The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, taking advantage of this spirit of good will and excellent relations across the Dispatch Box, perhaps now would be an appropriate time to repeat a Statement that was made earlier on this afternoon by my right honourable friend the Prime Minister. The Statement is as follows.
“With permission, I would like to make a statement on last week’s European Council. The European Union faces important choices in the coming months, to meet tough economic challenges and to deal with the problems in the eurozone. There were no landmark decisions at this Council, but there was some limited progress on both issues.
As I said, we are in a global economic race. All European economies need to become more competitive. That means taking steps like expanding the private sector, reforming welfare and improving education. In terms of action at the EU level, that means, in our view, lifting the burdens on businesses, completing the single market and taking forward trade deals with the biggest economies and the fastest growing countries and regions in the world.
I have consistently promoted these solutions and at the Council we made some good progress. On deregulation, I joined with others to secure a new agreement that specifically refers to withdrawing legislative proposals from Brussels that stifle our businesses. Now, of course, we need to see specific actions, but it is worth noting that the conclusions refer to the,
‘intention to withdraw a number of pending proposals and to identify possible areas where the regulatory burden could be lightened’.
On completion of the single market, as I reported in June, there is now a proper plan with dates and actions for completing the market in energy, services and digital. Once again it is important that these are followed through to secure jobs and growth.
On trade, the Council agreed an ambitious agenda to create 2 million jobs across Europe. This includes completing free trade deals with Canada and Singapore in the coming months, and starting negotiations with the US next year on a comprehensive transatlantic trade and investment agreement. And we made some progress on the launch of negotiations with Japan ‘in the coming months’. This deal alone could increase EU GDP by €42 billion.
Turning to the eurozone, Britain is not in the eurozone and we are not going to be joining the eurozone, but it is in our national interest that the uncertainty surrounding the eurozone comes to an end. I have argued for some time that a working eurozone needs a working banking union. It is one of the features that a successful single currency needs. Obviously, you do not need a banking union because you have a single market; you need it because you have a single currency. So Britain should not, and will not, be part of that banking union.
Britain’s banks will be supervised by the Bank of England, not the ECB, and British taxpayers will not be guaranteeing or rescuing eurozone banks. But we do need eurozone members to get on and form a banking union. At this Council I joined those arguing for progress to be made on the plan announced in June. Put simply, it is not enough to have a banking union that is stripped of the very elements, such as mutualised deposit guarantees, a common fiscal backstop and a framework for rescuing banks, that are needed to break the dangerous link in the eurozone between sovereign debt problems and the stability of eurozone banks.
However, because not all countries outside the eurozone, like Britain, will want to join such a banking union, it is also essential that the unity and integrity of the single market is fully respected. The organisation that currently ensures a level playing field for banking within the single market is the European Banking Authority. We need to make sure that it will continue to function properly, ensuring fair and effective decision-making. This is specifically recognised in the conclusions. More broadly, as eurozone countries take steps to deepen their economic and monetary union, as they will, I also secured an explicit commitment in the conclusions that the final report and road map in December will include,
‘concrete proposals to ensure that the integrity of the single market is respected’.
Finally, the next Council in November will discuss the financial framework for Europe between 2014 and 2020. We have not put in place tough settlements in Britain in order to go to Brussels and sign up to big increases in European spending. I do not believe that German voters want that any more than British voters, and that is why our Governments have led the argument in Europe for fiscal restraint. I therefore put down a marker that we need a rigorous settlement. As the letter signed in December 2010 by a number of European leaders said, given the tough spending settlements that all member states have had to pursue in their own countries,
‘payment appropriations should increase, at most, by no more than inflation over the next financial perspectives’.
On foreign affairs, the Council, led by Britain, once again discussed further restrictive measures on the Syrian regime, and made it clear to Iran that we will increase the pressure if there is not progress on the nuclear issue.
Our agenda is, therefore, making our economies competitive, dealing with uncertainty in the eurozone, keeping the EU budget under proper control, and making sure the EU speaks with a strong and united voice on the key international challenges”.
I commend this Statement to the House.
