An allergic reaction to 'fat cats' (Spiked Online)

The super-rich of the private equity sector are a symptom, not the problem with capitalism today. Anybody might be forgiven for thinking that there is a growing mood of anti-capitalism in British public life. Last month, in the normally staid and conservative House of Commons, MPs were warned by a top adviser to Gordon Brown that unless they reformed the taxation system, the widening gap between the new multi-millionaires of the private equity sector and the poor could lead to ‘Paris-style riots’. Just this week, the media headlined another warning from a leading figure about a possible popular backlash against the ‘New Capitalism’ of tax-privileged private equity. But that’s just familiar rhetoric from trade union leaders, isn’t it, and nobody listens to them these days, right? Except that those echoing the union arguments were hardly labour movement firebrands. The warning about riots was delivered to the Treasury committee of MPs by Sir Ronald Cohen, not only a major Labour Party donor but himself a private equity ‘fat cat’ reportedly worth more than £250million. And the headlines about a backlash against the ‘New Capitalism’ were made by none other than the director general of the Bank of England. So what’s behind the strange debate about the state of capitalism today? In Europe and America, the rise of private equity (PE) has been the economic phenomenon of the past few years, as groups of financiers borrow huge sums to take over established companies. In recent months, a growing campaign against the excesses of private equity has been led by Europe’s big unions, accusing PE chiefs of acting as asset-strippers and ‘locusts’, cutting jobs and wages to maximise profits at the companies they take over. On the other side, the small band of PE defenders claims it is a great British success story. The fact that, in a recent newspaper exchange, the case against PE was put by Labour crank and conspiracy theorist Michael Meacher, while the case in favour was entrusted to Tory crank John ‘Vulcan’ Redwood, suggests that we should be wary of taking either side in this false debate. In one sense the campaign against PE is only the latest incarnation of the longstanding crusade to find the ‘unacceptable face of capitalism’ (a phrase first coined by a Tory prime minister). In the post-Enron age, when big business is falling over itself to show how socially responsible it is, the PE financiers have stood out by looking more like old-fashioned profit-hungry capitalists. The secretive way they operate, often using foreign capital, has made them an easy target for those in the rump of the old labour movement desperately looking to score some cheap and easy points. Seen in their proper context, however, it becomes clear that these fat cats are only a symptom of the current state of economic affairs rather than the problem. PE is not some sort of a septic boil on an otherwise healthy economic body, but rather a natural development of the way that the market economy works today, especially somewhere like the UK. Nobody needs to defend multi-millionaires. But the current attacks on PE have more to do with moralistic grandstanding by its opponents (increasingly met by self-conscious defensiveness from its supporters), than with any considered critique of modern-day capitalism. Make them pay more tax if you want, but let’s not kid ourselves that it will make any difference to the rest of us. Although it has been blown up into a big political issue, with the Brown government promising to review its tax breaks, private equity is really little more than another technical financial instrument. It has boomed as the latest way for financiers, consultants, accountants and lawyers in the City of London to make their millions. In 2006, global PE takeovers and deals were worth £380billion - five times more than in 2003. The USA and the UK are at the heart of this boom. In May, PE made its biggest-ever score in Europe with the buy-out of pharmacy chain Boots for more than £11billion. PE has been fuelled by the flow of cheap credit, particularly from the East. As Asia, and especially China, has become the new productive motor of the world economy, these countries have been building up their foreign exchange reserves, mostly invested in Western financial assets. This has provided the basis for the latest expansion of easy credit: billions of dollars slosh about the world looking for a home while central banks keep interest rates low by historical standards. In turn, this easy credit has financed and supported the take-off in private equity deals. These deals, however, do not represent productive investment in the creation of new wealth. Like much Western investment in recent times, they are speculative attempts to make short-term profit through taking over existing assets. PE groups take public companies private, load them with debt, and then use various financial instruments to maximise profits. That might sound like outrageous financial skulduggery, but it is typical of how successful Western and especially UK capitalism operates today. The days when Britain could claim to be the industrial workshop of the world or the largest empire on Earth are long gone. What British capitalism relies upon today is the City of London (now spreading into Canary Wharf), where the financial institutions make billions by servicing the movements of somebody else’s capital produced elsewhere in the world. British economic ingenuity is not about inventing steam engines or engineering feats, but about coming up with new financial instruments and mechanisms through which the City’s financial services can maximise its dividends and fees. Lately, critics of PE have tended to focus on the generous tax privileges it has been granted by the New Labour government. Much was made of the revelation at last month’s Commons committee hearings that some of the ‘fat cats’ pay lower tax rates then their cleaners. The key trick here is that PE millionaires are able to treat their income as capital gains on their investments and thus, through something called taper tax relief, end up paying only 10 per cent tax rather than the 40 per cent top UK rate. Those registered as non-domiciles for tax purposes - who include most of the biggest PE players in the UK - pay even less. A glance at this obvious discrimination in favour of private equity would no doubt have many agreeing with Meacher that ‘never have the