to address that issue.

That arrangement meant that about 3,700 BMI staff and pilots lost at least 10% of their savings, as the PPF pays only 90% of a pension, up to a maximum of £27,000 a year. The hon. Gentleman gave the example of just one person, which shows the magnitude of the figures.

Mark Lazarowicz: Perhaps I should explain that my understanding is that the Lufthansa compensation was graduated in such a way that those with the biggest

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pension losses got the least compensation. At the top end, only 10% or 20% of the losses were compensated for, and the rest was lost entirely. Those with long service suffered the worst.

Jim Shannon: I thank the hon. Gentleman for his explanation, which helps to clarify the matter.

As a good-will gesture, Lufthansa agreed to pay £84 million in compensation, which staff were offered as a one-off cash payment or which could be added to a defined contribution pension scheme. However, staff were then informed that any cash payments would be taxed. Clearly, there is an issue there. Lufthansa was also advised that it would not have to pay national insurance on cash payments, even though members of the BMI pension scheme were not direct employees of the German airline.

Understandably, that has caused a lot of frustration among former BMI employees. As far as they are concerned, they worked for x years and paid x into a pension scheme, which they are now entitled to, but because of dealings between the parent companies, they are now to lose out. We are here for justice and fair play for our constituents and for those who have been disadvantaged.

At the time, BALPA, the pilot’s union, said:

“Pilots in bmi are rightly outraged that their pensions are to be significantly reduced. These pilots have invested their careers in this airline, and a large proportion of their salary in its pension scheme.”

That is how its members felt, and they still feel that way, because the issue has not been sorted out.

The BMI Pensions Action Group was set up to seek justice for employees who were disadvantaged by the company buy-over. When the possibility of BMI’s sale first arose in autumn 2011, BALPA sought assurances, and reassuring noises were made by Lufthansa, which said that there was nothing to worry about, and the UK Pensions Regulator said it had powers to hold companies to account. Members of the scheme received no communications after December 2011, when Lufthansa said it was going to retain the pension obligation. Those in the scheme were led to believe that they were okay, but they clearly were not.

Mr McKenzie: The hon. Gentleman is making some good points. I am sure he will agree that the people involved have been shabbily treated. Here we see another example of people being asked to prepare for their retirement and old age, but when they near that point, their pension is ripped from their grasp. Perhaps the Minister could take the issue away—we are talking about 4,000 people, not 4 million—and look again at the issue of taxation being applied to what compensation people have received.

Jim Shannon: The hon. Gentleman’s point is clear. It is disgraceful that those whom we represent have been treated shabbily, to use his terminology. Like the hon. Member for Edinburgh North and Leith and my right hon. Friend the Member for Belfast North (Mr Dodds), I ask the Minister to review the situation, because we are talking about 4,000 employees. The Government did that for Equitable Life, even though they said they

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could not. Members asked in Westminster Hall for that to happen—every one of us here today was probably here for Equitable Life’s members, and we are here today for the 4,000 BMI workers who have been disadvantaged.

Mark Lazarowicz: The Minister might be nervous about how much we are asking to be given away, and it might assist her if I say that the 4,000 is the figure for all the scheme members, some of whom will have been below the Pension Protection Fund cap. All the members have an interest, and they all deserve justice of course, but those who have been particularly badly hit are relatively few in number.

Jim Shannon: The Minister has been listening intently to Members’ interventions, and we know that she takes all the detail on board and responds. We look forward to her response, and we hope we can get answers to the questions we are asking. If we do, that would be good news.

The Sunday Telegraph said BMI pensioners are facing a “double whammy”. They have not only lost out on payments, but now face tax and national insurance payments on what should be straightforward compensation. That is completely unacceptable, and I am glad that we have the opportunity today to say that on behalf of our constituents and those who have contacted us.

We are dealing with people’s livelihoods in what are difficult financial times. As the hon. Gentleman suggested in his intervention, the figures involved are not substantial financially, but they have an impact on a great many people. In some way, these 4,000 people are disadvantaged. They have conscientiously paid into a pension scheme, only to be told that they will not get as much as they were initially promised or what they are due. To top it off, when they were actually offered cash payments, they were told those would be subject to tax. They were almost dragged into the system, but they then found themselves in a difficult position. We must work with the unions to resolve these issues, because these people are being treated unjustly. There are also implications for other pension schemes.

In conclusion, I implore the Minister to take on board the comments made by the right hon. and hon. Members who have spoken and those who will speak later. On behalf of my constituents and other constituents in Northern Ireland, I ask the Minister to review the situation and give scheme members the moneys they should be getting. That is what justice cries for, and that is what we wish to see.

Mr Adrian Sanders (in the Chair): I call Graeme Morrice.

9.57 am

Graeme Morrice (Livingston) (Lab): Thank you, Mr Sanders, but it is pronounced “Morris”, although “Morreece” sounds quite posh. As always, it is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on securing this important debate.

This issue remains unresolved, and it requires the Government’s attention. I hope that, through the debate, we can make progress for the sake of those affected. The plight of members of the British Midland Airways

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Ltd pension and life assurance scheme was first brought to my attention by a constituent, Mr Euen Harper of West Calder, who was a pilot. He worked hard over a number of years and conscientiously paid contributions into his pension, but he now faces a set of devastating consequences.

My constituent first expressed deep concern about the scheme back in 2012, when it was placed in the Pension Protection Fund following the decision to sell BMI to the International Airlines Group—a decision that, it should be noted, was between two fully solvent international corporations. That decision has had profound and adverse impacts on the expected pensions of the scheme’s 3,700 members, including those of current pensioners and widows, and it continues to have negative repercussions today.

The most significant of those is the tax treatment of the pension compensation fund offered by BMI’s parent company, Lufthansa. Members not only had to deal with losses to the pensions they worked so hard for, but face being penalised twice by HMRC’s decision to tax the compensation. Jim Snee, chairman of the BMI pensions action group, summarised the scenario that members find themselves in:

“We’ve lost £10, Lufthansa have offered £3 in compensation and HMRC want to tax us on even that small relief!”

The general secretary of the British Air Line Pilots Association, Jim McAuslan, also makes an important point when he refers to it as a double whammy. The decision has added yet another devastating setback to the members’ continuing struggle. I sympathise entirely with those affected and applaud the persistent campaigning of the pilots union and the BMI pensions action group. Indeed, without the action taken by such groups, and the efforts made by hon. Members present this morning, those affected would not have a political voice.

Before making my final point in this brief contribution, it is important to touch on some of the wider issues arising from the BMI pension scheme scandal. While I recognise that this debate is focused on the tax treatment element, the terrible situation faced by members highlights the need for a review of how failed pension schemes are dealt with. It is the view of my constituent and of the chairman of the BMI pensions action group that it is too easy for corporate companies to escape their pension responsibilities. Indeed, a similar situation is currently being experienced by members of the Monarch Airlines pension scheme after it was placed into the Pension Protection Fund this year. It appears that a dangerous precedent is emerging, as it is becoming more common for big corporate bodies to dump their pension scheme obligations. The Government and the Pensions Regulator must do more to ensure that companies cannot manoeuvre their pension scheme responsibilities to the Pension Protection Fund. It is simply wrong that hard-working, innocent members of pension schemes are penalised and that their employers can walk away.

What is evident from my constituent’s story, and that of many others across the country, is the unfairness of the whole situation. The unfairness is most evident among those long-serving members of staff who were due to receive more than £27,000 a year and have now lost 80% of their pension savings. The unfairness means that any chance that members had of receiving a reasonable form of compensation for their grievance has now been dashed. While the compensation offered by Lufthansa

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is welcome and the tax treatment of compensation for pension cases can be complex, the decision to subject the compensation offered to members of the BMI scheme to income tax is a further blow. It is for that reason that the Government must intervene to get justice for members of the scheme. I ask that BMI pension scheme members are granted the justice of tax-free compensation. I therefore call on the Government to use the powers available to apply discretion in this case. In the same way that the Government granted Equitable Life scheme members tax relief as it was considered the right thing to do, so the Government must do the same in this instance and disapply the rules in light of the treatment of those affected. At the very least, that is what the members of the scheme deserve. I look forward to the Minister’s response.

Finally, I again thank my hon. Friend for raising this important topic. For the sake of all affected, I hope that the matter is resolved speedily.

10.4 am

Mr Andrew Love (Edmonton) (Lab/Co-op): As always, it is a great pleasure to serve under your chairmanship, Mr Sanders. I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on securing this important debate.

My hon. Friend raises an important issue on behalf of the employees and pilots in his constituency who have suffered as a result of the collapse of the BMI pension scheme, which entered the Pension Protection Fund in 2012. He talked about the tax treatment of the beneficiaries of those assisted, although I am not sure that “beneficiaries” is the right word to use in this context. The so-called beneficiaries are penalised not only through the tax treatment but by the PPF’s complex rules, checks and balances, which do not operate optimally for this particular group of employees in this particular industry. In fact, they operate harshly.

For example, there is the case of the 51-year-old pilot, a father of three, who will see his pension cut by 44%; or the pilot who has flown for Monarch for nearly 30 years, contributing a significant amount to the company pension fund, who has seen his retirement fund slashed by almost £1.7 million; or the pilot who was just two and a half years away from his planned retirement when he was told that 50% had been wiped off his pension’s value and that a lump sum would not be forthcoming. I ask the Minister, or her colleagues in the Department for Work and Pensions, to take a fresh look at the rules under which the PPF operates. The rules are set by Parliament, and it is through Parliament that those who suffer rightly take up their cause to seek some measure of redress.

With the consent of the Chair, I hope to be able to open out the whole issue to critical scrutiny and to seek the Minister’s support for the difficulties that I shall illustrate and that other hon. Members have illustrated. The problem is not confined to participants in the failed BMI scheme: it looks as though it will also affect the 170 pilot participants and other Monarch ground staff participants in the Monarch Airlines pension fund, which has been under assessment by the PPF since last month. In all, the problem will affect around 300 people, and the problem ranges from the tax treatment of the

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pensions to the compensation caps operated by the PPF. I shall focus on the compensation cap as it affects the airline industry.

The PPF compensation caps are in place, as far as I understand it, for two main reasons. First, they protect the viability of the PPF itself. The PPF is funded mainly by a levy on its members. Hon. Members will be aware that it is not funded by the taxpayer and that whatever flexibility of treatment for those affected by pension fund collapses I argue for today will not result in any recourse to the taxpayer. I support in principle the concept of compensation caps in order to sustain the PPF, but they were not intended to bear down so harshly on a specific group of workers. Fortunately, those who are particularly adversely affected by the compensation cap are not vast in number. As was indicated earlier, some 3,000 or 4,000 members of the various schemes are affected, and of those some 300 are directly affected by the cap.

