John Redwood has welcomed the findings of the Pitt Review, published today. He is pleased to note that his urging for clarity of responsibility among the relevant authorities is a central tenet of the report’s recommendations. The report proposes a framework, overseen by the Environment Agency, in which all responsibilities are clearly mapped out on a local level. Mr Redwood very much hopes that this will, finally, translate into some action on the ground, ensuring the gully clearance and capacity increases that are needed to avoid risking a repeat of last July.

Having submitted concerns to the review regarding the planning process, John Redwood also welcomes the report’s emphasis on the need either to implement properly, or strengthen, existing planning legislation, in order to reduce the flood risks posed by new building developments.

He is concerned, however, that the lack of urgency in producing the final report will also characterise the implementation of its recommendations.

Speaking today, John Redwood said: “It has taken more than a year for the government to come up with a report, chronicling the obvious failures of the authorities’ responses to floods last year. Meanwhile some people are still not back in their homes one year on, and many still face the threat of floods if we have more heavy rainfall. It is vital that the government accept the main thrust of this report, and get on with accepting responsibility to carry out the works needed and to make the planning decisions that are required, to prevent so much flooding of people’s homes in the future.”

Yesterday, at the second reading of the Climate Change Bill, John Redwood urged the Government to lead by example and ensure that it sets and meets rigorous enough targets for its own carbon footprint.

Later in the debate, he reminded Ministers of the need for multilateral action on climate change, and the danger that unilateral obligations might merely shift carbon emissions overseas rather than reduce them, hitting the UK economy in the process.

The two exchanges, taken from Hansard, follow.

(1) Mr. Redwood: I am very grateful to the Minister for giving way; he is being very patient. I find targets much more convincing and plausible if they relate to the next year or two, rather than to a 40-year period, and if they relate to things that the Government themselves can manage and are responsible for. Will the Minister propose targets for the next one year and two years to cut the carbon footprint of the Government? We would find that very welcome.

Mr. Woolas: On the latter point, the Government’s carbon footprint is clearly a priority. As the Sustainable Development Commission reported, we have made some progress, but we are the first to say that we must do a lot more. The important point about the Bill is that greenhouse gas emissions are cumulative, and therefore whatever one’s end target after a period of years, it is the cumulative gathering of gases that is important. To my mind, therefore, the interim targets are much more important than the end targets. That is why at the heart of the Bill is the idea of five-year carbon budgets—another way of saying targets—with the built-in idea that annual, indicative ranges should fall within them. That, I think, meets the right hon. Gentleman’s point about immediacy. The Government as an organisation will be covered by the carbon reduction commitment, and I expect that that will accelerate change as well.

(2)Mr. Redwood: Does my hon. Friend agree that it would be foolish of this House to impose costs and obligations on businesses operating in Britain that are not matched by similar obligations elsewhere, as that would simply drive business overseas and not actually cut total carbon output?

Mr. Ainsworth: My right hon. Friend makes an important point that I will touch on later if he is patient and that will no doubt receive a lot of scrutiny in Committee. However, it is worth reiterating that we are not dealing here with trivial issues. The Climate Change Bill is a small but potentially important part of a global effort to reduce the impact that our generation of human beings is having on the ability of future generations to live in peace and prosperity.

Yesterday in Business Questions, John Redwood urged the Leader of the House for a debate on tax poverty to address the current squeeze on lower-income households, and the Government overspending which underlies it.

The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): May we have an early debate on tax poverty, now that the Government are driving so many people into despair over the ever-rising taxes, charges and impositions? That would give us an opportunity to expose the wasteful and needless expenditure on things such as unelected regional government, over-manned quangos, ID cards and computer schemes, and to offer some relief to people if only the Government would manage things better.

Ms Harman: Taxation and poverty are important issues, but I find it a bit much that that request should come from someone who voted for VAT on gas and electricity to be 17.5 per cent. I might consider that request if it came from someone else, but not from the right hon. Gentleman.

Later, in the debate on knife crime, Mr Redwood encouraged the House to consider the behavioural trend of some youths, rather than simply focussing on their choice of weapon.

The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): On a related point, is not the problem primarily one of feral youths in gangs going armed? If they are prevented from going armed with knives, they might go armed with something else. We need to concentrate on how concerned adults somewhere in their communities—parents, relations, teachers, youth workers or whoever—gives them a purpose for living, other than going out on the streets and causing trouble.

Mr. Coaker: Again, that is a perfectly reasonable point to make. Indeed, the young people whom I met this morning made the point that good role models are needed, that people need to be responsible for young people and that their roles and those of schools, voluntary organisations and faith organisations are crucial. However, as well as all that, we are trying to put across the message that there must be a deterrent in the law, so that people also know that the expectation is that they will be prosecuted if they carry knives. That, as well as the other measures that the right hon. Gentleman refers to, is an important part of our work in trying to attack the problem

Yesterday in Parliament, John Redwood urged that planning processes should be more democratic and local. Speaking out against the Government’s Planning Bill, he voiced concern over its creation of a national quango to decide planning matters, removing such decisions yet further from those who have to live with the consequences. He also condemned the way in which the Government had decided to allocate time limits for various sections of the Bill, rather than letting the House decide what merited the most detailed and lengthy debate – a decision which he described as yet another ‘travesty of democracy’.

Speaking after the debate, Mr Redwood said: ‘I am worried that this will be yet a further loss of power to make decisions locally in Wokingham Borough that respond to the needs and wishes of electors’.

The speech in full, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): I rise to support the opposition to the programme motion. It is another travesty of democracy that we should be expected to be allocated time on a range of sensitive and important constitutional matters about how something as crucial as planning should be decided. It may be that there are provisions for which the time allocated by Ministers is too great. However, there will undoubtedly be occasions on which the issue is so important that many more Members would like to join in and to have the opportunity to be here, if only a more sensible time had been chosen for considering such matters.

I urge Ministers to think again, even now. It may be that we can consider the Bill in the total amount of time that they have made available, but they should allow the House to decide how that time is best spent and how the priorities should be reflected in that debate. Often, when we give people greater freedom, they show greater responsibility, and we get a better quality of debate that concentrates more on the issues that matter.

My hon. Friend the Member for Beckenham (Mrs. Lait) powerfully made the case that the Bill will set up an unelected quango to make extremely important decisions, whereas I and many of my constituents believe that there should be a stronger democratic input. I would add that many of my constituents feel that there should be more influence from the locality, not less. They do not feel that their local views are properly considered under the current process, because there is so much centralising, railroading and regional, overarching influence. The situation will be even worse if we have an unelected national quango making important decisions and forcing consequential decisions on local authorities once the main decision has been taken. We need proper time to debate safeguards and guarantees for local empowerment and influence over such decisions.

I am not one who wishes to stop every new development, and I certainly am not one who thinks that we need to resist all the important infrastructure and energy projects that this country is crying out for. The reason why such projects have been delayed in the past decade is not so much the planning system, but the Government, who have singularly failed to have a positive energy or transport policy. They have singularly failed to provide a framework in which the private sector can operate, or to make public funding available for public projects, so that that infrastructure can be put in place. They have wasted 11 years, and now come forward with this fig leaf of a Bill, saying that it was the planning system that was wrong. Eleven years into a Labour Government—somewhere near their end, we hope—they have decided that they can reform the planning permission system to try to accelerate the projects that they have prevented by chopping and changing, dithering and delaying and going to endless consultation on all the infrastructure issues to do with energy and transport.

John Redwood has welcomed a report published by the British Chambers of Commerce on Friday which reveals the £505 million windfall received by the Government in just six weeks on account of the rising price of oil. The BCC’s report calculates the Government’s actual tax revenue from fuel duty and VAT at the pump, which is much greater than its budgetary prediction in March. The Government based its assumptions on oil revenue being $83.80 per barrel whereas the cost of oil has in fact since reached a high of $126.40 per barrel.

The report exposes what the Government has been reluctant to admit in response to parliamentary questions. Speaking of the report, John Redwood said:

‘I am pleased the BCC have calculated the extra cash the Treasury is looting from higher petrol and diesel prices. As an MP I have tabled questions to get the Treasury to come clean about this latest huge stealth tax, but of course they refuse to answer. It is typical of this government that they will not tell Parliament the truth, and leave it to a private sector body to work out the truth about their tax demands.

‘I have called for the government to cut petrol and diesel duty so that they collect this year the budget forecast amount, and not a penny more. This is another rip off of the motorist, at a time when family budgets are under huge pressure.’

Notes to editors:

A summary of the BCC’s findings can be found here.