super-rich been showered with such lucrative partiality by any government’. But the real question is, why does the government do it? It surely cannot be because Brown - the chancellor responsible for the tax concessions - feels natural sympathy for City ‘slickers’. The real reason New Labour is ‘soft’ on PE has little to do with a love of the super-rich, but simply because it recognises the reality that the British economy now depends upon the activities of the City. With the further withering away of British manufacturing and the massive expansion of international financial flows, the UK economy is more reliant than ever on financial services to support the state and society. Servicing and moving around other people’s money, rather than creating new wealth, is the British way of economic life in the twenty-first century. The UK is behind only the USA in the scale of its PE deals. In what other economic area can Britain claim to be second in the world today? Whether he likes it or not, Brown understands which side his bread is being buttered. Some PE takeovers, such as the buy-out of the Automobile Association, have certainly led to the loss of a lot of jobs, at least in the short term. But the allegation that they are always worse than ‘ordinary’ corporate buy-outs does not really seem to stand up. What private equity does to the firms it buys is not that different from the sort of restructuring seen in many industries since the Thatcher government launched a wave of privatisations in the 1980s. Indeed, much of the present PE restructuring seems to be financial re-engineering, using easy liquidity to add debt (’leverage’) to companies (which risk-averse banks are often more reluctant for publicly quoted companies to do) and does not impact much on the public activity of the company itself. In short, PE is the latest soft target for those who, in the age of TINA (There Is No Alternative), have had to accept that they cannot challenge capitalism directly. Union and other objections tend to be about the shady, foreign character of PE, playing on general resentment of the ‘super-rich’ rather than focusing on what PE actually does. The growing influence of the unions in this debate reflects the defensiveness of the capitalists rather than any real resurgence of a labour movement that is now largely an empty shell. Of course, if multi-millionaires have to pay a bit more tax, we need not shed any tears. But what difference would it make to the rest of us? Will it be distributed like charity, at the rate of a few pence each? If the unions are concerned about inequality, let them focus on demanding better pay and conditions for their members instead of PR stunts. The demand for more ‘fairness’ always seems to mean levelling people downwards rather than upwards - a miserabilist spirit that will benefit nobody. A culture of restraint and regulation rather than a wild free market is the biggest barrier to society’s economic advance today. As the examples I gave at the start illustrate, we are not dealing with rapacious cartoon capitalists, but with a cautious and defensive business class. Even the ‘fat cats’ get nervous and start worrying about riots and setting up CR (corporate responsibility) bodies when they come under pressure. We can expect more voluntary codes of conduct as PE tries to stave off state regulation. Who exactly will benefit from that is another matter. These ‘fat cat’ super-rich characters are hardly the solution to the troubles in the world economy, but they are not the big problem either. And inasmuch as the crusade against PE offers no alternative other than to re-enforce the culture of economic restraint, it will end up as part of the bigger problem. What we need are fewer cheap stunts and gestures, and more serious discussion of how society’s wealth is produced, used and distributed today. The public good is ill-served by singling out private equity or anything else as the unacceptable face of capitalism. Mick Hume is editor-at-large of spiked. Previously on spiked James Woudhuysen asked if the Red Dragon is a green threat. Phil Mullan reviewed Daniel Ben-Ami’s Cowardly Capitalism: The Myth of the Global Financial Casino. Daniel Ben-Ami said that JK Galbraith is the forefather of contemporary anti-capitalism, that growth is good and that there is no ‘paradox of prosperity’. Or read more at spiked issue Economy.Neil Davenport Bash the rich-bashers Why is everyone from Tatler to Toynbee (as in Polly) attacking the super-wealthy for their greed and spending habits?Printer-friendly version Email-a-friend RespondAttacking rich people for having tons of cash was once the domain of those pantomime anarchists, Class War. advertisementadvertise on spikedBack in the Eighties they would organise ‘Bash the Rich’ festivals and campaign against what they saw as the gentrification of old working-class communities, particularly in east London. In recent months, these whinging, anti-success sentiments have made a notable comeback. Only this time, it isn’t Special Brew-drinking, dogs-on-strings anarcho-types who are attacking the wealthy – it is rather more respectable opinion-makers and columnists. Slating London’s City traders, the Guardian’s Polly Toynbee says ‘it’s time to face them down, call their bluff and regulate their unjust advantage before their pernicious buccaneering destroys the culture of corporate social responsibility’ (1). What next? Will Toynbee be sporting a t-shirt showing a graveyard under the slogan: ‘We’ve found new homes for the rich’? Even more surprisingly, the defiantly right-wing Daily Mail, the London Evening Standard and even Tory magazine Tatler have indulged in the new anti-rich grandstanding. Tatler editor Geordie Greig ranted recently against the impact the super-rich have on dear old Blighty: ‘That old sense of living in a country where fair play and an honest day’s work led people to feel they could get what they strove for has been destroyed by dizzying extremes in wealth.’ (2) Blimey. Is all this rich-bashing, as one commentator claims, a healthy sign of a desire for a fairer, more equal society? Is it a belated questioning of Thatcherite money-grabbing, and therefore A Good Thing? No, it isn’t. On every level, today’s complaints about the ‘super-rich’ are spectacularly ill-informed and wrongheaded. For a start, complaining that millions in the bank is an ‘obscene amount of money’ is akin to looking through a telescope at the wrong end. Wouldn’t a £180 weekly wage packet, earned by some in the poorer sections of society, better be described as an ‘obscene amount of money?’ It’s coming to something when having little money is seen as being somehow more desirable than having a mountain of moolah. What kind of message does this popularise? That aspiring for higher living standards is the equivalent of dining with the devil? Attacking ‘rich bastards’ might sound righteous and radical, but it conveys the idea that all of us should settle for less. Indeed, five years ago, when London Underground workers went on strike, commentators complained that the RMT union’s pay demand was a sign of wanton ‘greed’. Incredibly, there were even complaints that the Tube drivers’ £32K salary was already ‘too high’! (3) In truth, that paltry sum would barely buy a broom cupboard in London these days, let alone a semi-detached house. Those stinging criticisms of ‘greedy’ Tube workers should have served as a warning of what happens when anti-materialist sentiments are allowed to flourish. The real consequence of anti-rich ideas, which have little impact on the rich themselves, is to constrain those of us who want more from life. Notice how the anti-wealthy opinion-makers berate the rich for what they do with their cash rather than for how they make it. There is rarely any mention of the fact that rich businesspeople make their fortunes on the backs of the badly-paid labour of the working classes. Instead, critics aim their fire at the rich for buying luxury goods and big houses, rather than for any exploitation they may preside over. One columnist reckons that the entrepreneurs on BBC 2’s Dragon’s Den probably drive tacky sports cars and therefore are a bunch of cocks (4). These are cheap moralistic shots rather than anything like a serious critique. It seems the workplace origins of wealth are of no real moment for these tax-the-rich complainers; they’re more interested in attacking the garish spending of the wealthy than in demanding a restructuring of wealth creation more broadly. As a result, the discussions about the rich tend to mystify social relations in society. Having millions of pounds in the bank is not an automatic source of social power. Rich entertainers, pop musicians and actors might have accumulated enormous amounts of money, but it doesn’t mean they have the ability to shape society and make decisions that impact on people’s lives (bar the misery inflicted on people whenever U2 release an album or their frontman Bono opens his sphincter-like mouth to pronounce on African poverty). Social power only comes about when the owners of society’s resources enter into an economic relationship with those who survive by selling their labour power to them. This monopoly of the means of survival endows such businessmen with the power to influence debates, set agendas and make decisions that have real consequences for people’s livelihoods. It follows, therefore, that calls for wealth redistribution don’t get to the heart of the problem of social inequality. Increasing taxes on the super-rich to give to the low-paid and the poor wouldn’t improve people’s living standards in any meaningful way, as previous welfare redistribution policies have shown. Perhaps our time would be better spent interrogating, and changing, the issue of who owns society’s resources. None of the rich-bashers (certainly not Tatler!) is suggesting that there should be collective ownership of society’s productive resources – that would mean allowing millions of people to have a genuine say in how society is organised. Instead, today’s attacks on the rich are driven by a rather patronising view of the masses as inert, passive dolts in need of a bit of altruistic charidee. The likes of Toynbee and Tatler are not in favour of creating a more democratic method of wealth-creation. Rather they seem to believe that the rest of us should be happy with a few crumbs that fall from the rich man’s table – though heaven forbid any of us should spend these handouts on foreign holidays, a decent car or on a trolley-dash around Tesco. How did moralising about money and materialism become mainstream? It strikes me that the origins of these sentiments lie in the Labour Party left during the 1980s. As their Alternative Economic Programme and welfare policies in the 1970s had proven an economic disaster, the Labour left quietly shelved their commitment to improving living standards altogether. Instead, they recast being left-wing as being all about moral-mindedness and a commitment to community, values and ethics. The then prime minister Margaret Thatcher seized the initiative by colonising social aspiration as being somehow the property of the New Right rather than the left, as it previously had been. So successful was Thatcher’s use of social aspiration as an ideological tool with which to defeat the left that, to this day, anyone who claims to be left wing will express his or her loathing for the politics of social aspiration. For them, anyone who wants more from life – a big house, cars, holidays, etc – has clearly capitulated to Thatcherism. Today, anti-materialist ideas are so mainstream that even the rich attack the rich. Right now, there is no bigger or louder anti-consumerist and anti-materialist than the very wealthy green proselytiser, Al Gore. When even the super-rich berate the, er, super-rich, it seems clear that there is nothing to be gained from joining in with the attacks on wealth and success. To do that would be to attack the very basis for changing society for the better. So long as people aspired to greater living standards, there was an audience for politics that aimed to revolutionise the way society is organised. Attacking those at the top of society is simply an indirect way of keeping everyone else in their place below. Neil Davenport is a writer and lecturer in London. Previously on spiked Daniel Ben-Ami reviewed Oliver James’ book Affluenza and interviewed Indur Goklany, author of The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet. Rob Lyons looked at poverty and politics. And Daniel Ben-Ami summed up why, if prosperity doesn’t make us happy, it’s still a good thing. Or read more at spiked-issue Economy.(1) ‘Stick it to these City Caesars - for the sake of the nation’, Polly Toynbee, Guardian, 19 June 2007 (2) Tatler, June 2007 (3) See Underground Fat Cats, by Neil Davenport (4) Last Night’s TV, Guardian, 4 August 2006 Digging up the roots of the IPCC by Tony Gilland