Secondly, the compensation cap relates to the concept of moral hazard. The PPF is not designed to be a backstop for those tempted to speculate on or gamble with pension money and then expect the PPF to pick up the bill if their risky ventures do not pay off. I understand and sympathise with that concept as it is right in principle, but why should those who are unable to affect the operation of the pension fund be penalised so harshly? I am not aware that any of the 300 people directly affected were in any way involved with the governance of the pension fund or with high-level business decisions inside the companies concerned, yet in terms of the benefits that they will receive they are being singled out for particularly harsh treatment.

Hon. Members might have noted something in common between the groups of participants adversely affected by those pension schemes: they work for airlines. That is related to the reason the compensation cap mechanism seems to operate so harshly. Thirty BMI pilot members of the scheme and 17 Monarch pilot members face losing more than 50% of the pension income they originally expected. The 67 Monarch pilots alone stand to lose, in aggregate, around £900,000 a year in lost pension, which is an average of £13,500 per pilot per year.

The way in which the PPF operates its cap appears to discriminate against those with shorter working careers: the earlier the retirement, the lower the annual cap is set; and higher compensation awards for long service only kick in after 21 years of pensionable service. The pension cap also operates in a way that is not helpful, given the typical career pattern of pilots in the aviation industry. Pilots normally start their careers in commercial aviation in their late 20s or early 30s, and the normal pension age for Monarch and other schemes is 55 for most pilots. They therefore have far less prospect of accumulating materially more than 20 years of pensionable service.

Only three of the 67 Monarch pilots affected by the cap, for example, have more than 25 years of pensionable service; none has 30 or more years. As a result, many of the 300, although beneficiaries no doubt of membership of the PPF, are left feeling that they have been short-changed and made to pay an unreasonable penalty for no other

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reason than the career path and pension arrangements available in the aircraft industry. Frankly, such matters are outside their control.

PPF regulations can and do change, often in the interests of equity. Will the Minister undertake to review the issue with her officials and the Department for Work and Pensions to see what can be done to provide a measure of easement? The Pension Schemes Bill is proceeding in another place, so that might be the mechanism through which Ministers choose to make such a change. If that is not possible, perhaps the appropriate Minister will write to me about adjusting the compensation cap, what flexibility the Government have and what amendments, if any, might ameliorate the harshness of existing arrangements. Alternatively, the Minister may ask the Department for Work and Pensions or the PPF to write to everyone taking part in the debate about what consideration the Government have given to the issue and what powers they have to adjust the compensation cap accordingly.

To return to those most severely affected by the compensation cap, the European Court of Justice has expressed the opinion that any compensation restrictions should not reduce the rights of members of an occupational pension scheme to below the 50% level required by the insolvency directive. Will the Minister outline the Government’s attitude to the Court’s judgment and whether as a result the PPF rules will be altered to comply with that view? If so, when?

I am grateful to you, Mr Sanders, for the latitude that you have shown. The matters that I have been discussing primarily relate to the Department for Work and Pensions, but they are the origin of the strong feeling among airline staff that they have been singled out for adverse treatment. I have raised the wider issues of compensation caps as they affect the airline industry, and I hope that the Minister will be able to give a response, or seek one from her colleagues in the Department for Work and Pensions, that will address the patent inequality of the way in which certain pension scheme members are treated under the PPF.

10.14 am

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): It is a pleasure to be in the Chamber this morning, Mr Sanders, and to have you in the Chair once again.

I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on bringing this important subject before Parliament. Many of us have received representations from our constituents—sometimes relatively small numbers of people in each constituency, but the matter is none the less an important one. It is useful to have the opportunity for a thoughtful debate.

My hon. Friends the Members for Livingston (Graeme Morrice), for Inverclyde (Mr McKenzie) and, most recently, for Edmonton (Mr Love) have given us a wider picture of the impact of the Pension Protection Fund and tax treatment decisions on the individuals concerned. The hon. Member for Strangford (Jim Shannon) also made a contribution, and the right hon. Member for Belfast North (Mr Dodds) and the hon. Member for Banff and Buchan (Dr Whiteford) intervened to make important points that I am sure the Minister will want to respond to as well.

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As my hon. Friend the Member for Edinburgh North and Leith said in his opening remarks, many of the former BMI employees who were in the BMI pension scheme have suffered through no fault of their own. They engaged in good faith in the pension scheme, and the decisions taken were not of their making. We are in a quite different situation from some of the other resolutions that have had to come from the Pension Protection Fund, because this does not involve a company going into insolvency—the problem arose largely because the company was sold on. Consequently, the buyers did not have to take responsibility for the pension fund. Again, those are things completely outwith the control of the employees.

As has been acknowledged today, many people might think, “Well, these folks had relatively good jobs and they’ve been relatively well paid”, but there is absolutely nothing wrong with that. The fact that people have been in responsible, well paid jobs, contributing to their pensions in a decent pension scheme, does not mean that if things somehow change or go wrong they have any less right to justice in terms of what they receive in pension. That is the principled position. I fly fairly regularly up and down from Scotland, and I want to know that the people flying and crewing the planes that I travel in—the hon. Member for Strangford might be in a similar position—are well trained, well paid and well looked after for the important job that they do.

As I said, the problem we are discussing was not employer insolvency, as is normally the case when a scheme is transferred to the Pension Protection Fund. We have heard the figures, but the shareholder sold the shareholding for a considerable profit, estimated to be in excess of £200 million. The shareholding was sold on to Lufthansa, which this March announced an operating profit that had risen year on year by 62% to about €1 billion. We are definitely not talking about an insolvency scenario, which makes things a bit different.

We could look at how decisions were reached or how the Pensions Regulator operated, but we are where we are, and we now have to look at the various points that I am about to make to the Minister. What can be done to resolve the tax treatment issue amicably? Perhaps the Minister will answer my question when responding, but what would the financial implications be for the Treasury if it simply resolved the tax treatment in this case? In the global scheme of things, a relatively small number of people might be subject to such taxation, and in order to achieve some equity—my hon. Friend the Member for Edinburgh North and Leith and others have mentioned how the Equitable Life scenario was dealt with—can something more be done to help people?

Another important issue is that we would not want people already in detriment to suffer further detriment because of the taxation rules, which appears to be what has happened with the BMI pensioners. As has been mentioned, the top-up payments that were intended to reduce the detriment are now subject to tax. I am sure the Minister will come back and say, “The tax rules are the tax rules and they have to be implemented.” That is true, but the rules can be changed. In certain circumstances they have been changed and there have been different tax treatments. I have only recently finished dealing with the Taxation of Pensions Bill: we went through a whole Bill to ensure that the way certain things are treated in a tax context can be changed. Where there is a

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will, there can be a way. That is why I am interested to hear what the financial implications would be. If it is not a huge amount of money for the Exchequer, why can we not resolve the matter in an amicable way? I have a great deal of faith in the ingenuity of officials and Ministers when they want to do something, to go away and find some resources and a way of taking things forward. I hope that the Minister will do that today.

I come back to some of the issues that my hon. Friend the Member for Edinburgh North and Leith raised in his opening remarks. I want to put a number of points to the Minister. My hon. Friend asked the Government to look again and for the HMRC to review the application of the tax rules in this case with specific regard to the annual allowance that might result from the additional tax charge being levied. I would be interested to hear what the Minister is able to say about that.

In her intervention, the hon. Member for Banff and Buchan asked about the implications for copycat deals. Some of the points that my hon. Friend the Member for Edmonton raised are relevant to that. It would be unfortunate to say the least if other companies thought they could somehow avoid doing the right thing by their employees simply by going into the PPF, thereby leaving the problem for others to resolve. As has been said, this is not about increased resources having to come from the taxpayer; it is about the industry taking care of itself, but a degree of equity and fairness has to be looked at in the industry context. Will the Minister, along with her colleagues, look again at the PPF and the rules and ensure that there are no loopholes that incentivise that kind of behaviour, which we would not necessarily think to be a good thing? If HMRC can review that position, I hope the Government will consider the possibility of making necessary changes to the legislation, particularly to ensure that the pension holders affected are not left worse off than they thought they would be at the outset.

I heard my hon. Friend the Member for Edmonton comment on the situation of those in the Monarch Airlines scheme. I am grateful to him for bringing that to our attention in the detailed way he did. I was not fully aware of all those points, and I am sure that the Minister will respond to them. I hope that she will go back to her colleagues in the Department for Work and Pensions to look at the arrangements that have been made to see whether something can be brought forward, even at this late stage, to try to resolve the problems.

In conclusion, we have had a useful debate that has given us information and a number of points on the justice of the situation and the technical details of the taxation system. I particularly press the Minister on the tax treatment of the compensation payments because that is the responsibility of the Treasury, although I recognise that there are wider responsibilities within the DWP. I hope that she will go to her colleagues and assess what she can be done.

10.24 am

The Exchequer Secretary to the Treasury (Priti Patel): It is a pleasure to serve under your chairmanship, Mr Sanders. I thank the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) for raising this issue in a thoughtful and considered way. I also thank

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all others Members who have contributed to the debate. In addition to interventions, the hon. Members for Edmonton (Mr Love), for Strangford (Jim Shannon) and for Livingston (Graeme Morrice) made considered contributions.

It is fair to say that this is a serious and important issue. Members have rightfully raised their points and concerns on behalf of their constituents in a considered way. As the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) just said, these are serious concerns about people’s pensions. These individuals have done the right thing by saving and investing in their pensions. That is right and proper, and they have had the opportunity to do that through an employer’s scheme, which is to be commended. Not only the Government, but all Members are concerned when we hear about issues of this nature.

I start by putting the debate into context from a Treasury point of view. The subject reaches into the territory of the Department for Work and Pensions, and I will come on to that, but it would be helpful if I set out the facts of the case as they are known to the Treasury. Following the sale of BMI by Lufthansa, the BMI pension scheme was admitted to the Pension Protection Fund. Admittance to the PPF for a particular scheme is not a matter for Her Majesty’s Treasury, but for the PPF and the Pensions Regulator. Members will appreciate that I cannot comment on the details of that decision, but I will, as all Members here today have asked, follow up with the Department for Work and Pensions on that. I will also pick up on the point that the hon. Member for Edmonton made on the pensions cap. As he suggested, I will ask for a response on the points highlighted about the DWP, the cap and the Pensions Regulator to be sent to every Member who has contributed to today’s debate.

