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It is because we recognise the global nature of the threat that our response must be truly global as regards plots against the UK-our interests originate in various parts of the world. We and our allies are clear that the terrorist threat from al-Qaeda in the Afghan-Pakistan border region, the FATA, remains the most significant security threat to the United Kingdom. The UK military and civilian effort in Afghanistan supports the Afghan people in rebuilding their country, ensuring that it cannot be retaken by the Taliban and cannot again become a base for al-Qaeda, because, at the top-hamper, al-Qaeda and the Taliban are joined at the hip. Further down, at worker-bee level, that is not necessarily the case, but at the top it is. I was commander-in-chief when we invaded Afghanistan. On the initial invasion, we were horrified at the extent of the training camps and the laboratories doing all sorts of nasty work. We must never let that happen again.

The noble Lord, Lord Sheikh, mentioned Pakistan. We are working very closely with Pakistan. It is key to that region. I have great concerns about Pakistan. We are working in close partnership with its Government to try to develop the capability to bring terrorists to justice. There was talk of the FCO's money. About a quarter of the FCO's counterterrorism funding goes to initiatives in Pakistan-£8.3 million was spent in 2009-10 and a projected £9.5 million will be spent in 2010-11. I think that the noble Lord, Lord Sheikh,

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mentioned equipment. I was slightly surprised at that. I assume that he was referring to equipment for the British Army in Afghanistan. The British Army there has never been so well personally equipped. One has to be careful. When you go into a new domain, inevitably your equipment will not be right for it. It takes time to catch up. When I was sunk in the Falklands, my ship was not very capable of defending itself against massed air attacks close to land. That is just a fact of life. If you are in the military, you get on with it-you bloody well do the job-but, sadly, it means that things are suboptimal initially. But that is what has to happen. Now, out in Afghanistan, they have very good personal equipment.

Looking outside the FATA, we also have to recognise that AQ has affiliates, allies, people who are inspired by it, who seek to exploit other areas of weak governance such as the Yemen, Somalia and the Sahel. My noble friend Lord Soley referred to the fragility of some of these states and how we have to keep an eye on them and look after them. These things were identified in our strategy. We identified Yemen in this way. This was not a new shock to us. The Yemen has been at the forefront of an international effort against terrorism. As I say, we have for some time assisted the Government of Yemen. By next year our commitment to Yemen will total some £100 million. We are also increasing our capacity building in Somalia. This is a really difficult place in which to operate. We contributed considerable money to the African Union mission there, but it is a problem. This leads into the aspect of piracy and the ability to tackle it.

We will continue working to tackle the terrorist threat globally through multinational institutions. We do a lot of work through the G20 on the economic downturn. This was emphasised in the defence Green Paper, Adaptability and Partnership, published yesterday. It was presented in this House by the noble Baroness, Lady Taylor. I was very sad to miss that debate, in which excellent questions were raised. I read it in Hansard and I would have liked to be present. The Green Paper makes it very clear that our alliances and partnerships will become increasingly important and that NATO remains the cornerstone of our security.

We are tackling the security challenges of the modern age, such as the growth of cyberspace and the changing threats posed by serious organised crime, which were touched on by my noble friend Lord Soley. That is why we published the UK's first cybersecurity strategy. The noble Baroness, Lady Manningham-Buller, is absolutely right. Lots of good work had gone on before. A lot of work was done by CESG in Cheltenham-I am sorry about the initials-and the Security Service. There has been a lot of good work within companies such as BT, with which we have been in dialogue. However, it was not co-ordinated and focused. The answer to the noble Lord, Lord Hodgson, on whether the number of attacks is increasing is yes. Is public awareness of it low? Yes. I said to the committee that he referred to that this was absolutely the case. We need to be really concerned about this, as we are.

We produced the cyber security strategy and we set up the Office of Cyber Security. I have been all over it like a rash since that happened last summer, putting

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huge pressure on it. It was unable to ease up for Christmas because we have to do a lot of things. There are whole areas of legality. Can you go back down on to something? How do you get attribution? If someone takes out a power station, which could be done-although we have protected our own-is that an act of war? If you bombed it, it would be, but is it an act of war if it takes place in cyberspace? What will we do in terms of cyber warfare? We have state actors, serious crime actors, criminals who clone and take details of individual bank accounts and hackers who might think that they are funny but actually can do serious damage that costs industry huge amounts of money. Of course, we also have the terrorists, who are very cute. At the moment they use the internet for radicalisation, but they will learn how to do other things. There is a lot that we must achieve. We are in discussions on an international agreement, mentioned by my noble friend Lord Soley, but it is the sort of agreement that is extremely difficult to reach.