The parliamentary questions asked by John Redwood on 8th May, and their replies, were as follows:

Mr. Redwood: To ask the Chancellor of the Exchequer (1) what estimate he has made of the revenue to the Exchequer which will accrue from taxation of petrol and diesel in 2008-09 if fuel prices remain at their current level; and what forecast he made for such revenues for 2008-09 in Budget 2008; [203778]

(2) what assumption was made in Budget 2008 about the price of a litre of petrol; [203779]

(3) what the tax take is on a litre of petrol costing 110 pence at the pump. [203781]

Angela Eagle: The current fuel duty payable on a litre of petrol is 50.35p and is the total amount of tax paid by businesses that can reclaim VAT. For households and businesses that cannot reclaim VAT, it is charged as 17.5 per cent. on the sum of the pre-tax price of petrol and fuel duty.

In estimating the impact on receipts of spending on fuel it is necessary to take into account a broad and complex range of reclaims and displacement factor, over a reasonable period of time.

The forecast revenue for 2008-09 from fuel duty is published in table C.6 of the 2008 Financial Statement and Budget Report. This can be found here.

Road fuel duties are charged at a fixed amount per litre and higher road fuel prices generally reduce revenues from fuel duties as they result in lower fuel consumption. The impact of higher oil prices on overall tax revenues and the public finances is complex, and will depend on their wider impact on the economy in general, including the effect on factors such as profitability and retail prices. Reliable estimates of the impact of changes in prices are not available.

The petrol price incorporated into the Budget 2008 forecast for fuel duties was consistent with the NAO audited assumption on oil prices. This assumed that oil prices would average $83.8 a barrel in 2008, the average of independent forecasts.

John Redwood met Martin Sandford Draper, the photographer behind the new Sandford Images business in Wokingham, last week. Martin took several new professional photographs of John, who has now displayed them on his website. John has adopted one of Martin’s pictures as his new official photograph.

To see a selection of John’s new photographs, please visit his website and click “Photos” in the blue box at the top of the site. For a high resolution photograph of John for media reproduction, please contact his Westminster office.

Speaking in yesterday’s debate on the Finance Bill, John Redwood joined the shadow minister in stressing the advantages of keeping taxes on small business down. Using the example of Ireland, he illustrated how such a measure would benefit the economy as a whole. Small businesses are fundamental for economic success: they are often the big businesses of tomorrow. Allowing them to grow through a favourable tax regime would result in better paid jobs for people, which would bring more money into the Treasury to then be spent on providing better schools, hospitals and transport.

The speech in full, taken from Hansard, follows.

Mr. Redwood: I am a company director and a shareholder in companies, as I have declared in the register, but not, I think, of a company that will be paying this particular tax in the current year.

I rise to support the idea that the tax should be 20 and not 21 per cent. and that it should not go up to 22 per cent. subsequently, and I ask the Government to think again about their extraordinary U-turn in their policy towards lower tax rates for people on lower income and for smaller and start-up companies that earn less profit than more mature companies that have gone on to grow for longer and perhaps more successfully.

The Government produced an attractive package when they decided to encourage incorporation by having a zero tax rate on small profits for companies that had recently incorporated, and when they decided to have a 10p capital gains tax charge on people who set up companies, who took founder shareholdings in companies or who decided to buy into companies that were small and growing and could take advantage of that privileged capital gains tax regime.

We saw a response to that favourable tax regime in the improvement in the rate of new company formation. A lot of people in the small business groups around the country were saying to Opposition representatives, as well as to Government representatives, that the Government had got something right and that that part of the tax regime was favourable. It was an encouragement that those people very much welcomed, so it is strange and extremely disappointing that the Government should have backtracked on both elements of that attractive regime and that they have not learned the lesson from a country such as Ireland, which has persevered with a much more favourable tax regime for business across the board—businesses large and small—and has had the phenomenal success that we see in the Irish growth rate, the development of Irish business within the Republic and the collection of so much more tax revenue in general by the Irish Treasury.

As more people have got better jobs and taken more income out of smaller and larger companies, and as more smaller and larger companies have grown, been successful and produced capital gains, dividends, income and good jobs for people, so the economy as a whole has benefited from that process, and so the Irish Treasury has benefited, having more money to spend per head on public services as a result of that growth than has been available from the British Treasury’s attempts to find ever more stealth taxes to sustain more rapid growth in spending per head on public services here.

Mr. Brooks Newmark (Braintree) (Con): I appreciate my right hon. Friend’s comments about the Laffer curve, which I have gone on and on about in the three years that I have been a Member of Parliament. However, what bothers many small businesses—with which, like me, my right hon. Friend has been involved—is the timing of the tax increase. At a time when we should be supporting small businesses, it appears that we are attempting to undermine what they are trying to achieve in extremely difficult times by increasing taxes while, across the pond, the United States is doing everything it can to lower them.

Mr. Redwood: My hon. Friend is right. Ministers must know from their conversations, as he and I know from our conversations with the British Chambers of Commerce and the bodies representing small businesses in Britain, that it is becoming much more difficult to be a successful competitor from a British base. Smaller companies are feeling the increase in taxation and the growing weight of regulatory cost even more than the larger ones, but that population of small businesses must be allowed to grow more rapidly so that we can experience success in the future.

All the studies show that if there is to be sustained rapid growth in employment in private-sector activities, a lively and growing small business sector is essential. New jobs are much more likely to come from that sector than from the larger companies that have the money to automate, to mechanise and to take their labour-intensive activities offshore. They do not generate the same pace of business growth and job growth as small companies.

As the hon. Member for Taunton (Mr. Browne) observed, although we unfortunately often hear of very large casualties in the corporate world—factories closing, or large numbers of people being made redundant by the larger companies—we never hear of redundancies of the same scale in the smaller companies. They do not employ as many people to start with and, when conditions are reasonably benign, they do not sack people. As a whole, they are a growing sector, adding jobs as they find better ways of doing things and creating new activities that the public wish to buy into. The danger is that the Government will take small businesses to tipping point with too much tax and regulation, so that, largely unseen, many jobs will be removed or new jobs will not be created and we will have a worse problem with unemployment.

Mr. Jeremy Browne: It should also be borne in mind that nearly every large business that employs vast numbers of people started off as a small business. We are not only potentially compromising the small business sector of the economy, but running the risk that tomorrow’s big businesses will never be able to get off the ground.

Mr. Redwood: The hon. Gentleman is right, and it can be deduced from his argument that we need to lower tax and regulation on all populations of business if we want a really successful economy like the Irish economy. That is especially important in the incubator world of small business. Among the mighty population of small businesses in a vibrant economy will be a limited number that will go on to become the mega-corporations of the future. As Silicon valley demonstrates, businesses can grow from very small to very big in the space of a decade, with stunning implications for the success of the economy and the success of tax-raising on those populations of businesses, and job generation.

Mr. Newmark: We might quip that the way in which to create a small business under new Labour is to start with a big business. However, on a more serious note, let me say that my right hon. Friend has not touched on another important issue. One of the hallmarks of new Labour has been the chopping and changing, but what businesses like is consistency. Only through consistency of policy, particularly tax policy, can they thrive.

Mr. Redwood: I am grateful to my hon. Friend, although the number of interruptions makes developing the argument as quickly as he would like a little more difficult. He is giving me friendly help and assistance to make sure that I do not forget the important arguments. I am genuinely grateful to him and he is absolutely right that consistency is important. Being able to forecast the tax rate to be paid not just this year but next year and the year after is extremely important when it comes to drawing up a business plan. Any small business that wishes to grow relatively quickly will need access to outside finance; a bank loan, other investors, business angels or another way of raising capital. Any of those would immediately want a business plan, not just for one year but for, say, three.

An important element of that business plan would be to know what the net profitability would be after three years, after the start-up costs and losses. The net profitability obviously requires an assumption about the Government’s tax rate. If the tax rate is changing every year—or goes up every year—it makes forecasting accurately more difficult. It also means that net profits will be less at the three-year stage, or at the five-year stage in a five-year business plan. That makes it more difficult to raise external capital; the banks and others living through the credit squeeze may say that they are unable to help because the net returns are not sufficiently good. Altruistic as many financiers are, they are not normally interested in how much money a business generates to pay the tax man; they are interested in how much money a business generates to pay the shareholders and other private stakeholders, which is why the tax rate is so important.

I am delighted that my Conservative Front-Bench colleagues are strongly in favour of simplicity and lower taxes and they are right to want a 20p tax ceiling on small businesses. I hope that they will also want—I am sure they will—to bring down the rate of corporation tax on larger companies closer to the 20p band. That is very important to the enhanced competitiveness of Britain that we will wish to see after the damage being done to it by higher taxes and more regulation.

I trust also that Governments will start to look at the idea, revolutionary for current political times, that we can perhaps save some of the waste and unnecessary expenditure in Governments so that we do not always have to pay for these tax reductions by finding other ways of increasing taxes. It was exactly that route of tax reform that got the Government into such difficulty on the 10p band.