The PPF provides compensation to members of eligible defined benefit occupational pension schemes. The PPF provides two levels of compensation depending on a member’s circumstances at the time the scheme enters the fund assessment period. The first is for members who have reached their scheme’s normal pension age or are already in receipt of a survivor’s pension or a pension on the grounds of ill health. The second is for the majority of people below their scheme’s normal pension age. Those members are entitled to 90% of the compensation and are subject to the compensation cap, as has been outlined. The PPF rules and restrictions apply to all members, which means that they will not receive all the pension benefits they anticipated. However, while the PPF strives to award compensation fairly, compensation relating to pensionable service before April 1997 does not increase in line with inflation each year, so compensation may not equate to the full value members would have received had their scheme not been admitted to the PPF.

As has been discussed, to compensate BMI pension scheme members for the loss in expected benefits, Lufthansa offered to make an £84 million voluntary payment either as cash payments to the members or into another registered pension scheme on their behalf. The debate is about the tax treatment of that payment. Retirement benefits are subject to tax when they are received, so one would expect the £84 million payment to be taxed.

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It may be helpful for me to set out how the tax treatment changes depending on how the payments are made. Where pension schemes can make cash payments to individuals, the tax legislation clearly sets out how those payments are taxed. Any one-off cash payment would be liable to income tax and national insurance contributions, as they are what are known as relevant benefits. It has been put that those payments cannot be subject to income tax and NICS because the members of the BMI scheme were not employed by Lufthansa. However, it is not because the payments are earnings that income tax would apply, but because they are deemed to be relevant benefits. Cash payments are subject to tax as relevant benefits when, for example, they are paid after retirement in connection with past service, as is the situation in the highlighted cases. Relevant benefits are taxable as employment income, and there does not need to be a direct link between the employer and the payee to establish relevant benefits. There is also no statutory requirement for the benefits to be financed by an employer of the beneficiaries. A scheme for the provision of relevant benefits to employees or former employees of an employer commercially linked to the one financing the benefits will be in the legislation for tax and national insurance contributions.

Where payments are made into a registered pension scheme on behalf of the individuals concerned, there will be a different tax treatment. Members would receive pensions tax relief on their share of the £84 million payment as well as the exemption from national insurance and income tax on the payment they would get with any contribution to a registered pension scheme.

However, the payment to a registered pension scheme could give rise to annual allowance or lifetime allowance charges. Let me explain that further. Pensions tax relief is one of the Government’s most expensive tax reliefs and the gross cost doubled from £17.5 billion in 2001-02 to £33 billion in 2010-11. The annual and lifetime allowance has been set to protect the public finances from that growing cost. However, the Government are still likely to forgo more than £36 billion in tax revenue this year and more than £39 billion in 2016-17.

The annual allowance is therefore designed to strike an appropriate balance between providing financial incentives to encourage and support saving for retirement and the fiscal risk to the Exchequer. Therefore, while there is no limit to the amount any individual may contribute to their pension scheme, there is a limit—the annual allowance—on the amount of tax relief those contributions can attract in any one year.

Tax relief is given on contributions up to £40,000 a year, but any contributions in excess of that limit will be subject to an annual allowance charge. To ease the impact of the annual allowance charge, the Government introduced a carry-forward facility, which allows individuals to make use of any unused annual allowances from the three previous years by offsetting them against excess savings. In many cases, that will result in there not being an annual allowance charge to pay.

As a result, the only people affected will be those whose pension savings over the past four tax years, including their share of the £84 million contribution, are worth more than £190,000 for 2014-15 or £180,000 for 2015-16. If an individual takes pension benefits valued at more than the lifetime allowance—currently set at £1.25 million—when they become entitled to

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those benefits, they will be liable for the lifetime allowance charge. The lifetime allowance charge is 25% if the excess is taken as a pension or 55% if it taken as a lump sum. As the allowance is set at those generous levels, that charge is likely to affect only a small number of people.

Cathy Jamieson: What estimate has the Treasury made of the number of people who are affected by the lifetime allowance charge and what income will the Exchequer receive as a result of collecting that charge?

Priti Patel: I will come on to that and address other Members’ points as well once I have made some progress. Some individuals may have existing enhanced or fixed protection, which means that they can test their pensions against the lifetime allowance at the time at which those protections were granted. That is subject to no further contributions being made to their pension schemes. As payments from the £84 million will be relievable contributions, members who have existing enhanced or fixed protection would lose those rights if the contribution was made to a defined contribution scheme. Again, only a small number of people will be affected by that.

Individuals will have a choice about how they access their share of the £84 million paid by Lufthansa to a defined contribution pension scheme on their behalf. From April 2015, individuals will be able to access the funds as a lump sum or as a series of payments or they can choose to purchase an annuity or draw-down product, provided that they are aged 55 or older. Alternatively, they could choose to transfer to a different pension arrangement. Payments on pensions will be subject to the individual’s marginal rate of income tax and no NICs will be payable.

I will come on to many of the points addressed in the debate. The hon. Member for Kilmarnock and Loudoun mentioned the costs for those affected. Those will depend on the precise circumstances and how payments are made. Such payments made direct to a scheme will be taxable, but the contributions will receive tax relief up to the normal limits. We do not have an estimate of the total cost to the Treasury should tax charges not be applied, but, as I said, that is dependent on the circumstances of how the payments are made.

The scheme was compared in a number of contributions to the Government’s approach in the one-off payments made under the Equitable Life payment scheme. It is worth highlighting that that scheme was established back in 2011 in response to the parliamentary ombudsman report that identified areas of Government maladministration in respect to the regulation of Equitable Life. The Government accepted the then ombudsman’s report and, as a result, made the ex-gratia payment for the loss stemming from what was Government maladministration at the time. The circumstances surrounding the loss of pensions relief for members of the BMI scheme is not owing to the Government’s maladministration and, therefore, it is not comparable in that sense at all.

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The hon. Member for Edinburgh North and Leith as well as other Members touched on HMRC and reviewing rules relating to the annual allowance and lifetime allowance. As my hon. Friend the Financial Secretary has set out, HMRC must apply tax legislation consistently and it does not have discretion to waive tax charges intended by Parliament. The legislation is clear in respect of that: all new contributions into defined contribution schemes are tested against the annual allowance and all benefits are tested against the lifetime allowance.

It is fair to say that this is a complicated matter that is not at all comparable to Equitable Life. The Government are familiar with the case, which has been raised by many Members in the debate today as well as in previous representations.

Mark Lazarowicz: I accept that there is no direct parallel with Equitable Life except in the sense that the BMI pension fund members and others have also been the victims of a regulatory system that did not deliver what it ought to have done in some way. In recognition of that, they too deserve some action by Government. Tax treatment is one suggestion, but the House should be able to take forward other suggestions as well.

Priti Patel: The hon. Gentleman makes a valid point that we have an issue with regards to amending legislation that is meant to apply to all pension savers. We are obviously sympathetic and it is clear that the situation is not satisfactory. I will commit to taking away all the considerations and points raised and I intend to raise them directly with the Department for Work and Pensions, because what has happened and the effect that that has had on people is unacceptable. I am unable to be any more specific than that, because I am looking at this matter from the perspective of tax implications and not the overall implications, which would be done by the Department for Work and Pensions.

Finally, I will address a point made by the hon. Members for Livingston, for Banff and Buchan (Dr Whiteford) and for Kilmarnock and Loudoun about the Pensions Regulator and the PPF. I assure the House that the Pensions Regulator has the power to take action when it feels that there is deliberate manipulation in the affairs of an employer who is effectively seeking to walk away from their pensions liabilities. That is a valid point and the Pensions Regulator has powers to deal with that. It would be wrong for any organisation to seek to do that and it is solely for the Pensions Regulator to address that.

It is clearly not right to seek to offload pension obligations for the wrong reasons. The debate has highlighted that where individuals have done the right thing by seeking to save for the future by investing in their pensions, it is proper that we have the right safeguards in place. As I have said to all Members today, I will look to discuss this matter with the Department for Work and Pensions to see how we can take it further.

10.39 am

Sitting suspended.

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Housing Need (Treasury Assistance)

11 am

Andrew George (St Ives) (LD): It is a great pleasure to serve under your chairmanship, Mr Sanders. I am delighted to have secured this opportunity to introduce a debate on assistance from Her Majesty’s Treasury for people in housing need, because without question the most pressing and chronic problem in areas such as mine is the lack of affordable homes for the thousands of local families who are inadequately housed or housed in properties with extortionate rental charges.

My area and others are characterised by a very significant mismatch between earnings levels and house prices. There is a large and growing market for second homes, investment homes and retirement homes. Of course, over the years there has not just been the 50% council tax discount for second home owners, which was introduced in the early 1990s; other incentives are available that encourage, that are a further stimulus for, the purchase of second homes especially and investment properties in areas such as mine. For example, people can take massive advantage of small business rate relief if they are letting their properties in the local holiday market, while also of course using them for their own use; and by shifting from council tax to business rates, they can end up paying absolutely nothing in terms of their contribution. That is a further and often hidden stimulus for the purchase of second homes.

I have undertaken surveys of estate agents across my constituency on three occasions, and we have found that over time it has become the case that somewhere between four and six times as many properties are sold to second home buyers as to first-time buyers. That is a very significant and quite shocking statistic. It shows what is going on in markets such as mine. I am not saying that that is happening in the rest of the country, but it is certainly happening in constituencies such as mine, which are very attractive for second home purchases.

There is a rather macho obsession with building homes as the sole, two-dimensional solution to our housing problems, but that does not work. Cornwall has been one of the fastest growing places in the United Kingdom in the past 40 to 50 years, so we have done exactly what successive Governments have encouraged us to do; we are certainly not nimbys. However, although the housing stock has significantly more than doubled in that period, the housing problems of local people have become significantly worse, so we know that simply building thousands of houses is not in itself the answer. We need to do something a little smarter to target those who are in particular housing need in areas such as mine.

I want to address myself to the need to find constructive solutions that would work in areas such as mine. First, I acknowledge and congratulate the Government on some of the things that they are doing. Since 2010, whether there has been new money or a replication of old money or a continuation of programmes that the previous Government had engaged in, we have seen various things happen. We have seen the affordable homes programme, the affordable homes guarantees programme, the trial of direct Government provision—a new delivery model—the affordable rent to buy scheme, which was introduced in 2013, and the new homes bonus, on which an announcement was made yesterday about the latest

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tranche of money going to local authorities. Of course, that is not just to build houses, but for other economic purposes. However, it certainly provides a stimulus to encourage planning permissions for developments. We have seen the growing places fund, the Get Britain Building fund, the builders finance fund, the estate regeneration fund, the single local growth fund and public land schemes, which have been announced over the years.