Law Lords to consider the legality of the control order scheme.


04 Jul 2007

A six-day hearing into the legality of the controversial control order scheme will begin in the House of Lords tomorrow. The Law Lords will consider if control orders, by which a suspect’s freedom is severely curtailed although he has not been charged or tried in open court, violates the right to liberty and a fair trial.

James Welch, Liberty’s Legal Director who led Liberty’s intervention in the case, said: “Punishing people and their families without trial makes a mockery of British justice. Labelling people as terrorists and leaving them in the community makes a mockery of security. Only charges, evidence and proof will protect our lives and our way of life in the long-term.” Liberty has called the control order scheme “unsafe” and “unfair” because seven of the 17 suspects on control orders have absconded and several lower court judges have deemed the scheme to be unlawful. As an alternative to control orders, Liberty suggests new measures which will make it easier for police and prosecutors to gather evidence to bring criminal prosecutions against terror suspects. These include allowing the use of intercept evidence in the criminal courts, making it a crime to withhold relevant encrypted computer data, allowing post-charge questioning and providing more resources for the intelligence and security community. Liberty’s intervention into the cases of suspects known as “E” and “S” argues that making a control order involves the determination of a criminal charge within the meaning of Article 6 of the Human Rights Act and that the standard of review, the "reasonable suspicion” standard of proof, the use of closed evidence and special advocates also violates the criminal and civil guarantees in Article 6 of the Act. If the Law Lords judgment, expected later this summer, finds that control orders violate Articles 5 and 6 of the Human Rights Act, the Government may have to issue new control orders which derogate from the European Convention on Human Rights or may have to consider new laws to replace the control order scheme altogether. Contact Jen Corlew on 0207 378 3656 or 0797 3 831 128

NOTES TO EDITORS

1. For a copy of Liberty’s intervention contact Jen Corlew on 0207 378 3656 or 0797 3 831 128

2. Control Orders were brought in by the Government under the 2005 Prevention of Terrorism Act after the Law Lords ruled that indefinite detention without charge for foreign terror suspects in Belmarsh prison violated their human rights. A control order severely restricts who a person can meet, where they can go and all cases have involved electronic tagging. Restrictions have included 14-hour curfews and bans on unauthorised visitors and internet access. Control orders can last indefinitely. The person does not have to be accused of any crime and does not have to be told why he is under suspicion.

3. Latest reports indicate that seven out of 17 individuals on control orders have absconded.

4. The Government’s argument that it is impossible to prosecute terror suspects is fast unravelling. Liberty has suggested that unnecessary hurdles to prosecuting terror suspects can be overcome in the following ways: - Remove the bar on intercept (phone tap) evidence in criminal trials because its inadmissibility is a major factor in being unable to bring charges. In the last year the former Attorney General, the Director of Public Prosecutions and a former Head of MI5 have argued that it should be possible to use intercept evidence in court so that more terror suspects can be prosecuted. - Review the way in which people that have already been charged can be re-interviewed and recharged as further evidence is uncovered. The four Terror Acts brought into force since 2000 have created numerous new terror offences with which an individual can be charged. This will allow for a charge to be replaced with a more appropriate offence at a later stage. - Bring in existing powers under the Regulation of Investigatory Powers Act 2000 (RIPA) which enable a civil court to require an individual to hand over an encryption key (which unlocks data on seized computers). Anyone who fails to comply with such an order will be committing a serious criminal offence.