Mr. Browne: I am grateful to the right hon. Gentleman for giving way to me a second time. Does he share my unease that the Conservative party is committed to taxing at exactly the same overall rate as the Labour party at the next general election? The total amount of Government spending as a percentage of GDP will be identical, if the Conservative party wins the election, to the level it would be were Labour to win. That sounds like mimicking the Government, rather than providing an alternative to them. Does he think that that is a wise approach for his party?

Mr. Redwood: The hon. Gentleman must have forgotten that I am a Conservative MP, so I do not share his unease at all, nor do I accept his premise. I am quite sure that the shadow Chancellor and his senior colleagues are serious when they say that they wish to have a lower-tax Britain than we would have under Labour. I am quite sure that we would have a lower-tax Britain than we would have under a Lib-Lab pact, because we know that Liberals are very liberal with other people’s money. Normally in the House they do not make the wonderful case for lower taxes as the hon. Gentleman seemed to be doing this afternoon. Normally they make the case for spending all sorts of sums of public money on things that may not even be desirable and are very often quite wasteful

There is only one party that seriously believes in lower taxation for the whole of the UK and has a chance of winning a national general election in this country and that is the Conservative party. The Scottish National party now seems to believe in lower business taxation, but it is not in a position to do very much about it because most of the powers on these matters rest in the UK Parliament.

I say to my hon. Friends on the Front Bench that it is a privilege to be able to support this very sensible proposal for a 20p tax on business. It would be to the benefit of the small business community, and the Government’s relations with it if the Government listened, in the way that we hear the Prime Minister is now listening on the 10p tax band. It is another example of how dangerous the Government’s tax reform can be, particularly now they are destroying the only good tax ideas that they ever had. I was with them on the 10p income tax band and on zero tax on smaller businesses and they are throwing it all away.

On Wednesday the 23rd April the two winners and two runners up of the Wokingham Schools’ Parliamentary Debating Competition 2007 were treated to a day out in Westminster as part of their prize. Adam Connell and Dominic Lister, the two winners from Emmbrook School, were joined by Amber Anderson and Rebecca Knowlson of Luckley-Oakfield. After a cup of tea in Portcullis House, John Redwood gave a tour of the palace to the four students and their two teachers, Pam Pierce and Marie Pearce, guiding them through its history, from the medieval Westminster Hall to the impressively gilded nineteenth-century Lords chamber.

They then headed towards the Commons for Prime Minister’s Questions, where they were able to observe first-hand professional Parliamentary debaters pitting their wits against each other. The debate amongst the pupils over which of the party leaders got the upper hand continued into lunch, where the students and teachers enjoyed the delights of the Commons’ cuisine.

Speaking after the visit, John Redwood said “I was delighted to welcome the winners of the 2007 Wokingham Schools’ Debating Competition to the Palace of Westminster.

The pupils from Emmbrook and Luckley-Oakfield performed to a very high standard last year. The annual debating competition is an excellent opportunity for pupils to practice their public speaking and debating skills. The competition encourages participants to think on their feet and formulate arguments in a clear and concise manner. These are important life skills which will be valued by any future employer.”

For making such a memorable trip possible the Competition organisers would like to thank its sponsors, 3M, Classicstone Properties, The Royal Bank of Scotland, Mr William Clark, Clifton Ingram LLP and Titcheners.

Notes to editors:

The Wokingham Schools’ Parliamentary Debating Competition is an annual event which takes place in the Autumn term and is open to all secondary schools in the Wokingham constituency. It is organised by The Rt Hon John Redwood MP to encourage sixth-form pupils to develop public speaking and debating skills.

The attached photos are taken of the two teams and their teachers, with John Redwood, in Westminster Hall. Front row, from left to right: Dominic Lister, Adam Connell, John Redwood, Rebecca Knowlson and Amber Anderson. Behind them, from left to right, Marie Pearce (Luckley Oakfield), and Pam Pierce (Emmbrook).

Following strong representations from several MPs including John Redwood about continuing confusion between national and local agencies over responsibility for surface water flooding, Sir Michael Pitt (Chairman of the Flood Review) has suggested he will be recommending legislation to clarify responsibilities in his final report. Speaking today at a meeting in Westminster alongside Baroness Young of the Environment Agency, Sir Michael suggested the purpose of such legislation would be to map out the statutory obligations of all the relevant authorities, including water boards, Local Authorities and private landowners. Baroness Young fully supported the need for legislation as part of the national framework of flood protection and response they are currently developing.

In several areas of the Wokingham constituency, confusion over responsibility for infrastructure maintenance has yet to be clarified. Speaking today, John Redwood said: “Nine months after the floods we still are witnessing arguments from the top down over who is to blame and who should carry out the remedial works. I am urging the government to clarify these matters as quickly as possible, and to give the Environment Agency the means and the requirement to tackle the outstanding problems promptly.”

John Redwood was among those MPs scrutinising the Bank of England’s attempt to improve liquidity in the financial markets and its likely impact on mortgage borrowers when the Chancellor made his statement to the House yesterday. The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): How much extra cash do banks in the UK now have to deposit or keep for prudential reasons, as a result of the regulator’s change of rules? That will offset the beneficial effects of some of the package. Will the measures be enough to bring mortgage rates down?

Mr. Darling: In relation to the first point, the right hon. Gentleman is aware that the FSA is responsible for the prudential supervision of the banking system and specifying what arrangements are required, first under Basel 1 and then under Basel 2, which is in the process of coming into force.

In relation to the right hon. Gentleman’s wider point about mortgages, we want to make sure that financial institutions are in good financial health, as I said in reply to the hon. Member for Twickenham (Dr. Cable). That means that some of them will have to restore their capital position. I believe that this is a way of helping to restore the position in relation to financial markets. I have made it very clear that, as most people in this country would expect, in taking action through the Bank of England—either in direct interest rate cuts or through today’s support—the Government are entitled to expect that businesses, individuals and, in particular, mortgage payers see the benefits of what we are now doing.

Later, in the debate on the Finance Bill (implementing measures from the Budget 2007, the pre-Budget report last year and the Budget 2008), John Redwood reminded the House of those who would be hit hardest by the highly contentious abolition of the 10p starting rate. When the debate moved on to the fiscal position of the UK and its ability to withstand any economic turbulence, Mr Redwood pointed the huge amount of public sector borrowing as a major concern. His two interventions, taken from Hansard, follow.

1) (Mr Hammond:) …Then, it unravelled. Table A1 of the Red Book exposed the sleight of hand that paid for the tax cut with the abolition of the 10p rate. Then, the Institute for Fiscal Studies identified who the losers would be; the Chief Secretary to the Treasury apparently cannot say the figure, but I will: 5.3 million of Britain’s poorest families. That figure was confirmed, give or take, in the Treasury’s evidence to the Select Committee, and that is after taking account of the increases in tax credits.

Mr. John Redwood (Wokingham) (Con): My hon. Friend is making a very powerful case. Is it not even odder that the people who are going to pay this extra burden through the abolition of the 10p band are exactly those who are hit most severely by the surge in food and energy prices and by the further big hike in fuel duty when they want to travel in their car?

Mr. Hammond: That is what makes the timing of this all the more poignant, and I suspect that that double whammy has focused the minds of many Members in this House.

The thing is that the Prime Minister knew that his tax cut would be paid for by an increase in the tax burden of the poorest. The tax-cutting Budget became the tax con Budget, and boy, is the Prime Minister paying for his five minutes of glory.

2) Mr. Redwood: Does the right hon. Gentleman agree that if we add the unfunded pension liabilities, the PFI and PPP off-balance sheet liabilities and the off-balance sheet liabilities for Network Rail and Northern Rock, public sector total obligations are in excess of gross national product, at around £1.5 trillion? That is an enormous figure.

John McFall: As the right hon. Gentleman knows, the Treasury Committee comprises members of all parties—his own, the Liberals and Labour. We have concluded that the fiscal position of the UK is strong in comparison to other EU countries.

John Redwood has today written to Hilary Benn about how little has happened on the ground to improve the flood defences in Wokingham constituency.

In his letter Mr Redwood states: ‘Many of my constituents are concerned that two few lessons have been learned since July, and that their homes and businesses are as much at risk now as they were before the summer floods’.

He added: ‘Although Sir Michael Pitt’s flood review has touched on a number of interesting areas, I fear it is becoming bogged down in detail and the fine words will not be matched by appropriate action’.

In his letter Mr Redwood highlights three areas where responsibility for flood protection has still not been resolved between the different agencies, more than eight months after the July floods. The first of these is the maintenance and upkeep of the flood defences around the river Loddon, in particular the Maiden Erlegh Lake brook. Thames Water and Wokingham Borough Council both deny responsibility for the brook’s maintenance, and over the winter months residents were forced to clear out the ditches themselves to avoid further flooding.