In terms of home ownership initiatives, the Government first tried, in 2011, the First Buy scheme, which was closed in March 2013. That was overtaken by the Help to Buy scheme, a very welcome initiative. It replaced the First Buy scheme and is widening the criteria for eligibility by increasing the maximum home value up to £600,000, so it is not just for first-time buyers, but for those looking to move up the ladder. There is the NewBuy Guarantee scheme and the Help to Buy: mortgage guarantee scheme. There is the right to buy and, in a moment, I will come on to shared ownership.

In the private rented sector, there is the Build to Rent fund and the private rented sector guarantee scheme. Then there are other schemes, such as real estate investment trust schemes and self-build and custom-build schemes; and two elements of the recent autumn statement were on the subject of shared ownership.

Obviously, all those schemes and all the things that will provide a stimulus and assistance, which might be targeted at the groups that I am talking about, are welcome, but whether they are sufficient and will help in areas such as mine, only time will tell. I will be making a suggestion today about what we need to do in areas such as mine. I am not saying that this needs to happen across the country, but it certainly needs to in areas with a significant mismatch between earnings levels and house prices and extortionate private rents, and that are characterised by a social rented sector that is significantly smaller than that in many urban areas. Less than 10% of the stock in my area is social rented accommodation.

We need to construct a new lower rung on the housing ladder. The lowest rung on the housing ladder is out of reach for the vast majority of people, who, in other circumstances—perhaps decades ago or in other parts of the country—would consider it reasonable for them to expect to be able to move into home ownership by the time they leave their parental home. I am talking about teachers and nurses—people in stable professions who simply cannot get into the housing market. It is those people whom I particularly want to help—those who have an expectation, a reasonable aspiration, of moving into home ownership, but who simply cannot and are then locked into the extortionate private rented market.

Mr Mark Williams (Ceredigion) (LD): I apologise for missing the start of my hon. Friend’s speech. He mentions key workers. I represent a rural area, albeit in Wales. I suspect that it is out of the ambit of much of what he is saying, but one problem that we are having now is the difficulty of keeping key workers in west Wales—I am thinking of the health service and teachers—for exactly the reasons that he has identified. Does he agree? Is that a concern in west Cornwall, too?

Andrew George: That is absolutely right. As I said, this issue is not unique to west Cornwall and the Isles of Scilly. The Isles of Scilly has a particular market that is

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different from that in other areas: it is more like a London market than a rural market. Nevertheless, as my hon. Friend rightly says, this issue is so significant in many parts of the country. It is without question the most significant social challenge that we face. The Government can and should do more, and I hope to encourage them to do so.

I said that we need to construct a new lower rung on the housing ladder. There are problems with shared ownership accommodation. First, there is not enough of it; there is not an effective market. There are only two lenders lending to those purchasing shared ownership accommodation—Nationwide and Halifax—and those lenders are extremely circumspect and apprehensive. They look at these schemes on a case-by-case basis and are extremely cautious, particularly at the point of resale, which is often a significant discouragement to the development of the shared ownership market—that new lower rung on the housing ladder.

Also, occupants tell me that they have to pay near market rents on the remainder, the share of the property that they do not own, and they feel that they are not rewarded for maintaining the property or for any improvements and investments. The cost and burden of maintaining or improving the capital value of the property is not shared with the housing association or registered social landlord that owns the other part of the property. The home owner’s share of the property is often less affordable by the time of sale, and the sale process is often over-long and legally complex.

I note that in the autumn statement the Chancellor announced that the Government would extend the stamp duty land tax multiple dwelling relief to include lease and lease-back arrangements with housing associations on shared ownership properties, with a view to increasing investment in shared ownership. The National Housing Federation has welcomed the measure as something that may be of assistance. Lowering the stamp duty land tax on multiple purchases of property from 4% to 1% may get institutional investors into the market. That can only be welcomed, and it must be kept under review. In addition, I note that the Government intend to work with housing associations, lenders and the regulator to identify and lift barriers to extending shared ownership, which will include consultation on options for streamlining the process for selling on shared ownership properties. I welcome that initiative to work with those associations and others to find a way forward.

I think I have described reasonably well some of the current problems with the development of the shared ownership market. However, the National Housing Federation welcomes the Government’s proposals. I hope that the dialogue will be constructive and that the Government will keep an open mind about the kinds of tools that could be brought into play to enable a significant scaling up of activity in the sector.

When it comes to solutions, my constructive proposal is to ask the Government to act not necessarily as a funder but as a guarantor. The Government—brilliantly, in my view—established the green investment bank. In the same way, I suggest that rather than spending money that they cannot recoup, they should establish an affordable homes fund or intermediate housing fund. Such funding could be revolved to provide the necessary liquidity and confidence among lenders to enable shared ownership

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schemes to get off the ground, and to facilitate the resale process for such properties. I strongly encourage the Government to look seriously at that proposal.

I am looking forward to hearing from the Minister in a moment, and I have sent her a proposal for the establishment of an intermediate housing fund, on which I have worked with the National Housing Federation. I am not precious about the details of that proposal, but I hope that this Government, the next Government or some other Government—I do not think that this is a party political issue; surely, people across all parties can see the logic and the common sense in this—will consider the concept of such a fund, which would not only benefit the kind of people whom I described earlier, but would be facilitated and enabled by registered social landlords and community land trusts.

Under my proposal, the intermediate housing fund would be administered by the Homes and Communities Agency, although it does not necessarily need to be. It could be an independent body similar to the green investment bank. It would encourage a lending environment that would enable the liquidity necessary to take schemes forward. I believe that it would be a real game changer in the sector and that it would enable progress to be made. I have asked housing associations why they do not engage and buy back properties when people find it really difficult to sell them on, and the housing associations have told me that to do so would count against their contingent liability and restrict their ability to develop new schemes. For various reasons, it would be far better to set up an intermediate housing fund to facilitate such a solution.

The Minister will not be surprised to hear that my question to her is a simple one. Taking into account all that I have described, including the problems and my congratulations to the Government on their work so far, I believe that my proposal is the most significant way of taking the matter forward. Therefore, will the Government look carefully at extending the tools available to develop and scale up shared ownership and other intermediate housing products as an essential solution in areas, such as my constituency, which have high house prices and low wages?

11.15 am

The Exchequer Secretary to the Treasury (Priti Patel): It is a pleasure to serve under your chairmanship for the second debate this morning, Mr Sanders. I congratulate the hon. Member for St Ives (Andrew George) on securing the debate. He recognised the importance and significance of housing need and housing pressure, while acknowledging the work that the Government have done in the area. Hon. Members come up against many pressures and concerns in their constituencies regarding the affordability of home ownership. There is no doubt that that has been a challenge for the Government. We are addressing the need and introducing schemes through which we can do something about it, and we are engaging with and listening to communities around the country, and with hon. Members such as the hon. Gentleman, on solutions.

The Government are absolutely committed to making the aspiration of home ownership a reality for as many households as possible. Across the country, there is a problem with demand for housing, which has consistently

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outstripped supply. It was interesting to hear the hon. Gentleman mention that, in his constituency, the demand for second homes is outstripping supply, which is changing the marketplace and having an impact on the ability of first-time home buyers to get on the housing ladder. It is our role as a Government to do what we can to help households that are struggling to get on the housing ladder.

The rate of home ownership in the United Kingdom has fallen from its 2003 peak of 70% to about 65%. We are committed to ensuring that future generations get to experience the benefits of owning their own home in the same way as their parents’ generation did, which is why we have taken clear steps to increase housing supply, build more affordable housing and help people to afford a home without relying on parents and other family members for financial support. The hon. Gentleman has spoken about the reform of planning laws to unlock more housing supply, and that is exactly what the Government are doing. The autumn statement package contained specific commitments to release land with a capacity of up to 150,000 homes, and to introduce new measures to support up to 133,000 new homes, including affordable homes. Affordable homes are the key to this debate. The hon. Member for Ceredigion (Mr Williams) mentioned key workers in his intervention, and they are important. It is incumbent on the Government to ensure that we address key workers’ need when it comes to affordable homes and changes to planning. Key workers support our front-line public services, and it is essential that we have the right kind of housing support for them.

Our policies are bearing fruit. Planning approvals and housing starts are at the highest level for six years. Construction activity, as we see across the country, is really gathering pace and has expanded at the fastest rate for 10 years. We have the national infrastructure plan, which is incredibly important to support housing demand. That contains further measures this year for specific new developments to transform communities through housing in Bicester, Ebbsfleet and Northstowe in Cambridgeshire. Alongside that, billions of pounds of public money—some £4.5 billion during this spending review and more than £5 billion to 2020—is being invested in providing new affordable homes. Almost 217,000 new homes have been delivered by the Government since April 2010, and a further 275,000 will be provided in the five years from April 2015 to 2020. Again, it is about delivering affordable homes in this and the next Parliament.

Under the previous Government, there was a net reduction in social rented homes from 1997 to 2010. That is why, as the hon. Member for St Ives rightly highlighted, we are helping housing associations to access funding. In the 2012 housing package, we introduced a £10 billion housing debt guarantee, which enabled private organisations to access cheaper debt funding to deliver homes for private and affordable rent. We also announced up to £3.5 billion for affordable housing. Our delivery partner, Affordable Housing Finance, issued its first bond to raise funding under the new scheme in May, which was priced at 3.76%—the lowest-priced bond in the history of the affordable housing sector. More than £1 billion of debt has now been guaranteed.

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Last week, the Government announced that we have awarded the licence for the private rented sector housing guarantee scheme, which will help create a new market for institutional investment in the private rented sector. All those things help support the Government’s aim of expanding the provision of rented housing, which will help the wider economy by delivering an economic boost and increasing choice. It will also improve housing quality for tenants. Although I do not have time to speak about improving housing stock, it is a key issue for tenants in affordable homes.

We remain committed to establishing shared ownership as a route to home ownership and making it more attractive to households and investors. We will consult on streamlining the process for selling on shared ownership properties. In the autumn statement, we announced that we will extend the scope of stamp duty, which the hon. Gentleman mentioned. Stamp duty is incredibly important, as it affects first-time buyers’ ability to get on the housing ladder. Our scheme is a vital means of supporting home ownership, and it will also cut the cost of property purchasing for up to 98% of buyers.

Building more homes is a priority. The hon. Gentleman mentioned the Help to Buy scheme, which has helped more than 66,000 households to complete mortgages—more than 30,000 have been helped by the mortgage guarantee scheme and 36,000 have been helped by the equity loan scheme. The vast majority of those people—81%—are first-time buyers, which is to be supported and commended. Importantly, more than 94% of all completions are outside London. We are doing everything we can to support the market outside London in constituencies such as the hon. Gentleman’s and rural constituencies, where access to home ownership and new homes has been challenging.