- Dismantle the controversial ID card scheme, estimated in May 2007 to cost £5.75 billion according to official Government figures, to provide more resources for police and intelligence services.

Clare Short (Birmingham, Ladywood) (Ind Lab): I tabled this debate because I visited recently the Palestinian occupied territories with a delegation organised by War on Want. It consisted of War on Want staff, myself, and Rodney Bickerstaffe, the former general secretary of Unison. I am grateful for the opportunity to report on our findings, and I hope that the Minister will take account of them.

I have previously visited the west bank and Gaza on a number occasions in the late 1980s and early 1990s, at the time of the first intifada — a Palestinian uprising involving peaceful disobedience or, at worst, children throwing stones at soldiers. Despite the injuries inflicted on children by the Israeli army, the intifada was full of hope, and it led to the negotiation of the Oslo peace accord and the return of Yasser Arafat to Palestine. I was hopeful at that time that a two-state peace—Israel and Palestine—was possible, that the new Palestinian state would be based on 1967 boundaries with East Jerusalem as its capital, and that there would be a negotiated settlement on Palestinian right of return. Those are the three essential components of a negotiated peace. I was hopeful; but it is now impossible to believe that there will be such a peace. Instead, I fear that unless we change policy, we face the prospect of years and possibly decades of bloodshed and conflict. I have followed developments in the middle east carefully over many years, and I was well aware before my recent visit how bad things are for the Palestinian people. Nevertheless, I was deeply shocked by Israel's blatant, brutal and systematic annexation of land, demolition of Palestinian homes, and deliberate creation of an apartheid system by which the Palestinians are enclosed in four bantustans, surrounded by a wall, with massive checkpoints that control all Palestinian movements in and out of the ghettos. The Israelis are clearly and systematically attempting to take the maximum amount of land with the minimum number of Palestinians. As things stand, Israel has taken 85 per cent. of historical Palestine, leaving the remaining 15 per cent. for Palestinian ghettos. More shocking than that is that the international community, including the UK and the EU, does nothing to require Israel to abide by international law, despite all the claims made about European support for human rights and international law. During its visit, the delegation spent a day with the UN Office for the Co-ordination of Humanitarian Affairs, which is the agency responsible for humanitarian emergencies. It briefed us on the way in which the wall, the closures, the settlements and the separate system of settler roads were imprisoning the Palestinians. It published a map in the Financial Times to mark the 40th anniversary of the occupation, which is available for all to see. The delegation spent the second day of its visit with the Israeli Committee Against House Demolitions, an organisation that I greatly admire. The committee took us on a tour of East Jerusalem and showed us how the combination of formal and informal settlements, and systematic house demolition, was encircling East Jerusalem and how that constrained, displaced and ethnically cleansed the Palestinian population. When we were with ICAHD, we witnessed a house demolition. A massive machine with "Volvo" emblazoned on its side destroyed a substantial house that was built by a Palestinian family on their own land and in territory that belongs to the Palestinians under international law—formally, it is occupied territory. Women relatives of the occupants quietly wept at the side of the road. Later, a young man was held back by his friends—he wanted to throw himself at the soldiers who were protecting the demolition, to do something about the destruction of his family home. The representative of ICAHD, a young Israeli, said that the demolition was, of course, a war crime. The point about that is that under the Geneva convention, an occupying power is not entitled to impose new laws or to settle in occupied territory. Houses are being demolished because Palestinians do not have permits to build, even on their own land. However, Israel is not entitled to introduce such a permit system. It never gives a permit to build a house, or after a house has been built. When Palestinian families expand, they must live somewhere, but Israel will never issue a permit because of its determination to drive Palestinians out of East Jerusalem. According to ICAHD, Israel has demolished 18,000 Palestinian homes in the way I described since 1967. Each demolition was a war crime. More shocking than that is the fact that no action is taken to force Israel to adhere to international law. Later, the delegation visited a family whose house had been demolished and rebuilt by volunteers from ICAHD—Israelis and Palestinians worked together to rebuild a home for a Palestinian family. ICAHD is committed to acts of peaceful civil disobedience in order that international law is upheld. The family said how grateful they were to once again have a home. A Palestinian who works for ICAHD said that his house had been demolished four times. He said that most Palestinian homes in Jerusalem were subject to demolition orders, so everyone lives with the fear and insecurity that when they arrive home, they might find that their home has been destroyed. He said that when the Israelis arrive to demolish a person's house, they give them 15 minutes in which to collect their family and belongings. Normally, people refuse to co-operate. The ICAHD worker told me that in such a situation, the demolition people use tear gas. He told me that he stood there, with his wife fainting and his children crying while their property was being thrown out of their house on to the ground. He said that it made him feel like a useless man who could not even protect his family in their home, and that three possible