Mr Redwood goes on to describe similar and potentially damaging indecision over responsibility for maintaining the Emm Brook’s defences. Wokingham Borough Council has attributed responsibility to the Environment Agency, while the Environment Agency maintains it is within the local authority’s remit. Although the Environment Agency has recommended the culverts be cleared on a regular basis, at present there is no indication that anyone is doing so. Meanwhile, residents continue to fear a repeat of last summer.

Finally the letter describes the difficulties encountered by the residents of Luckley Wood. Here flood damage was caused and exacerbated by several factors, all of which are the responsibility of different agencies. Surface water drainage is believed to have been obstructed by inadequate culvert capacity and ditch maintenance, while the flood water also became contaminated by the nearby sewerage facility. The facility is managed by Thames Water, but the flood management of Luckley Wood more generally is still unresolved. More than half a year after the floods, Thames Water can only assure residents that it is still, in their words, liaising with other parties (WBC and Railtrack) ‘to understand drainage issues in Luckley Wood’.

Mr Redwood therefore asks Mr Benn that DEFRA helps to move things along in these three areas, where stalemate between the responsible authorities so long after the floods is simply unacceptable.

In the debate on Northern Rock last night, John Redwood tried to get some answers on the likely consequences of the Government’s business plan for the bank. In response the Chief Secretary to the Treasury was unable, or unwilling, to reveal the likely losses to be incurred by the proposals, whether or not the Treasury would be subsiding the losses, and if so how this would be reconciled to competition law.

Mr Redwood also highlighted the inherent contradiction in the Government’s position. While he has every confidence that the £24bn loan could be regained, the measures taken to achieve this will make the business harder to sell in the long run.

The three exchanges and John Redwood’s speech, taken from Hansard, follow.

Mr. John Redwood (Wokingham) (Con): Does my hon. Friend agree that there is a contradiction in that rapid repayment of the Treasury money requires contracting the business, whereas fattening the business up for resale requires growing it? It is quite difficult to understand how the management can do both.

Mr. Hoban: Indeed. My right hon. Friend identifies an important issue at the heart of the matter. The business plan before us today in the form of the Chancellor’s written ministerial statement talks about repayment of the loan, but does not provide a date by which Northern Rock will exit public ownership. There is a contradiction there, but the first priority must be to repay the loans to eliminate the taxpayer’s exposure.

Mr. Redwood: Surely the Chief Secretary can see that, if the Bank of England had simply acted as bank manager, and provided tough love to Northern Rock and managed it through it, we as taxpayers would not have had to absorb all the responsibilities and potential losses of sacking staff and losing on current trading. Will she confirm that she is accepting a business plan that means that the taxpayer will have to pay the losses in 2008, 2009 and 2010? Why do we need those as well?

Yvette Cooper: The right hon. Gentleman describes what he says would have been “tough love” by the Bank of England in managing it through. I presume that he is talking about the proposal, which Opposition Members have described, of a Bank of England-led administration. That would effectively use powers that do not currently exist. We think that there is a strong case for introducing a new special resolution regime, and that that would be the right thing to do. However, it would involve major changes to the law and the current approach to insolvency and failing or troubled banks. It is right that such proposals should be consulted on seriously and introduced through legislation. For Opposition Members to pray in aid powers that simply do not exist on the statute book, and think that they would somehow magically come to the rescue of Northern Rock, is pie in the sky and irresponsible. They are simply not facing up to the serious problems that Northern Rock faced.

Mr. Redwood: Does that not mean that, as the business will lose money for the next three years, it will receive a Treasury subsidy to compete against others in the market that will not have that luxury?

Yvette Cooper: Once again, I have to remind Opposition Members that the decision that they supported in the autumn to support Northern Rock through Bank of England loans and Government guarantees exposed the taxpayer. Those decisions were supported by hon. Members at the time, and there are consequences that flow from that. As a result of those decisions at the time, it is important to ensure that the taxpayer’s exposure is limited and their interest is protected. Opposition Members have singularly failed to make any proposal that would protect the taxpayer’s interest as a result of those decisions.

Mr. John Redwood (Wokingham) (Con): It was a great pity that the Chief Secretary decided to devote so much energy to rather silly and clumsy partisanship and to claiming that we do not have any better ideas about how to tackle the position, instead of doing what the House expected of her and telling us a little about the challenges and difficulties that lie ahead if the business stays in the public sector. It probably will if we are unsuccessful in persuading the Government otherwise.

The Chief Secretary constantly asks, “What was the other option?” There was an easy other option, for which I have argued throughout the crisis, from when it broke in the summer. Of course, the Bank of England had to step in when there was a run and act as lender of last resort. However, the Bank of England—and, if necessary, the Treasury, working with it—should subsequently have been the intelligent bank manager of the business. It had a natural relationship with Northern Rock as its banker.

As a banker, it could have taken all the collateral it needed to ensure that taxpayers’ money would never be at risk. It could have guided and influenced the business plan so that it had an impact on phasing the repayments and the way in which they would be made. It did not have to take over the bank’s ownership, with all the other liabilities and risks. It did not have to take responsibility for the staff or future trading. It should have concentrated on lending the least amount needed to get the bank through the immediate problem, and having the best possible security for the taxpayer and the best possible supervision and management overlooking the board, as a bank manager should do, to ensure that the money would be repaid in good time. That was the obvious thing to do.

The problem with the current model is that the Government are trying to do two contradictory things. Of course, the Chief Secretary is right to tell the House that she views getting back the £24 billion—the remaining outstanding loan, we were told tonight—as an urgent priority. I suspect that she can do that and I wish her every success. We all represent taxpayers and it is important that we get the money back. It is also important that the Bank of England get its money back as quickly as possible because it is a small bank trying to deal with a large and complex system. All the time that it is so committed to Northern Rock, it does not have the firepower that it needs to deal with the obvious imperfections and difficulties in the money market.

How can we get the money back? The Government and the bank’s recently appointed management admit that the money will be repaid—we trust in reasonable time—by squeezing the business, perhaps halving it, getting people to repay their mortgages early because they remortgaged with someone else and making sure that new advances are not made through Northern Rock to replace advances that are maturing as people pay them off, so that business can be transferred to other organisations in the financial world, and some of the assets can perhaps be sold on, as appropriate.

That is a perfectly good working model for getting the Treasury money back, but it is not what the owners of a bank would be doing if they were trying to sell it on to someone else for maximum value. Indeed, doing so will diminish the value of the assets under control, because the bank will have to battle constantly to cut its costs, by sacking its staff and reducing its administrative overheads, to bring it closer to the reality of the falling revenue. Instead of having one or two years of rising profits before returning the business to the private market, which would be best for securing a good price, we have been told tonight that it will definitely have three years of losses. We know, too, that it will have a much smaller business, so it will be quite difficult for it to explain how it can suddenly turn all that round.

Yesterday in Parliament, John Redwood asked the Foreign Secretary how he intends to police the protests when the Olympic torch comes to London. The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): When issuing instructions on the policing for the progress of the Olympic torch in Britain, will the Government take the view that the police should allow placards to appear in any picture of the torch passing—the protestors’ view—or will they take the Chinese view that the event should be policed in such a way that no protest placards and posters will be on display?

David Miliband: If the right hon. Gentleman believes that we control the pictures that people take, he is perhaps giving greater credence than is deserved to stories about the Government’s prowess in controlling the media. Obviously, the operational matters will be taken forward by the policing authorities. I am sure that the spirit of the whole House is summed up in the idea that we want to ensure not only security for the torch and a proper celebration of the Olympic spirit, but that our own history and our own commitments to democratic rights and freedom of protest are properly respected.

Later on, Mr Redwood asked the Justice Secretary and Lord Chancellor how the Government plans to ensure its proposals for reforming the Lords will be anything more than an empty gesture. The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): Do the proposals for the reform of the House of Lords, which the right hon. Gentleman referred to in his statement, entail the abolition of all or most of the unelected places in that House? If so, how would a Government deal with the likely No vote in the Lords to such changes?

Mr. Straw: The basic terms of reference, so to speak, of the cross-party group are the decisions of this House last March in favour of an 80 per cent. or wholly elected Chamber and against any alternatives, so as faithful servants of the House, that is what we are seeking to deliver. The proposals will, of course, have to go in legislative form to both Houses. We will have to see what happens, but I hope very much that when we present proposals, they will be approved.

Please find below the text of John Redwood’s speech to the House of Commons from yesterday’s Budget Resolutions and Economic Stuation debate.

Mr. John Redwood (Wokingham) (Con): It has been interesting to be present at this debate, which is a bit like “Groundhog Day”. We had a themed debate rather like it as part of the European scrutiny process, and we will doubtless have a similar debate on Second Reading of the forthcoming Climate Change Bill.