Andrew George: I appreciate what the Minister is saying. Having mentioned shared ownership, Help to Buy and other related schemes, she is coming to the nub of the issue. We must extend the logic of those schemes to the intermediate housing sector. There is still a large cohort of aspiring professional people and others who simply do not have the opportunity to get into the housing market without Government help.

Priti Patel: The hon. Gentleman makes a valid point. He is absolutely right.

On Monday, the Prime Minister launched a new scheme that will offer 100,000 first-time buyers new homes at a 20% discount. That enabling factor is a crucial part of our major push to help people get on the housing ladder. The Government have a role to play in enabling ownership.

In addition to our changes to the planning system, we are freeing up underused or unviable brownfield land. There are many aspects of the housing debate that we could discuss, including planning and turning around land that is not being used in a viable way. We must free up underused and unviable brownfield land from planning costs and levies in return for below market value sale prices for the homes that are built on those sites.

On the hon. Gentleman’s point, I have said that shared ownership is an integral part of the affordable homes programme. His private Member’s Bill seeks to expand the provision of intermediate housing. I assure

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him that the Government are committed to intermediate housing, and we are always looking at what more we can do to assist, enable and support people.

Andrew George: An earlier draft of my Affordable Homes Bill, which I have shared with the Minister, included a proposal to establish an intermediate housing fund, although I had to remove it because I could not get sufficient political support for it. In my conversations with the National Housing Federation, it estimated that the kind of fund that would be sufficient to facilitate that sector is in the region of half a billion pounds. However, that would be an investment fund, not funding that is lost.

Priti Patel: I welcome the hon. Gentleman’s thoughtful points in this debate.

Housing is a challenging issue, as we have discussed in the short time available. The Government are working assiduously to do many things. I have spoken about the many measures that the Government have undertaken to help the housing market. We are seeing great trends, positive improvements and growth in access to affordable housing. We are providing assistance to aspiring home owners and giving them the opportunity to get on the housing ladder.

Andrew George: This is my final intervention before the Minister concludes. I had discussions with the National Housing Federation, community land trusts and others when I was developing my proposal. As the Government are consulting on how to develop the shared ownership model, will the Minister or one of her colleagues meet me and representatives from the National Housing Federation and community land trusts to see whether we can take these ideas forward?

Priti Patel: I thank the hon. Gentleman for the opportunity to respond to that point. The Government are putting in place many reforms and measures. Again, I thank the hon. Gentleman for his contribution to this debate. Either I or one of my colleagues will discuss this matter further with him to see what else we can do.

I assure the hon. Gentleman and the House that the Government are committed to supporting aspiring home owners—we are doing a great deal in that area— and helping home ownership. We take a continued and significant interest in this area, and we will continue to take a wide range of action.

11.28 am

Sitting suspended.

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Post Office Mediation Scheme

[Nadine Dorries in the Chair]

2.30 pm

Mr James Arbuthnot (North East Hampshire) (Con): It is a great pleasure to serve under your chairmanship, Ms Dorries. I am new to this. In 28 years in the House, I have never needed to apply for an Adjournment debate, but the way in which the Post Office has treated sub-postmasters and Members of Parliament who have expressed concern about the matter is so worrying, and to my mind shocking, that in my final few months in Parliament it has become necessary for me to apply for an Adjournment debate. To the extent that I make mistakes, Ms Dorries, please correct me and appreciate that I am new to this game.

I am grateful to hon. and right hon. Members for turning up in considerable numbers, which shows the importance of this issue. The background hardly needs explaining. In 2000, the Post Office introduced the Horizon accounting system. A spate of concerns began to arise shortly afterwards. Sub-postmasters across the country experienced discrepancies in their accounts, which they had to balance at the end of each day. Some of those accounts were over what they ought to have been, and some were under what they ought to have been. Some sub-postmasters found themselves closing their post offices on a Saturday with one balance and opening on a Monday to discover that the balance was entirely different. All those discrepancies created such concern that Mr Alan Bates set up the Justice for Subpostmasters Alliance in 2009. He is the hero of this story because he has been working since 2009 for no pay and has been doing a fantastic job.

On the Horizon system, the jury is still out on the software itself, but the fact that no software fault of any major size has yet been found does not mean that none exists. I can give an example because last week Charles Goodwin, a retired computer programmer, wrote an e-mail to me setting out how collusion and fraud by unknown third parties could give rise to some of those cases. He set out how that could come about, which I will not repeat because I do not want to encourage people to do it. His hypothetical fraud, which fits some of the facts of these cases, would be very hard to disprove. If a sub-postmaster who had suffered such a fraud began to complain too loudly, the fraudsters could simply reimburse the sub-postmaster and move on to another victim. The poor sub-postmaster might have been told, as my constituent Jo Hamilton was told, that they are the only person suffering glitches. Such a sub-postmaster would then be tempted to help the fraudster by committing false accounting just to buy enough time to work out what on earth has happened. I am not saying that that did happen; it is just that we cannot prove that it did not happen. On the software itself, and on the possibility of fraud, the jury is still out.

The jury is not still out on the Post Office help system, which was inadequate, as the Post Office acknowledges. I know of two examples in my constituency, and the Post Office is addressing one of them. That reflects the position across the country. Other hon. and right hon. Members will have some cases that they know of and some cases that they do not know of.

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Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): The case of Haji Abbas, who runs the Selsey Road post office in Edgbaston, was investigated. He was found not guilty but his post office was closed. There was an allegation of his having lost £90,000, and he feels that he has lost an additional £60,000, yet the Post Office is not reopening the branch. Someone has lost their livelihood following unfair allegations, and nothing is being done to redeem it.

Mr Arbuthnot: I suspect that during the course of this debate we will hear all too many stories exactly like that one, with awful things happening to sub-postmasters and nothing being done about it. I have already mentioned my constituent Jo Hamilton, who pleaded guilty. She first found that there was a discrepancy of, I think, £2,000. She rang up the help desk, which told her to press certain buttons, and immediately the discrepancy doubled to £4,000. Eventually the discrepancy rose and rose to more than £30,000. There was no proper investigation by the Post Office. She told the “Today” programme last week,

“they couldn’t prove I did it, but I couldn’t prove I didn’t.”

Mr David Jones (Clwyd West) (Con): Is it a matter of concern to my right hon. Friend, as it is to me, that all the Post Office prosecutions have been conducted in-house? The Crown Prosecution Service has not been consulted, and therefore there has been no element of independent scrutiny prior to the prosecutions’ commencement.

Mr Arbuthnot: My right hon. Friend was the instigator of my first meeting with the Post Office, which was during the previous Parliament. Unfortunately he was then translated to the Cabinet, so he was unable to pursue these issues as he had previously. He is absolutely right, and I will return to his point in my suggestions, which I hope the Minister will consider.

Sir Oliver Heald (North East Hertfordshire) (Con): The conundrum that one of my constituents had is slightly different. She was prosecuted and found guilty. Her claim is that that was totally unfair and wrong, but she put into the scheme too late for the deadline. Now, of course, she is being offered a review by the Post Office, but she is not very confident that it will do a thorough review. Does my right hon. Friend have any thoughts on that? If it is only a short period after the deadline, should it not be possible for her to go into the scheme?

Mr Arbuthnot: Three or four weeks ago I would have given a different answer to my hon. and learned Friend’s question, but I am afraid that I no longer have faith in the scheme. Whether his constituent wishes to be in a scheme in which she may or may not have faith has to be up to her, but the Post Office certainly should not have an arbitrary cut-off point for examining such issues of injustice. I know that my hon. and learned Friend will continue to pursue the issue.

Huw Irranca-Davies (Ogmore) (Lab): I have three cases in my small constituency that are outside the mediation scheme, but many people, including me, had faith that the mediation scheme would progress well and give us some hope that there would be a silver lining at some point for those who are outside the scheme. The

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right hon. Gentleman’s understandable lack of faith shows that there is no avenue for the many people who were outside the initial mediation scheme.

Mr Arbuthnot: I know that the hon. Gentleman was intending to have an Adjournment debate; I am very sorry that I pinched his idea and did it instead. I am grateful for his support on this issue. He has been making these points for some time. We must get to the bottom of these cases, and I am afraid that we cannot rely on the Post Office to see right.

My constituent, Jo Hamilton, pleaded guilty. She had a choice between risking prison for theft and pleading guilty to false accounting, and she decided that the risk was too great. I do not believe that that is the way our criminal law should work. Residents of her village, South Warnborough, do not believe that she is a crook any more than I do, so they paid thousands of pound towards the money that the Post Office was demanding.

Another sub-postmaster, Julian Wilson of Astwood Bank, gave an interview to Radio 5 Live last week. He had a similar story. His wife was convalescing from a tumour and her father had been diagnosed with terminal cancer. He therefore did not want to put his family under strain, so he pleaded guilty to false accounting to avoid the accusation of theft. Like Jo Hamilton, he now has a criminal conviction. Noel Thomas of Anglesey—it is good to see the hon. Member for Ynys Môn (Albert Owen) in his place—was found guilty of theft and sent to prison, as were many others up and down the country.

It may, of course, be that the trade of sub-postmastering was infiltrated by a sudden rash of criminals. I have met a lot of those people, and I personally do not believe it.

Andrew Bridgen (North West Leicestershire) (Con): Will my right hon. Friend confirm that the Post Office is able to bring criminal prosecutions in cases that have already gone to the Crown Prosecution Service, even if the CPS believes that there are insufficient grounds for a prosecution?

Mr Arbuthnot: As my hon. Friend suggests, and as my hon. and learned Friend the Member for North East Hertfordshire (Sir Oliver Heald) suggested earlier, it is becoming increasingly untenable for the Post Office to act as its own prosecutor without the independent look that the Crown Prosecution Service would bring. My impression is that the Post Office shares that view, and the sooner it can get rid of its responsibility to prosecute—I believe it should happen today—the better.

In the light of all those cases, Members of Parliament got together. My right hon. Friend the Member for West Dorset (Mr Letwin) and I went to see the chairman and the chief executive of the Post Office, who then came to meet right hon. and hon. Members. They suggested that they should set up an independent forensic investigation, and they appointed Second Sight to do that work. Second Sight identified concerns that gave rise to the mediation scheme that we are discussing today.

Second Sight did not identify major software issues in its interim report. It must follow that the mediation scheme was set up to deal with the issues of support and the surrounding issues relating to the sub-postmasters. The Post Office agreed to a mediation scheme that was to include those who had pleaded guilty. It is almost too

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obvious to say this, but in view of what the Post Office has been doing I have to do so: I would never have agreed to a mediation scheme that excluded people who pleaded guilty, such as my constituent, Jo Hamilton. I would not have agreed to one, and neither would right hon. and hon. Members throughout the House.