courses of action passed through his mind. First, full of hate and anger, he thought about obtaining a suicide vest and destroying his own life and that of others. Secondly, he thought about whether he could get out of Palestine and Jerusalem, being unable to bear the pressure being put on him and his family, but that would be to co-operate in the ethnic-cleansing that he opposed. Thirdly—he said that this kept him sane—he said he thought about working for ICAHD to rebuild the demolished homes in peaceful civil disobedience. I understand that ICAHD has given a pledge to rebuild all the demolished homes in this, the 40th year of the occupation, and that—poignantly—an American holocaust survivor is funding the work. I hope that all people of good will will support ICAHD financially and politically in that endeavour. Importantly, the organisation brings radical Israelis and Palestinians together and creates a space for hope in an otherwise hopeless situation. The delegation's third day was hosted by the Grassroots Palestinian Anti-Apartheid Wall Campaign, which is War on Want's partner in Palestine. We were briefed about how the closures have destroyed the Palestinian economy—that has subsequently been underlined by a WorldBank report—and also how more and more Palestinians are forced to work for the Israeli settlements to produce agricultural products and other goods that are exported largely to the European market, to which trade agreements give Israel privileged access. Illegal settlements using Palestinians as cheap labour is another element of the new apartheid system in which the EU and the UK fully collude. The delegation went to visit the Jordan valley with a representative of the Grassroots Palestinian Anti-Apartheid Wall Campaign. The situation there is truly terrible. All fertile land near the river has been confiscated by Israel, supposedly for security purposes under the Oslo peace accords. In the remaining territory, there are occasionally settlements, some of only one person, which lead to Palestinian families being removed from their land for security reasons. There are acres of plastic greenhouses that are organised and worked by settlers and which are strategically located over water sources. They grow organic herbs and other agricultural produce for the European market and yet, when we visited a totally impoverished nearby Palestinian village, we found that there was no school and, that day, no water—the one tap in the village gave no water. The impoverished Palestinians must buy water by the bucket from the settlers. We visited farming families whose relatives had lived on the land in the Jordan valley for generations to grow crops, herd sheep and goats, and to make cheese. They were being threatened and moved constantly as new settlements of only one or a few people brought in the army, which claimed that they had to move for security reasons. We stopped to talk to another family who had a compound at the side of the road. A house bought for their son and his family on their own land had been demolished, and their aubergine crop was rotting in a heap in front of the house because they could not get it to market. There is terrible poverty and abuse of human rights in the Jordan valley. The people there are being grossly neglected. I appeal to the Minister, the Department for International Development and all the humanitarian and non-governmental organisations to do more in the Jordan valley—it is in a terrible situation, and more could be done to bring instant relief. My conclusion is pessimistic, and the prospect of a two-state solution is being destroyed. Instead, we are allowing a new, brutal apartheid regime to be created with the Palestinians being confined to ghettoes and used as cheap labour by the settlers. The Hamas takeover in Gaza is not the cause of the problem, but the consequence of it. The refusal of the UK and the EU to provide aid to the Palestinian Authority following the Hamas election victory has helped to create the problem. The arming of Fatah by US and Israeli forces to enable it to fight Hamas in Gaza made the take over inevitable. Now it seems that efforts are to be made to offer money and inducements to President Abbas to accept the monstrous ghettoes as the promised Palestinian state. As Uri Avnery, the great Israeli peace campaigner, said, they want him to act as a quisling, and that will not bring peace. In conclusion, the situation in the Palestinian territories is deeply distressing and depressing, and the Government and the EU are colluding in that oppression and the building of a new apartheid regime. In particular, Israel has privileged access to the EU market under a trade treaty that, like all EU trade treaties, contains human rights conditions. I hope that the Minister will explain why those conditions are not invoked to insist on Israeli compliance with international law. That is a big lever, and Israel would be frightened of losing access to the EU market. I wish that we would make use of that for everyone's benefit. I fear continuing bloodshed and suffering, and further destabilisation of the middle east. The situation in Iraq, Lebanon and the Palestinian territories is fuelling the anger of the Muslim world, which is acting as a recruiting sergeant for the ugly ideology of Osama bin Laden and those who advocate similar ideas. It is in the interests of the people of Israel, the Palestinians and the wider middle east that there should be a two-state solution to bring an end to the Israeli-Palestinian conflict, but that possibility is being thrown away by Israel, which is determined constantly to expand its borders in total breach of international law. The UK and the EU are, sadly, colluding in that, and the consequences are causing terrible suffering, and endangering the future. I truly hope that our new Prime Minister will reconsider that policy, and that the Opposition parties will reconsider and bring pressure to bear to bring the situation back from the brink and to ensure that the centrepiece of UK policy is a just peace and Israeli compliance with internationallaw.