Lord Strathclyde
My Lords, the noble Baroness the Leader of the Opposition started off well by associating herself with the conclusions on Syria and Iran. I am very grateful for that. However, I am afraid to say that it was downhill after that. Let me try to tackle some of the questions that she raised and give some answers and get some clarity on where we are on this. This is the first of a series of European Council meetings up until the end of the year that will increase in importance. This is an opportunity to set the scene, to clear the undergrowth and to sort out the most important issues that we need to resolve.
The noble Baroness asked why the Prime Minister did not go along with his plan for growth. When it came to the budget negotiations, he was the first to ask why, if we have to restrain spending in the United Kingdom, we should see profligacy in Europe. I would hope that the noble Baroness would agree with that and look at some aspects of where the United Kingdom is doing well in Europe. In the United Kingdom we see falling unemployment, rising employment, falling inflation, and low borrowing rates which preserve our triple-A rating. These are all things that the noble Baroness the Leader of the Opposition should support, and I hope that in future she will use them in her speeches.
The noble Baroness specifically asked about two aspects: energy and digital. She went on to say that these conclusions look remarkably like other conclusions that we have seen from the European Council. Remarkably, yes—I agree with her up to a point. However, she will know from her own experience in Europe that very often the same old problems come round again and again, and some of these are longstanding issues that have taken a long time to resolve. This year, we celebrate the 20th anniversary of the single market. How come it has taken so long to complete the single market when the noble Baroness’s Government were in charge for 13 years of those 20 years?
The Council did not discuss energy policy in detail but the conclusions refer to an agreement reached in March, which recalls the need to complete the internal market by 2014. It referred to new proposals for a connecting Europe facility. That is a continuation rather than the same point that was made in previous conclusions. Likewise, on digital, it is important to maintain the focus on areas that we have agreed. It would be a mistake to chase the new and neglect to hold others to account. Sometimes agreements are made but we need to make sure that they follow through, which is entirely sensible.
The noble Baroness asked an entirely sensible question—I am not saying that the rest of her questions were not sensible—about the banking union and our key demands in terms of voting rights and specific safeguards. The point was that we have not so far been clear as to what it is that we want. This is entirely deliberate. We have not been explicit yet over what we want to see in terms of a voting regime for X and Y. Several possible proposals are floating around, some of which are quite technical. We want to make sure, for instance, that the ECB does not get a de facto vote. Others are concerned that, should more countries join the euro, the UK does not end up with a veto. Overall, we want to see what I suspect in her heart the noble Baroness also wants to see—an acceptable solution that protects the single market through a change to the modalities of decision-making under the European Banking Authority regulation.
The noble Baroness had some fun with the quotation of the Finnish Minister. I think that he was in the boat and we were on dry land. Dry land might be quite a good place to be over the next couple of years. But she went on to say that we had been left isolated in the EU. We do not think so. We believe that we are an active participant in EU negotiations. We lead the EU on many issues—for instance, improving Europe’s competitiveness, the single market, trade and taking tough action in Syria—and eurozone members are often our closest allies, including the Finns. Member states with different interests do and need to work together in different ways. The EU is not and should not become a matter of everything or nothing.
That is the point of all this. From everything that has happened in the past two years, it is clear that there are stresses and strains within the European Union, which largely emanate from the financial crisis and the terrible problems that the eurozone countries have got themselves in. On banking, it is the responsibility of all of us to work together to try and solve that. In that respect, we are as good Europeans as anyone else.
Baroness Falkner of Margravine
My Lords, staying with the financial framework, perhaps I may congratulate the Prime Minister through my noble friend on aligning us to the German position. However, he will no doubt be aware that the German position is probably to have a compromise on the budget, which will be to cap EU spending at 1% of European GDP. That, of course, is backed by Austria, Finland, Sweden, Denmark, Netherlands and the Czech Republic. Therefore, will my noble friend reassure the House that when Mrs Merkel meets the Prime Minister in early November, he will not be wedded to the position of no increase whatever on the basis that we need further compromise at the December summit and that we may need to give a little bit here to meet the Germans in order that they might support us in December?