That is what the Post Office agreed; let me turn to what it actually did. In the working group for the mediation scheme, the Post Office began this year to argue that the issues of concern that were identified by Second Sight should be excluded from mediation—for example, the absence or ignorance of contracts, and the failure of audits and investigations—despite its agreement with Members of Parliament that the scheme would cover the issues in the interim report. I understand that the Post Office has been arguing in recent months at the working group stage to exclude 90% of the cases coming before the working group, despite everybody’s understanding that exclusion from mediation was to be the exception, not the rule. Extraordinarily, the Post Office argued to exclude people who had pleaded guilty, despite its express agreement to the contrary with me and other right hon. and hon. Members, and despite the fact that it knew that we would not have agreed to a mediation scheme otherwise.

Mr John Redwood (Wokingham) (Con): I am grateful to my right hon. Friend for leading on this issue and for bravely taking the case of many people in the postal sector to the management. From his discussions with the senior management of the Post Office, is there any sign that it now recognises that it made mistakes? Is there any willingness on its part to recognise that at least some of those people are completely innocent and deserve an apology and compensation for the way that their lives and businesses have been wrecked?

Mr Arbuthnot: That is a very difficult question to answer, because the Post Office pleads secrecy. It will not tell us what is happening in the mediation scheme. We asked in July how the mediation scheme was going, but it refused to tell Members of Parliament because it was all confidential.

Mr Jonathan Djanogly (Huntingdon) (Con): I congratulate my right hon. Friend on securing this debate and on the huge amount of work he has done on this issue over many years.

Unfortunately, this saga has seriously affected the reputation of one of my constituents. I use the word “saga” because what I find so unacceptable—I think my right hon. Friend was just coming to this—is the delay. For year upon year, people’s reputations have been on the line and sub-postmasters have not known what their status or position is or how the issue is progressing. I find the Post Office’s foot-dragging, inefficiency, and years of delay absolutely unacceptable.

Mr Arbuthnot: My hon. Friend is absolutely right. When people’s houses are being repossessed, as is happening throughout the country, time really matters.

The Post Office has been arguing that these cases should be excluded. It has been doing it at a stage of the process when there is not professional representation in front of the working group, because no professional advisers have appeared before it. Even the sub-postmasters

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have not appeared in front of the working group when the Post Office is arguing that they should be excluded from mediation. Despite the Post Office’s heralding the payment of professional support for all those sub-postmasters, in practice it is a sham. It is doing it in the interests of the integrity of the scheme.

What conclusions must we reach, therefore? The Post Office has built up the hopes of sub-postmasters so the scheme has their support. It has broken its word to Members of Parliament in so many different respects that it is frankly bewildering. There are many ways to describe it, but I think the best is to say that the Post Office has been duplicitous. It has spent public money on a mediation scheme that it has set out to sabotage.

In the “Today” programme interview last week, the Post Office spokesman said:

“I am really sorry if people have faced lifestyle problems as a result of their having been working in Post Office branches.”

These are not “lifestyle problems”. Jo Hamilton had to get help from her parents as well as from her village. Her mother and her father then both had a stroke. Was that connected? I suspect that it was. Some sub-postmasters lost their businesses, their houses and their reputations; some went through divorces and lost their families; some had to live in their cars; some had health problems; and Noel Thomas and others went to prison. Those are not “lifestyle problems”.

The Post Office spokesman also said that, “It’s not yet over.” If it was up to the Post Office, it would be; the Post Office is trying to close down the mediation scheme. And for some who have been through mediation it is actually over, because they have experienced legal bullying and the Post Office has no intention of getting to the bottom of what went wrong. Documents have been destroyed or lost.

Annette Brooke (Mid Dorset and North Poole) (LD): I congratulate my right hon. Friend on the enormous amount of work that he has done on this matter. I, too, am concerned about the length of time involved and the lack of information. The mediation process requires information from both sides. My constituents make the point that they requested audit trails and they just have not been given them, which seems to confirm exactly what my right hon. Friend is saying at the moment. Can he confirm that that practice—people not getting the information they need so that they can defend themselves—has been fairly widespread?

Mr Arbuthnot: Well, yes, it has been. My hon. Friend has been working on this issue since the very beginning. Obviously, constituency cases are confidential to constituency MPs. All I can say is that my own constituent, Jo Hamilton, has been told that she cannot have a result until after Second Sight has produced its report in April. I first became concerned about her case in 2008, and this sort of time lapse is utterly unacceptable.

Not only is the Post Office doing this in breach of its word to Members of Parliament and in breach of its duties to the people it works with—the sub-postmasters—but it is undermining and belittling the work of the forensic accountants whom it chose. It is the independence of these accountants, which MPs initially questioned but which we now welcome, that the Post Office finds hard to take.

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The Post Office has accepted that its support systems left much to be desired, and as a result it has changed them. The sheer number of calls to the Post Office helpline is astonishing. The calls are from professional users, but tens of thousands of them were abandoned; they were not just made, but abandoned. Jo Hamilton encountered support staff who could not tell her what was going on. She herself had not been trained at all, let alone trained to deal with issues such as this. What has the Post Office done about the absence of such training? It has blamed Jo herself, and others like her, for not having asked for more training, despite the fact that it should have been clear to the Post Office itself, if it was not clear to Jo herself, that she needed such help.

Mike Wood (Batley and Spen) (Lab): Indeed, has the Post Office not done more than that, because as late as 24 November it announced that a quarter of the staff who provide advice and support to sub-postmasters and sub-postmistresses will be made redundant by the middle of February? So the very poor service that sub-postmasters can draw on at present will be reduced by the Post Office by 25%.

Mr Arbuthnot: My understanding is that the figure is something like that, but I hope that the hon. Gentleman, who has been a key member of the working group of MPs on this issue, will be able to expand on that point when he makes his speech, because I do not know the full detail.

The Post Office carried out no proper investigation into what had happened to Jo Hamilton. Julian Wilson, of the Redditch constituency, was told by Post Office staff that if there was money over at the end of the day, he should put it in an envelope and put that envelope in the safe, and then use that money to pay later shortfalls. It is so obvious that that amounts to false accounting, on the instructions of the Post Office itself, that it is bewildering. He kept asking for audits but the Post Office said, “We’ll audit you when we think you need an audit.” And yet he gets prosecuted and decides to plead guilty.

What allowance has been made by the Post Office for the fact that historically its support was so poor? So far as I can tell, none. What allowance has been made for the contract term that provides that the weakest links in the Post Office—the sub-postmasters—have to be found guilty unless they prove their innocence? So far as I can tell, none. This is not the way that our criminal law should work. What has happened to the money that the Post Office got from people such as Jo Hamilton via the South Warnborough village? Did it get taken into Post Office profits? This is, essentially, an issue of Post Office culture—the protection of assets at the expense of people.

Sir Oliver Heald: If there are problems with the software, or if the system is vulnerable to hacking of the sort that my right hon. Friend described, surely the Post Office would have taken steps to improve the software and/or made sure that it was more difficult to hack its system? Is there any evidence that it took such action, and if it did is that not in itself an admission that the system was vulnerable and that mistakes could have been made?

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Mr Arbuthnot: My hon. and learned Friend makes an interesting point. The thing that I am worried about most is that it is often impossible to find those flaws in the software that could have caused some of these problems. Second Sight’s interim report did not find major problems with the software, but as I said at the beginning that does not mean that such problems did not exist.

To my mind, the Post Office’s behaviour towards MPs gives some credence to the complaints that have been made by sub-postmasters about its behaviour towards them; if the Post Office can treat MPs like that, how will it deal with people who are frightened and bankrupt? Somehow in all of this saga, although it is hard to think that it would be possible, the Post Office has managed to tarnish its own reputation still further, while again tarnishing the reputation of sub-postmasters.

As right hon. and hon. Members know, I have handed on the mantle of this campaign to the hon. Member for North Durham (Mr Jones), and I am very pleased to see him in Westminster Hall today. That is partly because I will not be standing in the general election next year, but it is also because, frankly, I no longer trust the Post Office and I will not be negotiating with it further. I did not, as some newspaper reports suggested, withdraw the support of 150 MPs, because I have no right to do so. I withdrew my own personal support and what right hon. Members and hon. Members do now is, of course, up to them.

However, there are other avenues that need to be taken. We need a review by the Government, because we own this organisation. That review must be entirely independent of the Post Office, which has shown it cannot be trusted on the issue. Possibly there should be a special ombudsman.

In my letter to the chief executive of the Post Office, I asked for three things. I asked for no further destruction of documents, and by documentation I mean not only the documentation for those people who are within the mediation scheme but the documentation for those people who have not managed, for one reason or another, to get into the scheme. They have been mentioned already.

I hope the Government can prevent the Post Office from pleading the statute of limitations, because sub-postmasters’ legal actions—some of them caused by the behaviour of the Post Office—should not be barred by the passage of time. I hope that the Post Office and the Government can agree that hon. and right hon. Members should be briefed by Second Sight, not on individual cases, but on the way the mediation scheme has gone.

I wrote a letter to the Post Office at the beginning of last week asking for these things, but I have had no response.

Tessa Munt (Wells) (LD): My right hon. Friend has already mentioned that evidence needed to investigate complaints by the applicants should not be destroyed. Might he, in his position as leader of this debate, make sure that the Minister asks that the Post Office guarantees that the material gathered and produced by Second Sight remains in Second Sight’s possession and that control of it cannot be given up and that it cannot be destroyed if or when the Post Office instructs Second Sight to do just that?

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Mr Arbuthnot: My hon. Friend makes an interesting, worthwhile point. I hope that Second Sight will indeed have a role to play. It is meant to be independent: that is how my hon. Friend the Minister described it in last year’s statement. I hope that its approach to documents will be equally independent. I hope that the Minister is able to assure us of that.

There may be a role for the Select Committee on Business, Innovation and Skills. I am pleased that its Chairman, the hon. Member for West Bromwich West (Mr Bailey) has been in his place today. There should be an investigation by the Criminal Cases Review Commission off its own bat, and even those who have pleaded guilty should be able to take advantage of such an investigation. There will be a role for the courts. I think, therefore, that there will need to be a fund to help sub-postmasters in those actions. It would be good to think that the Post Office itself could, of its own accord, modify its own behaviour. I wish I did think that, but I do not.

Several hon. Members rose

Nadine Dorries (in the Chair): Order. Front-Bench speeches will begin at 3.40 pm. Quite a few Members would like to speak, so I will let them do the maths between themselves. If we are running out of time, I will have to impose time limits on those remaining, but for the moment I will leave it to Members’ discretion.