The Minister for the Middle East (Dr. Kim Howells): I thank the righthon. Lady for initiating this debate and for her comments. I also thank her for her eye-witness account of the illegal activities of the Israeli defence forces and others in demolishing houses along the route of the wall, the barrier or fence, where it incorporates Palestinian land illegally. I agree entirely with the right hon. Lady that that not only breaks international law but generates huge resentment, not just in Palestine but throughout the region. We have constantly urged the Israelis not to do that, and it is ironic that lawyers in Israel have given Palestinians their redress only about the route of the wall. Sometimes that route has been altered as a consequence of legal action that Palestinians have taken, especially in and around Jerusalem. The right hon. Lady's point about generating sympathy for Osama bin Laden and al-Qaeda is prescient, and we ignore such warnings at our peril. I take her message about the Jordan valley needing the attention of the Department for International Development. I, too, was shocked when I saw the extent to which so much of the Palestinian economy on the west bank has collapsed. I shall come to Gaza in a moment.This is one of those times in history when, from an appalling tragedy of Palestinians killing Palestinians in Gaza, one hopes that the Israelis and everyone else will take a real step forward, remove the barriers on the west bank, and allow people to trade properly. The right hon. Lady referred to a crop of aubergines that were rotting in the field, and we have heard such stories so many times. I understand, as I am sure can everyone, why Israel has built barriers, and I know why it has built the wall. On my last visit but one, I went to see some old lefties—I do not know how to describe them—in a kibbutz up on the old Jerusalem road. Very reluctantly, they told me that life had become easier since the barrier was built because they were not worried about their kids going out, as suicide bombers were finding it much harder to come in from Nablus and other towns. I tried to argue then, and I argue now, that they will find ways of getting in and killing innocent citizens, because resentment will continue to build up unless the core issue is tackled.

Clare Short: I simply want to say that, ugly and regrettable as the wall is, if it were on the 1967 boundary it would be one thing, but it is taking great swathes of Palestinian land and dividing communities from their land. That was found to be illegal by the International Court of Justice, and there is no excuse for it.