In the document, we also recognise the threat from hazards such as natural disasters and accidents. The noble Baroness, Lady Neville-Jones, touched on the breadth of this and I think that what we have done is appropriate. Yes, we have to work with the public. We produced CONTEST at an unclassified level so that our public could read it. That was jolly difficult; I cannot tell you of the battle that we had in trying to achieve that, but it was a huge success.

Out of our national security strategy we have produced the first ever national risk register, which is unclassified. Local resilience forums around our country are able to look at it, find what all the threats are and work out priorities and preparedness in terms of terrorism, natural hazards or industrial accidents. We have provided the forums with a template where such incidents are likely to happen. That is a huge step forward. This all-hazards approach is a flexible and sound basis for dealing with changing requirements. The Civil Contingencies Secretariat in the Cabinet Office works with the Office for Security and Counter-Terrorism in the Home Office. There has been talk about how we can hone this. I think that it works quite well. Perhaps we can refine it a little, but it works well, people talk and there is a lot of debate across government.

I turn to how this Government manage these issues. There is all this talk of a national security committee, but we effectively have that already. The Prime Minister, who I have to say is very involved in this, chairs the Ministerial Committee on National Security, International Relations and Development-it is a horrible title and perhaps we should start calling it the NSC. He does listen. Noble Lords suggested that he did not, but I cannot think of any occasion when he has not listened to what I have told him. He takes this seriously. On that committee are the Secretaries of State of all the key departments. I sit on that committee and all the other sub-committees. The Chief of the Defence Staff is normally there, as are the heads of the security agencies and the top security people in the police, if appropriate. We all sit there and these matters are discussed. Then, a series of sub-committees looks at specifics. For example, one sub-committee looks at protective security. It met on Tuesday. I took to it an

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issue on maritime security and another issue-I am sorry, but I have just remembered that I cannot mention it. Anyway, the committees are looking at these things all the time. I almost fell into that one. I repeat that these things are looked at. Could this be streamlined or made better? I think that probably it could-perhaps we should look at that. However, it works jolly well and that is important.

The committee also asked the National Security Forum to discuss specific issues. This was set up by the Prime Minister. I chair it. It has a group of experts, who are Nobel prize winners and people from the fields of diplomacy, counterterrorism and so on. They all sit down and are terribly difficult to run as a committee because they all have amazing ideas of their own. They are all well connected and we are able, under my chairmanship, to advise the Government. The sort of things that we have given advice on are risks to energy supply, nuclear issues, maritime security, space security, the Green Paper and so on.

I have almost said enough. In conclusion, the importance of the security of our people and country is uppermost in the Government's mind. I know that it is important to all of us in this Chamber. I believe that this has been demonstrated by the speed with which we have responded to changing threats, demonstrated by the Detroit bombing and other incidents-I found the Home Affairs Select Committee report very surprising and actually wrong in some areas. It has been demonstrated by the huge efforts that our Armed Forces are putting into Afghanistan. It has been demonstrated by the lead that we have shown in bringing the international community together this week to discuss Afghanistan and Yemen. I did not expect much from the Yemen thing, but more came out than we could have hoped for.

In the past two and a half years, we have produced the first United Kingdom national security strategy, with everything that has followed from that. It is something that we can refine. We have produced the first national risk register, informing the public and local resilience forums. We have produced the first cybersecurity strategy-again, a huge amount of work is being done on that. We have produced the first science and technology strategy concerning counterterrorism. We have also produced CONTEST 2, which is recognised as the best counterterrorist strategy in the world. We should be proud of that. I am sure that the Chamber is pleased by that, but we can do more to refine it.

These are important issues that we need to discuss more, because it is important to our nation that we discuss them. We will continue to work with all our partners, because this is about partnership, whether it is at home or abroad, to protect our great nation and its interests, which will enable our wonderful people to go about their daily lives freely, with confidence and, I hope, in a more secure, stable, just and prosperous world. We must now go away to achieve that.

4.42 pm

Lord King of Bridgwater: My Lords, I start by thanking the Minister for his reply. He is always an engaging and charming speaker, even if he cannot always remember what he has been doing. He ranged

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widely in the time available. As he and my noble friend Lady Neville-Jones rightly said, this is an extraordinarily wide-ranging subject. I am very grateful to other noble Lords who spoke. Inevitably, given the time constraints, they had to concentrate on fewer issues.