Lord Strathclyde
My Lords, I do not think that I can give my noble friend what she would really like, which is an agreement with Chancellor Merkel’s position. The Prime Minister has said that he is willing to do a deal on the budget in November, so long as it is the right deal for British taxpayers. Given the tough trading settlement that all EU member states have had to pursue at home, there simply is not the case for increases in European spending that are above the rate of inflation over the coming financial framework, which starts in 2014 and goes on until 2020.
Furthermore, Chancellor Merkel and three other leaders in 2010 joined the Prime Minister in writing a letter for a call for action to curb the progressive increase in EU spending and we remain committed to that objective. Last Monday, Chancellor Merkel and the Prime Minister discussed the budget and, I gather, reiterated their ambition to limit increases in the budget. Of course, they agreed that officials should work together on this before they meet early in November.
Lord Williamson of Horton
My Lords, I recognise that the so-called banking union involving monitoring and in some cases intervention in banks within the eurozone but not in the UK could be advantageous if it helped to stabilise the financial situation in the eurozone, although some related issues could give rise to problems. It was expected earlier that the European Council would decide to complete the banking union at this meeting but, of course, the conclusions obviously do not do so. Indeed, among the 3,164 words—that is my count—in the conclusions on economic policy, it states on completing EMU that “informal consultations will continue” and that the European Council looks forward to a road map,
“at its December 2012 meeting, so that it can move ahead on all essential building blocks”.
That is not exactly a rousing conclusion. Will the Leader of the House give us a reasonable estimate of the timetable now for the completion of the banking union?
Lord Strathclyde
My Lords, that is a very seductive question. But it is really not possible for me or the British Government to give a view as to when we think that those negotiations and discussions will be completed. Apart from being extremely good at counting the number of words, the noble Lord probably has also read many reports in the press over the past few days about the view of other countries on the banking union, and he will understand just how difficult and complicated that is. However, we will continue to play a lead role in the development of common rules for the single market and encourage our colleagues to come to an agreement as quickly as possible.
Lord Grenfell
My Lords, one of the less kindly remarks that Winston Churchill made about Stanley Baldwin was that he was a man who occasionally stumbled upon the truth and that he then got up, dusted himself off and hurried on as if nothing had happened. I think that that is a charge that one could probably level against this Prime Minister when it comes to Europe. Will the Leader of the House tell us whether he honestly has not understood the degree of irritation among our partners at the way in which the United Kingdom is behaving within the councils of the European Union?
The Prime Minister told us in one breath, for example, that he is prepared to do a deal with Chancellor Merkel over the budget but immediately went on to say that it would not be an increase, which is not a deal. That is not a deal in the minds of the rest of our European partners. Chancellor Merkel has offered a reasonable compromise. I notice that he says in his Statement:
“I don't believe that German voters want that”—
meaning an increase—
“any more than British voters”.
If you read about the rapturous reception that Chancellor Merkel got yesterday from, of all people, the Christian Social Union Partners in Bavaria when she went back to report on the results of what she had done at the summit, one would have the impression that probably she had a large section of the German population behind her.
Does the Leader of the House really believe that if the Prime Minister’s so-called deal, which is not a deal, produces no increase, he is prepared to veto the budget? Does the Prime Minister also understand Angela Merkel when she says that if he does that she will call off the budget summit anyway? I do not think that the Prime Minister has many of the attributes of Samson but surely he must understand that if he is going to pull the whole structure down around him because he insists on absolutely no increase, none of his European partners will have a good word to say for him.
Lord Strathclyde
My Lords, the noble Lord, with all his experience and knowledge, asks whether I understand how irritated other members of the EU are at the Prime Minister’s stance. I understand how irritated the British people would be to see budgets for austerity in this country and profligacy in the EU. That, of course, is what is uppermost in the Prime Minister’s mind.
The Prime Minister and Chancellor Merkel have agreed to meet early in November. There are, of course, huge budgetary pressures throughout Europe, including in this country. Let them meet. The Prime Minister said what he has said, echoing the words that Chancellor Merkel agreed and signed in 2010. Actually, I think that increasing the EU budget in real terms is a very fair deal for the people of Europe, particularly given that Britain is the second largest contributor to the EU budget.