Dr. Howells: The right hon. Lady is absolutely correct. I was quite shocked even to discuss with Labour Ministers in Israel some time ago their unwillingness to build tunnels, for example, to join cantons together. It is hard to believe that a viable state, albeit small, could emerge from such a geographical configuration. It is difficultto see how it could work. We must keep pressing the Israelis. I do not agree with the right hon. Lady about sanctions— she did not refer to sanctions, but I have heard people talk about them. She referred to withdrawal of the preferential trade agreement with the EU. It is a fair subject for debate, although I am sceptical about making such moves, but that is my subjective assessment. It is a subject that should be discussed, and it is widely discussed throughout Europe. I tend to feel that there is already so much tension and there are so many difficulties that I am not sure that that would advance the cause of peace. If the right hon. Lady will allow me, I shall say something about Gaza, because we share her deep concern about what has happened there. It is a tragedy, and it underlines the urgent need to maintain international engagement and the current political processes. We are also concerned, as is the right hon. Lady, about the welfare of Alan Johnston, the BBC journalist, whose family must be going through the most dreadful time. We condemn the release of the latest video, which can only add further distress to his family and friends. We urge his captors, as I know does the right hon. Lady, to release him immediately. There should be a general release of captives on bothsides— Corporal Shalit, the soldiers who were kidnapped by Hezbollah, the councillors and elected parliamentary representatives of the Palestinian people. Now is the time to make such moves, and I hope that after the disaster in Gaza there will be a sense that this historic opportunity should not be missed, and that misery should not be heaped on the existing misery. I also extend our thanks to the Egyptian Government for initiating the meeting in Sharm el-Sheikh yesterday between President Mubarak and King Abdullah of Jordan, whom I had the privilege of speaking with just last week. He brought to the situation a sharp series of observations, which the right hon. Lady complemented today, and he understands the gravity of the situation. If the west bank statelet—that group of cantons—fails, one wonders where the conflict will spread to next. Jordan, with its huge Palestinian population, would be in grave danger, and King Abdullah is well aware of that. He was at Sharm el-Sheikh, as were Prime Minister Olmert and President Abbas. We welcome Prime Minister Olmert's statement that he will work, with President Abbas as a true partner, towards the establishment of a two-state solution and the implementation of the road map. There are some positive aspects, but I agree with the right hon. Lady that it is a pretty bleak picture. It is as bleak as I can ever remember it, but the decision by Prime Minister Olmert to transfer the withheld revenues is probably a positive step forward, and we look forward to the implementation of the commitments to increase freedom of movement and expand trade connections in the west bank. Such actions are not rocket science; they can easily be done and they could make a big difference, if only to that family about whom the right hon. Lady spoke, with their crop of aubergines. Such actions are vital to the Palestinian people, and they have helped to improve the humanitarian and economic situation, which is critical. We welcome Prime Minister Olmert's pledge to ensure the continued supply of humanitarian aid to Gaza. As the right hon. Lady knows, we have earmarked funding for that project. It does not address the central issue that she has raised today, but there is an immediate humanitarian crisis in Gaza, which the international community must address. It is important that the international community works together to help all Palestinian people. President Abbas and Prime Minister Fayyad's Government have our full support, and we share their aim of restoring security and improving the economic and humanitarian situation. We continue to work with all people, including President Abbas, who are dedicated to a peaceful resolution of the conflict. The right hon. Lady did not mention this point, because time is always limited in such debates, but President Abbas, among others, has said that there ought to be an international peacekeeping force in Gaza certainly, if not on the west bank. I can see the right hon. Lady shaking her head, and one cannot imagine who would donate the troops to such a force. They would have to fight their way in, there would be bloodshed and mayhem on a huge scale, and quite frankly, I cannot see the idea coming off. To reinforce what the right hon. Lady said, we must understand the gravity of the humanitarian crisis in Gaza, address it and at the sametime, urge Israel as hard as we possibly can to think again about its policy of incorporating Palestinian villages and land within the confines of that wall. As she said, the Israelis have a perfect right to defend themselves, and if they want to build a wall, it is up to them, but it ought to be along the agreed frontier—such as it is—that was defined in 1967. It ought not to encroach on Palestinian territory. It is important that we receive such reports in the House. In so many ways, that is what such debates are for—so that we are reminded constantly of the reality of what can sometimes look like great, strategic trends and events on the world stage. However, for the family whom the right hon. Lady described so vividly, the reality is that their lives have been shattered. Many other families' lives have been, too. I have always considered myself to be a friend of the Palestinian people and the Israeli people. I was brought up in a home in which the dreams of everybody who was interested in the subject were about people living alongside each other peacefully, not even in separate states.I shall not apportion blame; I have been around too long for that. I have seen the successive invasions of Israel, and what the Israelis have done in an attempt to head off what they perceive as threats to the Israeli heartland, which has usually meant extending territory. My message to the Israelis is simple; if they are to live in peace side by side with their neighbours, the Israelis must help them become viable states with economies that can live in a competitive world. They need the education, skills, infrastructure and wherewithal to do all that, but most important, they need the self-respect and dignity that we enjoy as members of sovereign states.

Clare Short: May I press the Minister to reconsider his view on Israeli access to the EU market? If we invoked the human rights conditionality in that treaty, we would have a lever with which to press Israel to do what he calls for. Does not our failure to use that leverage mean that we are colluding in the breach of international law? Will he reconsider his position on that point?

Dr. Howells: I certainly do not believe that we are colluding in any shape or form. I was going to come to that point, but with respect to the right hon. Lady, "colluding" is certainly the wrong word to use. I know that she chose that word very carefully, but I do not think that it is the right one. I can speak only subjectively from my meeting with other European Ministers. She, too, met her counterparts from the EU and other nations many times. There is at one extreme a sense of hopelessness, which she also described today in a very grim analysis of the situation. I am at the other extreme. I keep telling myself that we have material to work with, and that it is a very small partof the world. What is Gaza? Ten miles wide, and at the most, 35 to 40 miles long. It has a wonderful beach on the Mediterranean, and I remember vividly the first time I ever walked on it, thinking, "Why is this a poor part of the world? Why haven't people here got any jobs?" It seemed mad to me. The right hon. Lady expressed the hope that my right hon. Friend the new Prime Minister would take the issue by the scruff of the neck and try to do something with it. She knows that he has been very interested for a very long time in trying to work with the Israelis and the Arab countries in the area to do something about that economy and that infrastructure. I disagree with her about the effect of that general sense of good will towards Israel and Palestine—the desire throughout Europe that there should be a good outcome, and peace and prosperity in the future. In the end, we disagree about whether applying a screw to the Israelis on the question of human rights compliance would achieve a great deal. We should at every possible opportunity engage the Israelis on human rights and on compliance with their undertakings, which, as a consequence, enable them to enjoy access to the European market. We should talk to them about that, but I have a feeling that there are already far too many strictures on all sides to add another one. It would just create more tension, and we should try to build on what we have, aim for the high ground and figure out how we can get there by engaging with both sides.