I am sorry that the Minister missed the Green Paper Statement yesterday. He missed out one bit of the Green Paper in his enthusiasm for naval pursuits. The Green Paper encourages a more purple approach, with an end to inter-service rivalry. I also say that he is not quite right about carriers. We discussed this yesterday. The paragraph after the one in the Statement concerning carriers appears to contradict what the earlier paragraph said. We will wait to see what happens. I also have a warning for the House, from the very good programme that Mr Dan Snow is doing on the Navy, that the ambitions of the Navy have proved very expensive for this country over the years. I had forgotten that it was the ambitions of the Navy that led to the introduction of income tax in this country. We will see how we get on now.

I plead guilty to the charge levelled by the noble Lord, Lord Bew, and my noble friend Lord Cope: the item that I should certainly have raised myself was Northern Ireland. In the circumstances, and as the noble Baroness, Lady Manningham-Buller, knows well, this is on the list of areas that we cannot ignore. As my noble friend Lady Neville-Jones said, in a line that I was going to accuse her of pinching before I realised that I had never used it, there is no longer home and abroad in the considerations that we face.

When I listen to the Minister, at the end of his cheerful contributions I think, "Thank God it's all going so well", but then reality breaks through. No one is in any doubt that we face some really difficult challenges and that some serious mistakes have been made: we have only to look at our present situation in the world. The Strategic Defence Review will be the most difficult that this country has ever had to conduct. As the noble Lord, Lord Wallace, said in referring to whether or not we are east of Suez, we face some really major challenges at this time. All these security issues are interlinked, which will present us with very serious problems. I am very grateful to all those who have taken part in this debate and I beg leave to withdraw the Motion.

Motion withdrawn.

Corporation Tax Bill

First Reading

4.45 pm

The Bill was brought from the Commons and read a first time.

Taxation (International and Other Provisions) Bill

First Reading

4.45 pm

The Bill was brought from the Commons and read a first time.

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EU: UK Convergence Programme

Motion to Approve

4.46 pm

Moved By Lord Myners

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, I welcome this opportunity to debate the information provided to the European Commission under Section 5 of the European Communities (Amendment) Act 1993.

Each year, the Government report to the Commission on the UK's economic and budgetary position and our main economic policy measures, in line with our commitments under the stability and growth pact. By formally sharing information from the Pre-Budget Report with our European partners, we can help to maintain an appropriate and effective level of macroeconomic policy co-ordination in the European Union, contributing to stability and growth.

A year ago, as the world economy faced crisis, the European Council agreed a European economic recovery plan, which rightly called for a fiscal stimulus from member states equivalent to around 1.5 per cent of GDP. The Council encouraged member states to allow borrowing to rise to support the economy, acknowledging that this would lead to a deepening of deficits in the short term and that the stability and growth pact should be applied in a manner which reflected the current circumstances.

We welcomed the publication of the European economic recovery plan, which showed that the Government were right in taking bold action in the PBR in 2008 to support the economy through fiscal stimulus. Furthermore, it provided support for actions to front-load public expenditure and assist small and medium-sized businesses.

The Pre-Budget Report was delivered during a year in which the global economy is forecast to have had the longest period of sustained negative growth in 60 years. The crisis first took most economists by surprise but has since brought about a huge debate and interest in the subject, even if a lot of that has been with the view that the dismal science has become even more dismal.

However, the overriding commentary centred first on the role of the market and then on the role of the Government as we took decisive action to stimulate the banking system, stabilise the economy and provide support for future growth. This action has helped to limit the impact of the recession and, as figures released last week showed, the economy posted growth of 0.1 per cent in the final quarter of 2009, reflecting the Chancellor's forecast in the PBR that growth would return by the end of last year.

Growth is expected to pick up progressively to 1.25 per cent in 2010, as credit conditions ease and the macroeconomic stimulus conditions continue to feed

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into the economy. Thereafter, growth is forecast to rise to 3.5 per cent in both 2011 and 2012, supported by net exports and investment, with the adjustment of the UK's flexible markets helping to bring into use the significant spare capacity available. However, the latest estimate makes clear that we must tread carefully and although the prospects for the economy are improving, markets are not up to full running speed. The economy faced a monumental shock. There are encouraging signs that recovery is under way but it is at this stage fragile. The challenge we now face is securing the recovery and promoting long-term growth while ensuring fiscal sustainability.