We have seen the three Front-Bench spokesmen all tiptoeing towards the proposition that people should have to pay more for their energy but understanding, as politicians, that that is an extremely difficult thing to sell to them. We have three variants. The Government’s view is that this is probably the least bad excuse to use for raising more money, because they are desperately short of money; Conservative Front Benchers are saying that green taxes should be entirely balanced by other tax cuts so that people would be able to afford them, assuming that the distribution was fair; and the Liberal Democrats are in their usual muddle saying that there is a bit of this and a bit of that, but undoubtedly wanting to tax people more—rather more, I suspect, than the Government.

The tragedy of all this is that those who want to redistribute income cannot guarantee to do it effectively by this particular route. People on low incomes need access to energy and transport just as people on high incomes do, so the Government are driven back on proposals in the Budget to have a one-year increase in the amount of fuel payment assistance for pensioners. That goes a little way towards helping, and other methods will need to be developed if the political classes decide to carry on with accelerating the progress of the market and having ever-dearer energy. We have already seen in recent months a huge energy price signal sent by the big increase in oil prices and the attendant changes in gas prices, coal prices and so forth. If the political classes want to accelerate that process even further by separate carbon levies, carbon trading with artificial prices and other regulatory and tax costs, more work will have to be done on how to do something about the fairness of distribution of those tax rises and cost rises, and there will have to be ways of offsetting those so that people on low incomes do not feel that they are taking a disproportionate share of the burden and are the ones who are deprived of transport and home heating.

Kelvin Hopkins: The right hon. Gentleman seems to be putting forward a rather socialist message, which I welcome, in suggesting that tax should be progressive rather than regressive. What about taxing the rich a lot more and insulating poor people’s houses?

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Mr. Redwood: I think that the hon. Gentleman knows me well enough to be aware that that is not my view of the world. More people can be got out of poverty and into work by moving generally towards lower taxes than towards higher taxes. However, I was making a specific point on the content so far of today’s Budget debate and reminding all those involved in policy formation that one cannot simply carry on with the idea that extra taxes, extra levies and extra regulatory costs can be heaped on to energy without having consequences not only on the rich but on the poor and without needing to have some kind of alternative package. If we are not careful, we just end up with massive administrative churn costs because of the imposition of a lot of administrative costs in raising the levy, the charge and the tax, and then a lot more administrative costs in giving money back to people so that they can afford the levy, the charge and the tax, and we do not achieve what we are trying to achieve. I rather like green promotion in the form of lower taxes for better behaviour. It is good that we have already heard that that worked, as it did very quickly, when we did it for unleaded petrol, which showed that people prefer an incentive to tax increases.

It is important that people listening to our debates, as I hope that some still do, understand that we know that a very big financial crisis is under way in the world and that that crisis has moved on at breakneck speed during the course of the Budget debates. We heard a few brief remarks from the Prime Minister in his statement earlier, but we have not yet had the benefit of Treasury Ministers explaining in this House how they responded to the Bear Stearns catastrophe and the rescue that has been mounted so quickly and successfully in the United States of America, nor have we had from them proper comment on the actions being taken to co-ordinate putting liquidity into markets and seeing the market through the crisis.

In the Budget speech, the Chancellor rightly had a paragraph or so of reference to the world financial background, explaining that it was bleak, but he also claimed, with a hint of complacency, that the UK is uniquely best placed to deal with this crisis. We should try to ensure that the Chancellor and his colleagues have thought through the gravity of the world situation in which we find ourselves and the way in which, in some circumstances, the UK is not uniquely well placed but has its own home-grown problems, which we need to take very seriously. After all, it would be foolish to be complacent given that it was the United Kingdom that had the first run on a retail bank—and, I am pleased to say, the only run; let us hope that it turns out to remain so—whereby retail depositors were so worried that they were rapidly pulling out their deposits, which is what finally triggered the intervention and action over Northern Rock. Bear Stearns is a different kind of run by a different type of investor and depositor—equally lethal but not as telegenic and not affecting people on low incomes as the Northern Rock run visibly and clearly did.

We should ask why, over that long and difficult, and rather cold and wet summer, the British authorities were unable to take pre-emptive action of a kind that might have prevented the Northern Rock crisis developing as rapidly as it did. I am not jogging backwards—I was writing and saying this at the time.
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It was clear to the markets in London in August, if not July, that there was not enough money in circulation, and clear to those watching the markets that there was the potential for a financial disaster or a banking problem. I did not write down the names of the banks that were being mentioned at the time, but Northern Rock was the one that people most feared for, and it was widely rumoured in the markets. It would have been crass to mention it because the last thing that one wants to do is to play any small part in helping to undermine an important institution, crucial as Northern Rock has been to the success of the north-eastern economy and crucial as it is to all the small shareholders and depositors particularly concentrated in the Newcastle and wider north-eastern region.

The Bank of England was placed in an extremely difficult position in August and September. The reforms of 1997 had left it ill placed to understand the nature of such a banking crisis and to be able to respond positively to it. My first recommendation is that the Chancellor urgently look again at the regulatory and banking control framework that he inherited from the 1997 reforms and that he come to this House rapidly to introduce proposals for their improvement and updating.

A central bank is more than a regulator. A good central bank is more, even, than a hands-on referee in a free-flowing game. It is a player in the money markets that it has to supervise, and has to keep liquid, honest and successful. The problem for the Bank of England in August and September, when the money market participants could see that there were difficulties, was that, since 1997, it has lacked two important flows of information that most central banks regard as normal. First, a central bank needs to know everything that the Government are doing.

The Government are usually one of the biggest operators in the money market—particularly a heavily borrowing Government like the present one—and the timing and nature of debt that the Government issue is crucial to the functioning of the market. In 1997, the then Chancellor nationalised the function of running the Government’s debt by taking it out of the Bank of England and putting it into the Treasury. The modern Bank does not have the same minute-by-minute detailed sight of or responsibility for Government business in the market that it had prior to 1997.

The second big problem that the Bank of England has is that prior to 1997, it was the day-by-day banking supervisor of all commercial banks, particularly the main credit-creating clearing banks that run our system. The Bank could see all of that business, and knew about it day by day, hour by hour and minute by minute. It had a close relationship with those banks—the famous Governor’s eyebrows would rise wisely or angrily if anything went wrong. The Bank knew whether they were liquid enough, whether they had squared their positions early enough in the day and whether they were taking a sensible position in the markets, so the banking system worked well.

That responsibility was lifted from the Bank and given to the Financial Services Authority, and is now handled through a tripartite arrangement with the Chancellor and the Bank of England. When the crisis
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struck, it was always likely that it would be more difficult to control and resolve because the principal central bank player did not have all the regular information or history and knowledge of marketplace activity that a central bank should have. That is why I warned, in an economic policy report that I wrote for the Opposition, that we had a weak structure in Britain, and that when there was a financial difficulty—I did not forecast Northern Rock, but I had something like that in mind—things would go horribly wrong because the Bank no longer had those important powers.

The next curious matter is that just prior to the run on Northern Rock, the tripartite system clearly misread the situation very badly. Both the Chancellor of the Exchequer and the Governor of the Bank of England made fierce speeches in which they said that the banking system in Britain had made lots of mistakes by lending too much money to the wrong people, and that it had to meet the consequences of those mistakes—there would be no bail-outs. That would be a heroic thing to say at the best of times; in practice, no Government can allow a major bank to go bust in our global system because many poor and rich people would suffer badly, and there could be a systemic crash throughout the world. It was particularly odd, however, to make such statements when they must have known that they were on the verge of a difficult crisis over Northern Rock, with a possible run on the bank. They had to eat their words a matter of hours later when the run got out of control and the Chancellor said not only that he would guarantee all the deposits in Northern Rock—big though that task was—but the deposits of any bank found in a similar position, leading some to speculate who else in the markets he might have in mind. There was a worry that the run on Northern Rock would lead to a run on other institutions, which there is no need to name here. It is good that we are through that part of the crisis, that there is such a guarantee and that the tripartite system understands that it has to stand behind the banking system.

The guarantees, offers made and the nationalisation of Northern Rock now going ahead have not solved the problem, however. We are now in what some call the second leg of it. I do not think that the problem has legs; it is a continuing problem that will take some time to resolve, and we have just had another nasty chapter in the story—or drama, if you like—with the collapse of Bear Stearns on the other side of the Atlantic.

Mr. Bellingham: My right hon. Friend speaks with a great deal of expertise, but would he agree that one of the interesting features of the scenario is that the business models of Northern Rock and Bear Stearns had one item in common? The level of deposits in both were low compared with the amount of money lent out to customers and the wider market. But in the American case, the Federal Reserve intervened incredibly quickly and expeditiously, without any fuss at all, which stands in stark contrast to what happened here. In this country, the taxpayer, as my right hon. Friend rightly points out, is still heavily exposed.