Lord Stoddart of Swindon
Britain is not a member of the eurozone. We have decided to keep our own currency. There is no prospect of our joining the eurozone. So why on earth does our Prime Minister keep lecturing the eurozone as to how it should carry on, including whether it should have a banking union? Since we are not part of it, it is nothing to do with us, and we should keep out of it.
The second point I want to raise has already been raised—that is, the position in relation to Angela Merkel, the German Chancellor, who seems to be throwing her weight about increasingly these days. The Prime Minister does not have to satisfy Angela Merkel; he has to satisfy the people of this country, and the people of this country, we understand, will suffer austerity for the next 10 years, which means that they cannot afford to pay any more than the £10.3 billion that we already pay into EU coffers. I hope that the Prime Minister realises that he is not answerable to the EU for taxation and our contributions. He is responsible to the British people, who show increasingly that they are not very happy about remaining in the European Union, and who will be even unhappier if they are asked to pay even more towards it.
Lord Strathclyde
My Lords, that is the point that I was trying to make to the noble Lord, Lord Grenfell. I have every sympathy with the view given by the noble Lord, Lord Stoddart. It is entirely correct that, although we believe that the economy is heading for a state of recovery and long-term growth, many budgets are being cut in Britain, and we are not in the business of seeing them being increased in Europe, where British taxpayers will have to foot the bill. But that is a discussion that will take place, first between the Prime Minister and Mrs Merkel and then, later on, in the Council of Ministers.
As for the noble Lord’s question as to why we are interested in the banking union, self-evidently financial services and financial matters are incredibly important to the United Kingdom—it is one of our key interests—and to the City of London. It is entirely right that we should take note of what is happening in the zone where nearly 40% of our exports go. One of the many reasons why this economy has suffered in recent years is because of the uncertainty in the eurozone, which we believe needed to be resolved—and one way in which to do that is through the banking union.
Lord Soley
I notice with interest the deft footwork on the part of the Leader of the House on answering a question about the budget and the meeting. It should get him a place in the finals of “Strictly Come Dancing”. But in all seriousness, the story on the front page of the Financial Times says very clearly—and it is a very reliable newspaper on this—that Chancellor Merkel is considering cancelling the summit if the British threaten to use their veto and want no increased expenditure at all. Can he tell us—and I am sure the Financial Times, too, and the people of this country—whether that story is correct or incorrect?
Lord Strathclyde
My Lords, I am not quite sure what I am supposed to confirm or deny. I can confirm that there was a story on the front of the Financial Times, but I cannot confirm that it was right that Mrs Merkel has issued a threat. She may have done—I have absolutely no idea. But it must be in everybody’s interest to seek an agreement on the EU budget, and the Prime Minister is quite rightly standing up for British interests and has explained what his position is—and I think that it is a very sensible position.
Lord Hannay of Chiswick
Will the Leader of the House accept a warm welcome for the recognition in the Statement that he has just repeated that it is better to be there at the negotiating table in the European Union than to wield vetoes that are not really vetoes and absent yourself from the subsequent negotiations? It is a distinct improvement on what happened in December last year that the Prime Minister is working at the table and will continue to do so to make sure that the interests that he is quite rightly seeking to protect of the single market, and the way in which the banking union will interact with the single market, are defended by being at the table.
Secondly, on the budget in the Statement and in what he has subsequently said, the Leader has reiterated again and again that the British position, which incidentally is supported by your Lordships’ European Union Committee, is that there should be no increase in real terms. But those words never manage to get past the lips of the Downing Street spokesmen; they just talk about no increase. The Leader knows quite enough about these matters to know that between 2013 and 2020 no increase in real terms will mean considerably higher figures in nominal terms—that is, by the amount of inflation. It is really not sensible to give the impression that we are trying to keep the budget steady at nominal terms, when that is not what we are trying to do. All that does is to distance ourselves from the other members of the European Union that take very similar views to our own.