The Chancellor announced in the PBR a plan to more than halve the deficit over four years. But with the uncertainties that remain and growth still delicate, the PBR provided for continued support until recovery is secured with the focus of fiscal policy shifting towards consolidation from 2011-12, when the economy should be better placed to support necessary fiscal tightening. I have said before that failing to offer the support that the economy requires could damage the recovery and incur unwelcome and long-lasting damaging effects. That is why further support is being offered to business to ease problems with cash flow and access to bank lending by deferring tax rises and extending tax allowances. This has included the extension of the Time to Pay scheme. To date, it has helped 160,000 businesses to spread £4.8 billion of tax payments over a timetable that they can afford. The small companies' rate of corporation tax will be frozen this year to help 850,000 businesses.

Our support has entailed that the number of business failures has been running at about half what it was in earlier Tory recessions. For home owners, the PBR announced that the Support for Mortgage Interest scheme, which provides cover for mortgage interest payments for those who have lost their jobs, has been extended for a further six months. I am pleased to say that our actions are working. The latest Council of Mortgage Lenders figures show that the rate of repossessions is half what it was in the last recession. More than 220,000 home owners are receiving direct support to avoid repossessions, through schemes such as Support for Mortgage Interest, the mortgage rescue scheme and Homeowners Mortgage Support.

The tax and benefits system is also providing important help to families, with the tax credits system having provided support to 400,000 families whose income has fallen during the downturn. Many benefits and tax credits are linked to the September RPI, which was negative. This would have meant no increase in those benefits. Instead, we announced that the basic state pension will rise by 2.5 per cent in April. Child benefit and some disability benefits will also rise by 1.5 per cent. These measures provide real help to the vulnerable in our society.

To ensure that we will not see a repeat of the financial crisis, the Government have insisted on wide-ranging reforms to the financial sector. As well as strengthened regulation we have been very clear that there must be an end to the short-term bonus culture in the banking sector. It is important that remuneration policies encourage a prudent long-term approach to performance, risk and value creation, and do not

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incentivise excessive risk-taking. For that reason we announced in the PBR a one-off levy on banks of 50 per cent on any individual discretionary bonus above £25,000.

In the US, President Obama was clear in his recent announcements that the fierce lobbying against regulatory improvements was one reason he felt compelled to introduce proposals to limit the size and scope of US banks. Here in the UK, our fears that banks were not moving quickly enough to reform their pay and bonus policies was also one of the reasons we decided to introduce a bank payroll tax.

The Chancellor has put in place support to secure economic recovery but we have also taken action to meet the other challenges of maintaining the long-term growth of the economy. The recession has had a marked impact on the labour market, but unemployment has risen by far less than expected by independent forecasters. The latest ONS figures this month show that ILO unemployment fell for the first time since 2008. That is coupled with the claimant count having also fallen for the second consecutive month and by more than market expectations. But the impact on the labour market has been significant for young people, so the PBR announced that every 18 to 24 year-old will be given work or training after six months out of the labour market, rather than after the previous limit of 12 months. Investing in the skills of young people is vital to ensure that we do not repeat the experiences of the 1980s and 1990s, which saw whole generations of young people lost to unemployment.

The Chancellor also announced investment in key industries of the future-in digital, bio and low-carbon technology-to build a stronger and more diverse economy and to help drive long-term sustainable growth. This has included an additional £500 million of lending available to small and medium-sized enterprises through a 12-month continuation of the enterprise finance guarantee and the creation of a new growth capital fund, along with the £325 million UK innovation investment fund.

We also introduced a "patent box"-a reduced rate of corporation tax applying to income from patents from April 2013-to strengthen the incentives to invest in innovative industries. We set out additional funding for low-carbon industries and energy efficiency, including the Warm Front programme. It was important to provide support to the economy when it needed it; policy, here and in other countries, needed to adapt to the extraordinary global situation. Not to allow borrowing and the deficit to rise would have led to greater costs in the long term-costs and consequences which would have damaged the pace and scale of recovery and future growth.

It is also important that support in the downturn must go hand-in-hand with steps to rebuild fiscal strength once recovery is firmly established. Setting a credible consolidation path to ensure the sustainability of the public finances is a critical element of the Government's macroeconomic strategy and is essential to the long-term health and prosperity of the economy. Sound public finances will support investment and growth by helping to maintain low, long-term interest rates and a stable economic environment.

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Sound public finances are necessary to get the growth we need, so it is imperative that we consolidate in order to provide the conditions for future growth, and that we do so in a way that supports growth because, in turn, growth will make it easier to lower the deficit and pay back debt.

At ECOFIN in October last year, Finance Ministers agreed to start unwinding fiscal stimulus measures as soon as possible, and by 2011 at the latest. That is exactly what the Government have committed to do in the PBR. Indeed, we have already begun to reverse the temporary fiscal stimulus, as planned, while maintaining support for the economy as it enters recovery.

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