3.2 pm

Albert Owen (Ynys Môn) (Lab): It is a pleasure to follow the right hon. Member for North East Hampshire (Mr Arbuthnot). Like other hon. Members, I congratulate him and his office on the way they have dealt with Members of Parliament during this whole process—they have been very measured and courteous. He has brought together a groundswell of opinion from MPs and put that articulately to the Post Office.

I share the right hon. Gentleman’s disappointment at the way the Post Office has behaved, because I was one of the hon. Members who initially welcomed a mediation process. A mediation process is one of good will, where both sides volunteer to come together to look for a solution. What we have been talking about in this debate is the destruction of many people’s lives—the lives of many citizens who are well thought of in their communities.

The right hon. Gentleman mentioned Noel Thomas from my constituency, who was a councillor, although not of my political persuasion, in that community, and did more than his fair share of good for people. He ended up in prison because of this system and because he has, I believe—I am speaking personally here—been let down by the Post Office.

In the early stages of the legal matters, I allowed that legal process to go forward, as did other Members. It was not until the Justice for Subpostmasters Alliance was set up that the wider issues were known. I pay tribute to each and every one of those people for coming together and fighting for what they believe to be right.

My constituent Noel Thomas ended up in prison. There were very serious issues, and he lost his home and his business. The impact felt by the right hon. Gentleman’s constituents was felt by many of mine—even in my

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small constituency I know of five cases of varying degrees of seriousness—but Noel Thomas’s case is the most public and he is the only person I shall name in this debate, although there are a number of others.

The Horizon system has been looked at as there have been problems with it. Many sub-postmasters and sub-postmistresses, some of whom are now retired—their post offices have closed for whatever reason—indicated to me in the early stages in 2001-02 that there were issues of concern at that time in rural areas, when the system was going offline and being rebooted. I therefore find it hard to accept that the Post Office has concluded that there was nothing wrong with the system. I shall mention a little later the lack of support and the helplines because they were important.

The right hon. Gentleman mentioned—I heard it on the radio as well—people being told by Post Office staff, many of them sub-postmasters, to put money aside and to make it up. That beggars belief. There is no evidence of it in many places, because of the trust between the Post Office as the employer and the sub-postmasters who were running their thing.

Mr David Jones: Does the hon. Gentleman not agree that a lot of sub-postmasters who were subsequently prosecuted for false accounting had in effect been encouraged to engage in false accounting by Post Office support staff? In other words, was not the Post Office itself counselling and procuring an act of false accounting?

Albert Owen: Absolutely right. I thought that this system and this scheme were going to identify those issues and that somebody in the Post Office was going to have to answer for their actions, in the way that our constituents have had to answer by going to prison and losing their livelihoods, and various other things. It has been very one-sided.

In another case, the life of a relatively young woman has been ruined because of the accusations. On the advice of a barrister, she pleaded guilty to the lesser charge to avoid a custodial sentence. She feels now that she was let down not just by the Post Office but by the legal system. These are very serious issues. Members from across the House have indicated to me that they are aware of cases being handled in a similar way.

I thought, having had correspondence with other MPs and so on, that this was an independent process. I am now led to believe that the Post Office was judge and jury and was deciding unilaterally which cases were to go forward. I was of the opinion that people who had been found guilty, for the reasons we have outlined, would be allowed to enter the mediation system. I am very disappointed with the way this is turning out, because—I shall repeat this a number of times—we are talking about people’s lives being ruined by this process. I was under the impression that we were moving forward and making progress.

In a third case, a constituent of mine who entered the scheme was helped by the Post Office—as we all know, it paid for the early advice that that person was given—but because their status moved from that of sub-postmaster to employee of another sub-postmaster they were thrown off the scheme. That was discovered at a later stage. Taxpayers’ money had been given to a third party to help that person, to give advice and to come to that conclusion: a complete waste of public money. I argued

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the case on behalf of my constituent and he was reinstated to the scheme and is moving forward. However, because of confidentiality I do not really know where that case is in the system. A lot of issues need clarification.

I have sympathy with the Minister, because the Post Office, as we know, is not directly a Government body. However, it is a public body that we the taxpayers, and we as representatives, should hold to account. I pay tribute to the right hon. Member for North East Hampshire and others for doing that.

I shall not go over the other cases that I have, because I am conscious of time, but I have given some examples and we have heard others in interventions. However, I feel let down by the Post Office, my constituents feel let down by the Post Office and I think the country feels let down by the Post Office.

I repeat that I have anecdotal evidence—not hard evidence—that this system was problematic. Of course, computer systems—large-scale IT systems across Government and across public bodies—are problematic, but the reason the Post Office will not admit to these glitches is that, as Members have indicated in interventions, and as I am sure they will indicate in their speeches, people were encouraged to do things that were, in many ways, unlawful. That is a disgrace.

The crux of the debate is that the Post Office encouraged people to commit false accounting, and then it penalised them in the hardest way possible—by taking their livelihoods and reputations from them and destroying their standing in the proud communities we represent. The Post Office is iconic, and the people who serve in it do so with pride, but they have been let down, and it is time that this Parliament—the British Parliament—stood up for them. I am glad we are having this debate, and I want some results.

Several hon. Members rose—

Nadine Dorries (in the Chair): Order. Could Members keep their speeches to six minutes without my having to impose a formal time limit? Otherwise, we will, unfortunately, run out of time.

3.10 pm

Andrew Bridgen (North West Leicestershire) (Con): It is a great pleasure to serve under you in a debate on this huge topic, Ms Dorries, even if it is for as little as six minutes.

I, too, pay tribute to my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot) for his leadership on this issue over many years. It has been an honour and a privilege to serve under him on his working group of MPs for the last two years.

The issue first came to my attention because of the plight of a constituent, Mr Michael Rudkin. For 15 years, he was a sub-postmaster. He served as the most senior member on the national executive of the National Federation of SubPostmasters and as the chairman of the federation’s negotiating committee. He was responsible for negotiations with Post Office Ltd and Royal Mail Group, so he is an experienced sub-postmaster. I would like to share with Members his experience of the problems

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with the Horizon system, which demonstrates that significant questions need to be asked of the Post Office, although it is reluctant to answer them.

Mr Rudkin’s story starts on Tuesday 19 August 2008. In his official capacity as a negotiator on behalf of sub-postmasters, he was invited to a meeting at the Fujitsu/Post Office Ltd offices in Bracknell to discuss problems with the Horizon system. If Mr Rudkin is telling the truth, which I have no doubt he is, this sequence of events raises questions about the system, which the Post Office must answer.

On arrival that morning, my constituent signed the visitors’ book in reception and waited for his chaperone, a Mr Martin Rolfe. Mr Rolfe took him to the second/third floor, and they entered a suite where Mr Rudkin recognised Horizon equipment on the benches. There was only one other person in the room—a male of approximately 30 to 35 who was reluctant to engage in conversation with Mr Rudkin or Mr Rolfe.

Mr Rolfe asked Mr Rudkin to follow him through a number of pass card-protected security doors to some stairs. They went down to the ground floor and then entered the boiler room. Mr Rudkin states that a number of men dressed in casual office wear were standing around the doorway. They became very uncomfortable about Mr Rudkin’s presence and left.

Having entered the boiler room, Mr Rudkin instantly recognised two Horizon terminals. There were data on both screens, and an operative was sitting in front of one of them, on which the pure feed for the Horizon system came into the building. Mr Rudkin asked if what he could see were real-time data available on the system. Mr Rolfe said, “Yes. I can actually alter a bureau de change figure to demonstrate that this is live”—he was going to alter a figure in a sub-postmaster’s account. He then laughed and said, “I’ll have to put it back. Otherwise, the sub-postmaster’s account will be short tonight.” Mr Rudkin expressed deep concern, because he had been told that no one had remote access to a sub-postmaster’s account. At that point, he was politely but speedily taken to reception, and he was told to leave the building.

Mysteriously, the next day, Wednesday 20 August 2008, a Post Office Ltd auditor—a gentleman Mr Rudkin knew, by the name of Paul Fields—arrived at Mr Rudkin’s sub-post office. He proceeded to tell Mr Rudkin that his branch had a loss of £44,000. Interestingly, Mr Rudkin maintains that the investigator knew the size of the loss before he even entered the premises.

Mr Rudkin was absolved of all knowledge of the loss by Post Office Ltd, but he was ordered to pay the money back at the rate of £1,000 a month from his salary. As we have heard, the sub-postmaster is completely liable under the contract for all losses. As Mr Rudkin points out, why would someone steal money from themselves when they know that?

After Mr Rudkin had paid £13,000 back to Post Office Ltd, the Post Office started proceedings against Mr Rudkin’s wife for false accounting. It also applied for a confiscation order on all his property and had his bank account frozen under the Proceeds of Crime Act 2002. Mr Rudkin has since cleared all his debts to Post Office Ltd. In the process, he has lost his business, his reputation, his position as a magistrate, some property and his good name, and he has been unable to work since.

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Second Sight—the team of independent investigators appointed by the Post Office to look into the matter—questioned the Post Office about Mr Rudkin’s allegations and his visit. Initially, Post Office Ltd consistently denied the visit had ever taken place—until Mr Rudkin produced an e-mail from Mr Rolfe from the day before the visit, which invited Mr Rudkin to visit and said that Mr Rolfe would meet him in reception, at which point the Post Office did admit that the meeting had taken place.

Second Sight has repeatedly requested e-mail data from before, during and after Mr Rudkin’s visit, as well as a copy of the visitor’s book, but all those things have been withheld or are, we are told, now missing. That raises serious questions about the Post Office.

Second Sight told me that it has looked at the contract sub-postmasters are asked to sign and that, in its view, a person would have to be an economic and legal illiterate to be willing to sign it, because it is so slanted in favour of the Post Office. As we know, the Horizon system is imposed on sub-postmasters by the Post Office. Effectively, the sub-postmasters become the fall guys—they are ultimately liable for all losses—so there is little incentive for the Post Office to ensure that the system or the support for it are robust.

The way in which Post Office senior management have dealt with our working group of MPs has been extremely high-handed. I share my right hon. Friend’s concerns: if Post Office management speak to Cabinet members and senior Members of Parliament in the way they do, the way they treat their sub-postmasters must be feudal—

Nadine Dorries (in the Chair): Order. Could you wind up, please, Mr Bridgen?

Andrew Bridgen: I will, Ms Dorries.

There are many questions to be answered, and I hope that as a result of parliamentary pressure and debates such as this, we will get the Post Office to move to a position where genuine negotiations can take place with aggrieved parties on a level playing field. We are some way from that yet, and I honestly think we will need a full clear-out of Post Office management before we get a change of attitude in this important public institution.