Mr. Redwood: The speed of reaction shows an important contrast. I am pleased that the Bear Stearns rescue took place as quickly as it did because the scope
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for further collapses and bear raids on other American banks was considerable, and it is good that the American authorities responded strongly and positively because there would have been knock-on effects across the Atlantic on British institutions.

The American authorities are behaving rather differently from those in the UK. The American authorities believe the crisis to be so serious that they need to do two things: first, they need to keep driving interest rates down, and secondly, they need to continue making large sums of money available to keep the banking system liquid. In the UK, the authorities seem reluctant to move interest rates down because of the persistent but historic inflation we have to live through because of past monetary excess and difficulty, and they are making little money available—although they do occasionally make a co-ordinated effort to help to keep the banking system a little more liquid, as we saw in recent days. We need to ask why the matter is being dealt with in different ways, and which is right.

Critics of the Americans say that it is crass to lower interest rates because there is still an inflationary problem, and they go on to say that lowering interest rates will not make any difference because it is not that kind of crisis. Of course lowering interest rates makes a difference; the crisis is due to the fact that some people cannot afford to pay the interest on their debt and repay their loans. If the cost of the loans is lowered through a lowering of the general interest rate—a lot of the loans are linked to that rate—the process would be a bit easier. Some people will not go bust and some will still be able to afford their homes.

It is a bit odd that people are down on sub-prime lending. I would have thought that some in this House would have been overjoyed that people had come up with a way of letting the poor buy a home. Is that not rather a good thing to have done? It is a great pity that the process was overdone and that those involved did not back off sooner and realise that they needed controls that were a bit tighter, but we do not want to bring the whole edifice down and say that poor people can never borrow money to buy a home. Surely it is good news if the lower interest policy in the United States can see some people through this difficult period.

Martin Horwood: Is not one of the problems with the sub-prime business model that it factors in the cost of debt recovery? In other words, it is based on an assumption that many of the people they are targeting will not be able to afford the repayments that they are being offered. Does that not border on the immoral at times?

Mr. Redwood: All banking factors in the probability that some people will not be able to repay. There is not one single sub-prime business model, but lots of different business models for those making loans to people who are a bit hard up. Of course making loans to those who are hard up is more difficult than making loans to those who are rich, but there are not enough rich people, and there are not enough rich people who want to borrow, so it is necessary to lend quite a lot of money to those who are hard up. The art of banking is in deciding how much one can offer and under what conditions. If the authorities can see more of those poor people through by making sensible interest rate adjustments, I say, “Thank goodness for that”, rather
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than, “Serves them right—let’s keep the interest rates high, push more of them under and put them back into the trailer park.” That is not a particularly nice thing to do.

Will the policy be inflationary? I find it difficult to understand how people can say that the American authorities are irresponsible to cut interest rates because that will cause inflation, while at the same time they say that America is already in recession—a questionable proposition—and that it will have a hard landing in a very bad recession. If America is going into a bad recession, bankruptcy, unemployment and falling prices, not inflation will be the problem. The crash in house prices will extend to other goods and assets. I am therefore in favour of lowering interest rates in the conditions that we are considering to try to save something from the mess.

Should more money be made available to the banking system? The answer is simple: of course it should. Whatever people think of bankers—I know that several hon. Members are not best friends with bankers or have various political causes on which to fight them—one cannot live in a modern, sophisticated economy without them. We need people who assess risk, make loans and so on. If they get it catastrophically wrong and we push them all under, we simply make our lives worse, too. There must be moderation in the response, and understanding that we must see enough banks and lending through the crisis so that, if we handle it properly, normal life can be resumed and reasonable economic growth can continue. Money must therefore be made available to the banking system.

That brings me to my next policy recommendation to the Government. One reason why UK authorities cannot do much to make the system more liquid is that too many of the resources of the Bank of England and the Treasury have been expended on nationalising Northern Rock. The sooner the Northern Rock position is unwound, the better because our nation and our monetary authorities cannot afford to have so much tied up in a single, medium-sized—by international or even national standards—mortgage bank. Although the sum of money is small in relation to world financial markets, it is large in relation to the British taxpayer and the Government, and certainly in relation to the Bank of England.

When the Bank of England mounted its rescue of Northern Rock, the former was only 40 per cent. of the size of the latter. It was therefore impossible for the Bank of England to mount a full rescue by itself and that is why—I presume—the Treasury got involved and there had to be proper Treasury guarantees and promises. Taking on something the size of even Northern Rock—a relatively small bank by international standards—required the whole weight of the consolidated fund of the UK and the Government’s money-raising powers. The Government therefore need to accelerate the process of either running off the business or developing new business under whatever model the managers can devise so that we get the £25 billion back as quickly as possible. The Bank of England would thus have a better profile of assets and liabilities again, and more money with which to play in the markets.

In the meantime, perhaps the Government should consider the financing of the Bank of England money market operations because I do not believe that it is
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playing with enough money, and it needs to have a bigger cash reserve available to keep the banking system more liquid during the difficult times. It will not be easy. I am an optimist and I believe that we can get to the other side, but it will require a more intelligent approach by the British authorities than they employed in August and September, and more weaponry in the form of lower interest rates and cash availability in the UK, just as enormous firepower is required in the United States as it, in the eye of the storm, tries to make its way through it more quickly.

The general problem is over-indebtedness worldwide, especially in the American, British and similar economies. The good times were a period of easy credit, when the authorities on both sides of the Atlantic kept interest rates a bit lower than was sensible and either encouraged or turned a blind eye to the most massive build-up of debt under new types of debt obligation and debt structure, which we had not previously experienced. In a way, the regulators fuelled much of that. The Basel rules of capital adequacy told all sensible banks that wanted to grow quickly and increase their profits, “Do so off balance sheet.” The rules encouraged—in a way, forced—them to do that. Surprise, surprise, the banks went for massive off-balance-sheet financing.

Now, many in the Government and elsewhere have become critical and say that perhaps off balance sheet was overdone and not properly appraised and controlled. However, the Government are up to their neck in the off-balance-sheet operation because they are the biggest exponent by a mile of such financing in the UK. In the Red Book, the Government show roughly £500 billion of borrowing for the state in an economy of about £1,300 billion. The Government state that they are keeping their debt to around 40 per cent., which is the target that they set themselves.

When I last did the sums and considered the UK in the way in which a finance director would have to examine it to stay out of jail when reporting, rather than by using the Government’s method, I concluded that the British state’s true indebtedness is £1.3 trillion—£1,300 billion or 100 per cent. of GDP. I reached that conclusion because of the huge unfunded pension liabilities and the large pension deficits in the state sector, the private finance initiative and public-private partnership obligations, publicly owned companies, such as Network Rail, whose debt should be part of the state sector, and now, of course, the full consolidated sum for Northern Rock. Just as Northern Rock consolidated the whole of Granite, so the Government, having acquired Northern Rock, should consolidate the whole of it.

There is, therefore, a large debt on the state sector books, but much of it is suppressed from the general public gaze because of the accounting conventions that the Government deploy, which are so different from those that are required of the private trading sector. The Government need to start reducing their debt burden and demonstrating that they are serious about helping to unwind the debt crisis, taking a different attitude to PFI, PPP, off balance sheet and guarantees of trading companies, into which they entered so liberally in recent years. That would send a good signal and create a bit more financial capacity, which would
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help the state sector in all sorts of ways. It would help not least the money market, which would have a little more leeway if there are squalls ahead in the private banking sector, which need liquidity or financial instruments to be traded in open market operations.

The Budget was the most extraordinary non-event because it dealt with moving a few hundred millions around in a £1,300 billion economy. I am happy that the elderly will get a bit more help with their fuel bills. One would expect a Secretary of State or a Minister from the relevant Department to make such a statement. One would also expect it to be a good news item. However, Budgets are about influencing the general direction, shape and size of the British economy. If a Chancellor currently wishes to make a decisive impact, the Budget must move around £7 billion, £10 billion or £15 billion. Several billions must be involved if the Chancellor is to have any impact other than a nice warm glow and a few pence in the pockets of a target group that he may wish to woo on Budget day.

The Budget was pre-empted by the supplementary estimates that went through the House last autumn and, more recently, last Monday. From memory, the supplementaries added up to an astonishing £22,000 million of additional spending. Some of that may be good spending and a little of it may be policy change, but most is testament to the fact that the Government have lost control of their public spending. They tell us one thing on Budget day about what they will do and the balance between spending and revenue, then, towards the tail end of the year, in November and March, they set out colossal sums of money and say that, Department by Department, quango by quango, by big or little numbers, huge overruns have occurred. The figures go through automatically, without debate, yet they are far more significant—they will make an impact on the economy—than the measures mentioned in the Budget.