My own view is that we are heading towards a very satisfactory outcome to the budget negotiations if we play our cards right. There is a solid body of support for a very low outcome, way below what the Commission proposed, and I just hope that we are not going to snatch defeat from the jaws of victory.
Lord Strathclyde
I have two points on that question from the noble Lord. First, we have every intention of continuing to work at the table and to be part of the negotiation. There are some very important and crucial issues that need to be resolved over the next few weeks, and I will be back at this Dispatch Box discussing and debating them, as I have done over the past two and a half years. But it is important to get some sense of the economic reality, which is very different to when the last EU budget was negotiated. For example, the level of public debt across the 27 EU member states in 2012 will be 50% more than it was in 2007. Across the EU on average, countries are expected to see expenditure as a percentage of GDP fall by about 8% between 2010 and 2014, and more than 16% of Commission officials earn more than €100,000. At a time when we are trying to boost growth, it is hard to justify a budget in which 45% is spent on the common agricultural policy.
Let me deal head-on with noble Lord’s concern that when we talk about a nil increase we mean a nil nominal increase. We do not. We mean that we do not see the case for increases in spending that are above the rate of inflation.
Lord Brooke of Sutton Mandeville
My Lords, in the Statement the Prime Minister specifically quoted, and thus emphasised, a passage in paragraph (g) of the European Council conclusions on the right regulatory framework for growth. The conclusions go on to state:
“The European Council looks forward to the Commission communication expected in December, which will take stock of progress and signal further action to be taken by the end of the current parliamentary cycle at the latest, including the follow up on the top 10 most burdensome pieces of legislation for SMEs”.
Will my noble friend remind your Lordships’ House of whether this is an actual or approximate date that constitutes the end of that parliamentary cycle so that our anticipation can be further whetted?
Lord Strathclyde
My Lords, I think that the parliamentary cycle comes to an end in 2014. However, we would like to see real progress on deregulation and dealing with regulation, particularly as it affects businesses and small businesses, as soon as possible. What was apparent at the end of last week was that that was a view shared not just by other member states but by the Commission itself. There are important prizes to be won here. If we can make the economies of Europe more efficient and effective, that will lead to growth, which is something that we all want to see.
Lord Skidelsky
My Lords, I agree with the Leader of the House that the British people will not support profligacy abroad while having to suffer austerity at home. Is not one way of trying to bridge that gap to have a bit more of what he would call profligacy at home, in which case at least the economy might start growing again, which it has notably failed to do over the past two years of coalition government?
Lord Strathclyde
My Lords, as I said earlier to the Leader of the Opposition, it has been a difficult two and a half years in Britain. What have we seen? We have seen nearly a million private sector jobs being created in the past two and a half years. For the first time since 1976 we have seen net exports of motor cars made in the United Kingdom. We have seen the AAA rating and record low levels of borrowing. Employment is the highest that it has ever been and unemployment is falling. I hope that the noble Lord, Lord Skidelsky, agrees that these are very good signs for our long-term growth prospects.
Lord Lea of Crondall
Will the noble Lord confirm that he is about to ring the editor of the Financial Times to say that the Government’s policy is that when they talk about no increase it is in real terms, and that Chancellor Merkel takes some heart from that clarification?
Lord Strathclyde
My Lords, I wrote down what I said and am very happy to repeat it. I said that we do not see the case for increases in spending that are above the rate of inflation.
Lord Willoughby de Broke
My Lords, one of the Council conclusions on which I hope the noble Lord can enlighten the House is headed, “Developing a tax policy for growth”. Is this a tax policy for having higher taxes or lower taxes? Secondly, the same paragraph of the conclusions refers to,
“enhanced cooperation to be launched on a Financial Transactions Tax”.
Was that supported by the British Government?
Lord Strathclyde
My Lords, on the first point, we are not in favour of any new taxes emanating from the EU. Secondly, we have not supported a financial transactions tax. We know that certain elements within EU countries have got together and decided to impose a financial transactions tax. I believe that in the long term that will prove to be against their interests.