3.18 pm

Mike Wood (Batley and Spen) (Lab): I am pleased to be called in this important debate. I, too, thank the right hon. Member for North East Hampshire (Mr Arbuthnot), who has tried valiantly over the past two to three years to get the Post Office to do the honourable thing by sub-postmasters and sub-postmistresses who have been slighted—all, it would appear, to no avail. None the less, we should place on record our thanks to him for his valiant efforts.

Central to this issue and to the operation of all 11,500 sub-post offices is the Horizon system. We must remember that it is ancient: it was second hand when the Post Office took it on between 1996 and 2000, and it was, in any case, designed for other purposes. We are now 18 or 20 years down the road, and, in IT terms, the system is a dinosaur. If we add to that the problems that are found in all large-scale IT systems when things are bolted on or updated, or when they are expected to interface with systems they were never designed to

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interface with, we patently have a very flawed, degraded and deteriorating system. That system, which accounts for about 60 million transactions a year, is central to this issue. However, its influence—we might say its malevolent influence—on the lives of sub-postmasters and mistresses is added to by two features. First, there is their relationship with Post Office Ltd and, secondly, there is the attitude of Post Office Ltd senior staff.

Sub-postmasters and mistresses are bound in their relationship with the Post Office by a contract that has been described as Dickensian, but even our Victorian forebears would struggle to justify a contract that is 114 pages long, all in the usual small print, which was first put together in 1994, and which, essentially, places on them all responsibility for problems and shortcomings in Post Office Ltd’s own equipment and system. Therefore, the responsibility for any shortfall or shortcoming rests contractually with the postmaster or postmistress. As the hon. Member for North West Leicestershire (Andrew Bridgen) said, that removes any compunction from Post Office Ltd to do anything about its flawed system, even though it appears to have had the ability to bolt on a facility to alter figures from an individual post office remotely after they have been signed off for the day by the postmaster or postmistress who is responsible for them. The system is flawed, but apparently Post Office Ltd has used it to good effect.

When such a flawed and ancient system is backed up with poor, and often non-existent, training and support, we have the recipe for a disaster. However, we must remember that, in the short term, that is a disaster not for the Post Office, but for those postmasters and postmistresses who get caught out by the glitches and failings in the system that were illustrated earlier.

The second issue is the attitude of Post Office Ltd’s management. The right hon. Member for North East Hampshire and the hon. Member for North West Leicestershire were present when we met the five senior managers of Post Office Ltd—the chair of the board, the chief executive, the chief technical officer and two others—who said, “We cannot conceive of there being failings in our Horizon system.” I asked all five of them about that.

First, that makes us wonder which planet they live on. Secondly, we know that if the organisation operates from the premise that, uniquely, it has a computer system with which there are no problems and can be no problems, that explains its behaviour further down the line. Its investigation department should be renamed, because it has never done an investigation since it was set up. When problems are found, eventually it goes to the individual postmasters and postmistresses and says, “There is a problem here. Patently, it is not our system—it’s faultless—so it must be you. So, now, under caution”—because the Post Office has the ability to prosecute—“without you having legal representation, we would like you to sign a statement that you have taken part in false accounting. Then we will think about not prosecuting.”

People in such circumstances, in the knowledge that there was a problem, are often encouraged to do that by the advice and support team. Many are told, “It’ll sort itself out—don’t worry about it. Put it in an envelope and sort it out later.” Therefore, if they follow that advice, they find themselves agreeing, “Yes, of course that is false accounting—I will sign the statement.”

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Nadine Dorries (in the Chair): Order. That is more than six minutes now, so can you speed up?

Mike Wood: Okay. We need to look to the future, and I support what the hon. Member for North West Leicestershire said about the removal of the very poor senior management in Post Office Ltd, but we must have justice for the hundreds of postmasters and postmistresses who have had their lives ruined by this flawed system.

3.24 pm

Katy Clark (North Ayrshire and Arran) (Lab): It is a pleasure to see you in the Chair today, Ms Dorries. I congratulate the right hon. Member for North East Hampshire (Mr Arbuthnot) on all his work on this issue and on securing what I understand is his first Adjournment debate. I refer to my entry in the Register of Members’ Financial Interests and inform the House that I am the chair of the Communication Workers Union group of MPs. I have had a wide range of discussions with the CWU and in particular with the postmasters branch, which has had a number of its members affected by the issues raised today.

As has already been made clear in the debate so far, this issue has been ongoing for many years. I want to reiterate a point made by my hon. Friend the Member for Batley and Spen (Mike Wood): what has come across clearly to me in discussions with sub-postmasters and mistresses is denial from the Post Office that a problem exists. The experience of those directly affected is that, if a problem occurs in relation to the finances, the initial response from the Post Office is to blame the postmaster or mistress rather than to conduct a serious inquiry to see whether there is a fault in the system or to find out what has gone wrong. That is devastating for the individuals involved, who, as has already been shown, often face years of anguish as a result.

The Communication Workers Union is supporting a number of members who are waiting for their cases to be heard as part of the mediation service. Indeed, one of its members has been suspended without pay for more than a year as he waits for his case to be heard. For more than eight months, another has been facing increasing losses hanging over him despite ongoing involvement with Post Office technical staff who have come to see what the cause of the losses is and to try to find out why there are losses and whether there are gains.

The CWU gets involved with postmasters and postmistresses who are seeking help with the computer system on a regular basis. They are not necessarily being accused of anything, but they are having problems with the system. As workers, they find numerous problems with it, as has been highlighted in the debate.

The general point that comes through is that the support systems provided by the Post Office are inadequate. Wrong advice and assistance is regularly given by the help desks that are there to try to deal with such situations as they arise. Indeed, I have been informed that the technical help desk, which is crucial to identifying solutions when problems arise, is based in the Philippines. Therefore, as well as all the other issues when attempting to sort out technical problems, a significant problem is language difficulties. Will the Minister deal with that in

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her response? We have already heard in the debate about the job losses threatened and it is clear that the current support systems are inadequate.

The main concern that comes through from those directly affected is that there does not seem to be a fair and open process to deal with a postmaster or postmistress who it is believed might bear some kind of responsibility for a shortage in the accounts. The Communication Workers Union is regularly involved in such cases, even when they do not amount to the serious problems identified in earlier contributions to the debate.

The CWU postmasters branch informed me that it has seen the leaked report issued by the forensic investigator, Second Sight. Indeed, I understand that that report has been seen by many journalists and Members. One of the concerns is the lack of public scrutiny and the fact that these issues are not in the public domain. It seems that the contingent liabilities and the amounts of money involved over many years are significant. That is highlighted in the report and is not officially in the public domain. Indeed, it does not appear in any way in the annual reports and accounts that the Post Office has to publish.

There needs to be a much higher level of transparency because we are dealing with public money. The people whom I have spoken to who have experience of the system accept much of what is in the Second Sight report. Their view is that there is not one single fault with the system, but dozens and dozens of things that make up the problem when one steps back and considers the system as a whole. The major cultural problem we seem to have is that the initial response from the Post Office, despite everything that we have heard today and all the representations made over many years, is that the individual is responsible if there is an issue. I hope the Minister will look seriously at that cultural problem. It is clearly significant. No one is fully clear on exactly why there are all these problems in the system, but all the evidence is that this is an extremely significant issue. It is resulting in low morale among those working in the system, and I hope she will respond fully to the matter.

3.31 pm

Mr Kevan Jones (North Durham) (Lab): First, I congratulate the right hon. Member for North East Hampshire (Mr Arbuthnot) on securing the debate. The Post Office spokesman on the “Today” programme said that some postmistresses and postmasters have lifestyle issues, but may I explain what it has meant for my constituent Tom Brown, who lives in Stanley in North Durham? He has lost his home and an investment property he owned. He has been declared bankrupt and he now lives with his son. His reputation has been dragged through the mud and he has lost in excess of £250,000. He has been a sub-postmaster for 30 years. He has been held up at gunpoint on five different occasions. In 2008, he informed the Post Office that there was a problem with the system. I know many other postmistresses and postmasters did that. He was told, “No problem. It will be sorted out.” At the next audit, he was accused of stealing £85,000. He was arrested by the police and his home and his car were searched, even though he had explained to the Post Office about the problems that had arisen. The police interviewed him. His reputation was dragged through the mud.

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As my hon. Friend the Member for Ynys Môn (Albert Owen) said, these people are known in their local communities, so they are not arrested quietly and without any publicity. The police dropped the case. There was no evidence to answer. The pernicious side of it was that the Post Office took him to court under its powers, accusing him of two charges of false accounting. It took until July 2013 for that to get to court. When it did, the Post Office offered no evidence and the case was thrown out.

Can the Minister say what the decision-making process was? Why was the Post Office pursuing prosecutions when the police had looked at some of these cases and found that there was no case to answer? The Post Office put these people through the further agony of being threatened with court action, even though no action was taken when the cases reached court, because it had no evidence. Mr Brown is now in the mediation service and he has a date in the new year. His solicitors advised him, quite rightly in my opinion, to continue his legal action against the Post Office. Like the right hon. Member for North East Hampshire, I think the mediation service is a bit of a joke,

The arrogant way in which the Post Office is dealing with this issue is astounding. Just before the debate started, the Minister’s Parliamentary Private Secretary passed a letter around from the chair of the working group on the mediation scheme. He said:

“I am limited in the information which I can give because the Scheme requires the cases to be treated confidentially.”

What an arrogant way to address a Minister! Who does the Post Office answer to? That is a fundamental point.

This is a national scandal. The idea that more than 150 individual sub-postmasters and sub-postmistresses, who have worked tirelessly in their local communities, for decades in some cases, have suddenly all worked out that they can defraud the system is complete and utter nonsense. We have seen the scandal in the banking system of the way in which LIBOR and other things have been rigged. Those bankers have basically been slapped on the wrist and asked to pay a fine, but these individuals have not only had their reputations sullied, but in some cases they have been dragged through the courts and put in prison. Others, such as my constituent, Mr Tom Brown, have had their lives completely ruined.

I am sorry that I have to say this to the Minister, but it is now time for action. I have been a Minister, and I know that Ministers get a lot of flannel from civil servants saying what can and cannot be done, but I will give her a word of advice: if she is determined enough to want to sort this out, she can do it. What we need from this debate is a clear commitment from her to get the Post Office not only to admit the mistakes it has made, but to sort this scandal out. People’s lives have been ruined—decent, honest and hard-working people. That is just not fair. If it happened in any other area of life, it would be a national scandal. It is a national scandal in my opinion. I am looking to the Minister to ensure that something gets done. If her civil servants come back and say she cannot do X, Y and Z, she should just keep challenging them.

3.36 pm