I therefore recommend to the Government that, to try to get the British economy through the extremely difficult period in world finance, we need proper expenditure controls, Department by Department. We also need the side of the Treasury that the Chief Secretary leads to have much more of a grip on and daily information flow about what is happening and what is going wrong in order to intercept the overspends earlier, emphasise that they are unacceptable when it is still possible to do something about them and redouble the efforts, which are stated to be part of the Government’s policy in the Budget, to root out the abundant waste, inefficiency and incompetence.

We are now at the point where over-borrowing and indebtedness in the public finances are so gross that we need a complete staff freeze at the administrative grades. That should not apply to teachers, nurses and doctors, of course; indeed, we need to continue recruiting as many as we can afford. The general civil service and the quangocracy, however, is now extremely bloated. We need a control on numbers and we need to start slimming them down by natural wastage. I do not want to fire people—that is expensive and unpleasant, and not a nice thing to have to do—but I want to start shrinking the numbers on the public payroll quickly.

We need pension reform for new people coming into the public sector at all levels, because the gap between public and private pension costs is extreme in favour of
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high-cost public sector provision. Above all, public sector pensions will be difficult to afford in the years ahead and are swelling the big deficit on any accurate and honest balance sheet, if we were ever to get one from the Government.

We also need proper control over the use of management consultants and outside advisers of all kinds, which has got completely out of control. We need proper controls over the use of property. It would be a good idea to spend to save on energy, which is topical, given the theme of this debate. We just need professional management, Department by Department, which can start to flush out the excess billions of waste, incompetence and overrun, which the supplementary estimates pick up year after year, but which get so little debate or reporting.

That is a series of positive proposals for a nation battling with a world financial crisis, elements of which are made in Britain, and where parts of the British predicament make responding that much more difficult. I hope that the Government will listen seriously on the need to reform their handling of money markets before there is another disaster or mess. We cannot afford another one, and it was a very expensive rescue that had to be mounted. I hope that the Government will start to tidy up Northern Rock lending as quickly as possible, because that is money that we could not afford to have outstanding, and there are easy and simple ways of getting quite a lot of that money back more quickly.

I hope that the Government will realise that every penny in those supplementary estimates will be borrowed, because nobody came to the House and said, “We’ve had £22 billion of supplementary estimates, so we need £22 billion of extra taxation.” We should at least be thankful for that, but there should not have been £22 billion of extra spending. We need to get to grips with that and start rolling back unnecessary spending, so that we can have the Government under some control again.

Above all, we need the Government to understand that although there is too much borrowing and some of it has to be squeezed, that means doing something at home, in the Government account, as well as just blaming private sector banks in America. It is partly the Government, by going along with the over-borrowing, the off-balance sheet routes and the clever financing, who have helped to fuel the very crisis that they now say we can ride out more successfully.

Yesterday in Parliament, John Redwood was quick to denounce the LibDem walk-out during the Lisbon Treaty debate. His intervention, taken from Hansard, follows.

Mr. Redwood: Does the Minister agree that it is a discourtesy to him and the House that the Liberal Democrats, after synthetic anger about their broken promise, should now have almost entirely removed themselves from the Chamber when those most important issues, in which they say that they are interested, are up for debate? We should now ask: where are they?

Mr. Murphy: That is not an issue for the Government or for any individual Minister. All that I would say in passing is that on the issue of Europe, the Liberal Democrats, in principle, see the benefits of our continued membership and continued involvement in the European Union and support the reforms in the treaty. As to the conduct of individual Members of Parliament, that is an issue for the Speaker or the occupant of the Chair, not for Government Ministers.

Later in the debate, Mr Redwood asked the Minister to confirm the firgures on power transfers under successive Governments. The question in full, taken from Hansard, follows.

Mr. Redwood: The Minister is right that there has been a progressive surrender of powers and a progressive increase in qualified majority voting, but to ensure that the record is accurate, will he confirm that qualified majority voting has been granted in 10 times as many areas since 1997 as were granted by Baroness Thatcher?

Mr. Murphy: The fact was that—[Hon. Members: “Yes.”] No, I disagree with the right hon. Gentleman’s analysis of Europe and, looking at the figures, I disagree with his analysis of qualified majority voting. The Single European Act made 12 such moves and the Maastricht treaty, which he supported, made 32 moves. There were 26 moves under the Amsterdam treaty and 32 under the Nice treaty, while the Lisbon treaty, as we have all discussed, makes 51 extensions.

During last night�s debate on the foreign policy aspects of the Lisbon Treaty, John Redwood raised a number of issues arising from the treaty in relation to Britain�s relationship with the wider world.

Mr. Redwood: It is now quite obvious that we will not be able to debate the second set of amendments, which is what we really wanted to debate. I had stepped out in case we got on to them, but with a vote that will not now be possible. Once again, it is extremely difficult for the House when important and weighty issues such as the defence of the country cannot be debated, because another important group of amendments on foreign policy still need to be disposed of.

Earlier in this debate, the Government�s position lacked clarity. It is quite possible for the Government to come to the House and say that they really think it better to have a common European foreign policy on all the main issues, rather than a British foreign policy. That is not a proposition with which I agree, but it is a perfectly respectable and understandable position. If that is the Government�s position, they will of course want Britain to make compromises and to work more with our partners. They will also want that common foreign policy to be expressed by a single president, high representative or Foreign Minister of Europe and they will want that policy to be represented around the table of the UN Security Council.

As the United Nations begins to understand that that is perhaps the way in which the Government wish to operate, other member states of the United Nations will ask, �Why should these people have three representatives around the table, when there is effectively only one country from the foreign policy point of view and when they�ve tried to get an extra seat by the back door?� The Americans, the Chinese or the Russians might ask, �Wouldn�t it be neater and more sensible to have just the one representative representing the common European policy, rather than the French and British view as well, which should be the same on these occasions?�

For those who wish to see the position clearly, the difference in House is quite simple. There are those who think that having most of this country�s major foreign affairs policy positions agreed with our partners by compromise is the right answer. There are others of us who think that, while we can do that on some things, there are enough differences between our country and the other member states that it is much better to keep things intergovernmental, not to assume that there is nearly always going to be a common foreign policy, not to put Britain under constant pressure not to be the odd voice out or to be different, and to allow the British Prime Minister and the British Foreign Secretary, on all those issues where we have a different view or we have an interest and the other member states do not have a strong interest, to be able to carry on doing what we have always done and to be a senior country in world affairs, because of our history and, most importantly, because ours is one of the few countries that systematically stands up for freedom, decent rights and democracy, and is prepared to back that up with the lives of its young men and women, and with the money of its taxpayers.

We make a large contribution in world affairs, along with our American allies, our French allies and some others who sit around the UN table.

Mr. Cash: Does my right hon. Friend agree, as I suspect he would, that there is something utterly pathetic about the situation we have arrived at in this debate? The question whether our young men are to be sent off to war really should be debated. The question of how a common foreign and security policy is being developed is being ignored by the Committee thanks to the means that the Government have employed to frustrate debate�

The First Deputy Chairman of Ways and Means: Order. We must return to the debate. I call Mr. Redwood.

Mr. Gummer: On a point of order, Mrs. Heal. Is this not a suitable moment for the Government to announce that they will introduce an extra day of consideration on which we may deal with the second part of the debate?

The First Deputy Chairman: That is not a point of order for the Chair. I am sure that the right hon. Gentleman�s comments will have been heard.

Mr. Redwood: Thank you for those wise words, Mrs. Heal.

Part of the argument on this group of amendments is whether there should be at the UN Security Council table a representative of the EU view. For the life of me, I cannot understand why the other UN member states would want that, unless that high representative or that president of the EU was backed by some effective European force. The whole point of the UN Security Council is the main powers�those countries that can use their diplomacy and influence with other countries�trying to form a common view that the General Assembly will accept. More importantly, the main powers form the most important part of any force that might have to be used by and in the name of the UN to enforce such a common strategy, if one or two other states in the world do not agree and force is unfortunately essential.

In this debate, we have not had enough clarity on the important issue of how on earth the EU could expect to be taken seriously in that seat without having such a force, which we are told would not exist as, we are told, there will be no common army. At the same time, I find it difficult to understand how we could avoid other UN member states making the perfectly reasonable point that, as we were moving towards that common position, and therefore the common use of our military forces, there should be only the one representative around the Security Council table.

There is a perfectly good solution to the problem whereby we will sometimes have a common policy and at other times not�that is, the current situation. If there is a common policy, we have France and Britain with seats. For some time, Germany has held a seat under the elected system. In relation to the position that they are adopting at the Security Council, those countries can pray in aid the additional strength that lots of other European countries agree with them. It is even better if we can join with a big country such as India.

There has been a lot of discussion about India. I happen to think that India is getting close to the point where it should have a seat on the UN Security Council. I hope that there will be discussions and negotiations, and if India wants to assume the responsibilities of a big world power�it is becoming a formidable economic power�I would be happy for Britain to see that take
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place. I am not happy to see this double banking and double-hatting through the EU, with all the muddle that that implies.

There needs to be a clear decision about whether these matters remain intergovernmental, in which case France and Britain would retain their seats, or whether we are in transit towards a world with a country called Europe that has a single foreign policy on all the things that matter. Then, of course, the balance of arguments would switch heavily and other UN member states would probably take a rather different view.

I hope that the Government will be more honest with the public and with Parliament about just how far the pressures will build for a common foreign policy under the Lisbon treaty as drafted. It is all very well for Ministers to say that the main decisions will remain subject to unanimity; that is true under the text that we are being asked to approve. But we all know what will happen: because the treaty also says that we have to show solidarity and loyalty and form common positions, there will be remorseless pressure on every major foreign policy issue to produce a common position. If it is not in Britain�s interest to agree with the rest, we will be put under pressure and made to feel bad until we agree.

There are four different types of issue. There are ones where we naturally agree with our leading allies in Europe, in which case we can have a common position. There are ones where we care a lot and they do not, where we should be able to do what we want. There are ones where they care a lot and we do not, where they should be able to do what they want without us stopping them, as long as they do not do it in the name of the European Union. Finally, there will be areas where we disagree; in those areas, Britain must retain her independence, and that is not compatible with having a president and a European seat on the Security Council.

�Parliament, accountability and creating better legislation� were championed by John Redwood in the House yesterday, in the face of yet another affront to Commons proceedings in the form of the �Northern Rock� Bill. He urged the need for a gap between Second Reading of the Bill and the Committee stage, so that MPs from across the House, whether or not agreeing with the Bill in principle, could help the Government produce the best legislation possible, having had time to become sufficiently acquainted with the issues.

His speech in full, taken from Hansard, follows:

Mr. John Redwood (Wokingham) (Con): I rise to speak because I see a disturbing trend: the way in which this legislation is being handled is reminiscent of how European legislation is handled� [ Interruption. ] Labour Members should listen carefully to this, because it is about Parliament, accountability and creating better legislation.

I rise to speak in defence of the Committee stage. All Members with experience in the House will know that the Committee stage provides an opportunity for Members of all parties who are interested, have experience or have been well briefed by outside interests to come to the Committee and make their contribution in order to help the Government to get the legislation right in their own terms.

Obviously, I speak as someone who disagrees with what this legislation is trying to do. However, were there to be a proper Committee stage, I and people like me would be able to join in and to try to get the words and clauses right in order to do what the Government want to do, having vented our anger on Second Reading about what they want to do. In order to have proper Committee proceedings, there has to be a gap between Second Reading and the Committee. I appreciate that in this case, the gap might have to be rather short, for reasons that Ministers have set out, but there could have been a gap so that we could have heard first, on Second Reading, what the Government were trying to achieve, after which those interested could have tried to help the Government pick their way through in Committee.

When I was a Minister putting legislation before the House�I did so relatively infrequently, because I do not think that legislation is a very good idea on many occasions�I was always very grateful for the Committee stage, and for the contributions made by some serious-minded Labour Members. I did not think that I and the draftsmen and women working for me in the Department had a monopoly on all wisdom, so it was helpful to have interested and well-briefed people making suggestions in Committee and trying to get the measure right.

As the House knows, we get only an hour and a half in Committee to debate huge chunks of constitutional treaty, and we are going to get only two and a half hours this evening, if the motion goes through, on an extremely complicated Bill that has implications for the country�s whole banking sector. I urge the Government to think again. The Committee stage is crucial. Members of Parliament need a chance to talk to people outside the House who have real expertise in these areas, and Members with expertise in their own right need the chance to marshal amendments and bring them to the Government�s attention. We need to table probing amendments to see whether the Government have got it right and we need to table amendments to help them get it right. That has not been possible in this case. Will the Government please think again?

During the subsequent debate, John Redwood made a speech in which he reiterated concerns over the Government�s inexplicable rush to pass this legislation, asking why they could not do some due diligence on Northern Rock first � standard procedure for any business take-over � so that the House can know what it is buying. The entire process, in fact, seems to be a list of unknowns in terms of what is being bought, and therefore what the implications might be for the taxpayer. Certainly the �110billion figure currently talked of is probably an optimistic one.

The speech in full, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): I have declared my interests in the register.

I want to see this business survive, recover and flourish. I quite understand its importance to the north-east. I do not think that the nationalisation model on offer is the way to do that. Indeed, as those on my party�s Front Bench have made clear, it could well be that given the constraints on competition policy and the uncertainty of the Government over the business plan, nationalisation will mean substantial redundancies and a winding down and a scaling back of the business�the very opposite of what Members in the north-east want.

I propose, as I have consistently advised the Government, that the Government and the Bank of England should act as an intelligent and tough bank manager to this business. They are the bank manager, because they are the lender of last resort, and they gave a large loan to the bank when it was in difficulties. What they should have done was taken enough asset protection for the taxpayer so that there was no argument about getting our money back. They should now secure what assets they can, which they need to give us protection, and then agree a timetable for the repayment of the money. They should agree a timetable that makes sense for both parties. Of course, if the parties cannot agree it, they can dictate it because the Bank of England is the only bank that will lend to this business, but it is better to agree it. It should be tough; there should be exacting targets to get the money back.

Under such a course of action, Northern Rock has all sorts of options. It has the opportunity to get money back if the markets get freer and it can refinance. It has the opportunity to get money back through cash flow, profits and the success of its business. If it cannot do either of those things, it can always pay the money back�assuming that enough asset cover has been secured, as we were told originally�because it can sell assets. The pace of the sale and the cash generation should be agreed between the bank manager and the business. The bank manager should lean on the bank to go further and faster, should watch inappropriate spending and should ensure that the bank is not spending unnecessarily on capital expenditure, high wages or elaborate bonuses. People should not be earning bonuses in a business that is under this much pressure. I submit that that is a far better model than the nationalisation model, with all its uncertainties.

As someone who has spent time in business and has, from time to time, bought a company, what I find breathtaking about the business before the House is the lack of the information that a buyer of any size of business would wish to have, let alone the purchaser of the biggest business, in cash terms, ever bought on behalf of the taxpayer. But we do not know the price. We are told that the Government have decided to buy the business without negotiating the price with the sellers�or without deciding what price they are going to impose on the sellers. We are told that we have to rush the legislation through in a week, but the Chancellor cannot even tell us how long it will take the Government to work out the price to complete the deal. It is obvious that they cannot complete the deal until they know the terms of transfer for the shares. Why the rush? Why can we not do some due diligence on the business first, as they will have to, when trying to work out a price for the compensation, so that the House knows what it is buying?

As the shadow Chancellor said, we do not know about the quality of the assets we are buying. There is no analysis of the repossession rate, past and future, or evidence about the quality of the lending made. There is no evidence about how many of the loans are at the 125 per cent. rate and no analysis of the unsecured loans. Such things are the first things someone would ask about if they were thinking of buying such a business. We have no analysis of the properties and the branch network. We have no idea whether there is surplus property, or whether the business needs to carry on with its big capital programme to build new property. There is no environmental report on the state of the properties and no report on the leases, or on the commitments to those property leases. Are they long leases? What would be the cost of paying some of them off if they are on inappropriate property?

There is no duty of due diligence on the people whom we will employ on behalf of the taxpayer. There is no human resource report, or report on the contracts of senior executives. We have no idea of the cancellation costs for senior executives if some proved not to be wanted in future by the new executive team. We have no idea of the number of write-offs and losses that the new executive team will want to record in the first set of accounts to clean everything up and make the task a bit easier. Somebody coming in on a salary of more than �1 million would be unlikely to want to accept everything as a given and to make no adjustments to the accounts.

We do not know from the Treasury what the impact on public borrowing will be. We do not know what the capital expenditure programme is and how much will have to go into public accounts because it cannot be funded out of the cash flows of the business. We know nothing about virtually anything that we are buying or about the risks that we are taking on.

There is no pensions report. We do not know the impact of the pension regulator�s latest idea that pension funds have been understating the longevity of the people in their funds and that the allowance made for that must be increased. The pensions liability, like contracts with the staff and any redundancy payments, will now rest with the taxpayer.

It is a disgrace that no normal financial and due diligence information is available on the business before we commit that huge sum of money. My hon. Friends have been generous in saying that the commitment is �110 billion. It could be more than that sum, which is the stated liability on the balance sheet, but does not include the pension, redundancy, property and environmental liabilities and all the other things that might come out of the woodwork. When one buys a business, one normally agrees a price in principle, fulfils due diligence requirements and either decides that the price is right or agrees a revised price in the light of what one has discovered.

Will Ministers please think again? Will they perform some due diligence duties for the taxpayer? If not, they will rue the day because they will lose us a huge sum of money and end up making unpleasant decisions, which will not suit the north-east.

Yesterday in the Commons John Redwood was again a