EU: Economic Governance

Lord Sassoon Excerpts

Wednesday 27th October 2010 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my honourable friend the Financial Secretary to the Treasury to an Urgent Question asked in another place earlier today. The Statement is as follows:

“Mr Speaker, I am very grateful for the opportunity to update the House on the conclusion of the Task Force on Strengthening Economic Governance of the European Union and to report on the UK’s position on the task force and, in particular, to restate that the UK is exempt from the current and future sanctions regime.

Heads of State and Government commissioned the President of the European Council, Herman Van Rompuy, to produce a report on EU economic governance and report back to the October European Council. Van Rompuy chaired a task force meeting consisting of EU finance ministers. The Chancellor represented the UK on the task force. The report has been agreed by the task force. The European Council is expected to endorse the report tomorrow.

Copies of the report, along with the Chancellor’s submission to the task force, have been placed in the Library of the House this morning. It concludes that the EU should take steps to reinforce fiscal discipline and that the euro area in particular must face tougher surveillance of its fiscal policies, with sanctions for non-compliance with the pact where appropriate.

The report also recommends measures to improve EU level co-ordination of macroeconomic policies. This will ensure that any harmful macroeconomic imbalances between member states can be identified and corrective action taken. Finally, the report also notes that there should be a permanent crisis resolution mechanism for the euro area. The UK supports the conclusions of this report. A strong and stable euro area is firmly in the UK’s own economic interests, given the high level of UK exports to these countries and our close economic ties.

In the years before the crisis, fiscal discipline was absent—and not just in the eurozone. High levels of debt have exacerbated the problems some member states faced during the economic downturn. The task force recommends that there should be a greater focus on member states’ public debt levels in future and the Government agree with this approach. I am pleased to note that the report explicitly states that sanctions cannot be applied to the UK under the stability and growth pact. Domestic fiscal frameworks play a crucial role in ensuring that member states act responsibly.

EU surveillance is useful but, as the House knows, national Parliaments and national institutions must hold Governments to account for their economic and budgetary policies. Let us be absolutely clear: yes, we want to see a strong and stable eurozone. That is in our interests just as much as in the interests of our neighbours. The UK has led the way on economic governance. Multi-year budgets and independent statistics and forecasting have already been introduced. We have a clear fiscal mandate to eliminate our structural deficit. We are leading the eurozone, and our high standards have already received international endorsement.

We will look at any proposals to help the eurozone overcome its problems, but, as the Prime Minister has just said, we will not agree to any changes to the EU treaties that move more powers from this country to the EU. The UK’s exemption from the sanctions proposals will be explicit; there will be no shift of sovereignty from Westminster to Brussels. The report makes this clear. It agrees that,

‘strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty’.

While we are looking at problems in the EU, we have serious concerns about the proposed size of the 2011 EU budget. I was shocked to see, on the day of the spending review, the vast majority of Labour MEPs voting against a freeze in the EU budget. When countries across Europe are taking tough decisions to put their public finances in order it would be wrong—unjust, even—to have a 6 per cent rise in next year’s EU budget, as has been suggested. We cannot accept that; we will fight this hard. We are protecting Britain’s interests in the EU, doing what is right for our country and our people, and the Prime Minister will be updating the House next week”.

My Lords, that concludes the Statement.

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[Lord Sassoon]

My Lords, I am grateful for the agreement of the noble Lord, Lord Eatwell, that the UK has a very strong interest in seeing a strong and secure eurozone. I will certainly draw to the attention of my honourable friend the Financial Secretary his interpretation of what happened in the European Parliament last week.

I think that the question that the noble Lord asked about our input to the strengthening of the co-ordination of macroeconomic affairs in Europe is best illustrated by the considerable input that my right honourable friend the Chancellor of the Exchequer gave to the task force’s deliberation. Among the input that the Chancellor of the Exchequer gave, he called for greater transparency and independence of the national institutions that are involved in the national budget-making process. He made it clear that national budgets should first go through national parliamentary processes before they go to Europe, so that, in the case of the UK, the UK Budget remains first a matter for Parliament before it is reported to Europe. Thirdly, he called for stronger macroeconomic surveillance in Europe. He called for a reinforcement of the stability and growth pact. He called for debt aspects of the stability and growth pact to be given more emphasis and he made some comments on governance arrangements. The UK contribution to the ongoing discussion of these important matters has been very considerable and we are completely content with the output that has come from the task force proposal.

There is absolutely nothing in the task force report that would require treaty changes. There are other matters that are being informally canvassed by certain member states and others, including the idea of a permanent crisis resolution mechanism or suspension of voting rights. There are all sorts of ideas that would require treaty changes but these have not yet been put on the table. If they are put on the table, we will deal with them at that time.

[Lord Ryder of Wensum]

My Lords, what precisely are the sanctions for non-compliance referred to by my noble friend?

[Lord Sassoon]

My Lords, the critical point is that the sanctions that apply apply only to the eurozone members. They do not apply to the UK, which has a specific carve-out and will continue to have a carve-out, as now reconfirmed. There are no sanctions that apply to the UK.

[Lord Harrison]

My Lords, I inform the Minister that Sub-Committee A of your Lordships’ European Union Select Committee, which I have the pleasure of chairing, is currently undertaking an examination of proposed EU economic governance in the light of the Van Rompuy report and the earlier Commission statement. We hope to report in the first quarter of next year. Will the Minister elaborate on the United Kingdom’s position on treaty change? I listened carefully to what he said, which was that he would not entertain any such change where the Government believed that the United Kingdom’s independence was compromised in any way. If a treaty change were proposed that would strengthen the eurozone—a common ideal across the House—would the Government entertain it?

[Lord Sassoon]

My Lords, if anybody proposes a treaty change that has not yet been proposed, it will be considered on its merits. To be completely clear, any proposed treaty change that has any suggestion of transferring powers from the UK to Europe will be subject to a referendum. If something is proposed, we will look at it on its merits and respond accordingly.

[Lord Newby]

My Lords, does the Minister find it strange that the UK is in the unique position of being able to impose fines on everybody else within the EU in co-operation with other EU member states and yet, however fiscally ill disciplined a future UK Government might be, the EU cannot impose sanctions against us? Are there any effective pressures under this set of proposals that, in future, the EU will be able to bring to bear against a British Government who were behaving profligately?

[Lord Sassoon]

My Lords, I welcome the question from my noble friend. It enables me to restate that it is perfectly right and proper that the UK should be subject, as it is, to the financial disciplines of the stability system in the EU. This means that we are required to exercise fiscal discipline. Indeed, the July council expressed itself satisfied. It said that the new UK Government’s proposals for deficit reduction were adequate to meet our responsibilities. It is quite right that we should go that far but, equally, we are not members of the eurozone. The system of sanctions that applies in the eurozone escalates to fines, as my noble friend said. The sanctions can start by requiring interest-bearing deposits, then non-interest-bearing deposits and finally fines. It is completely appropriate that those should apply to the eurozone and not to the UK.

[Lord Tomlinson]

My Lords, the noble Lord said clearly on two occasions that treaty changes are not on the table and that we will consider them with an open mind if they are. However, will he accept that treaty changes, if they are proposed, will reopen the whole of the Lisbon treaty box and require parliamentary ratification? Will he also be a little more robust in telling us that he can see no circumstances at present in which Her Majesty’s Government will consider treaty changes?

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[Lord Sassoon]

My Lords, it is likely that proposed treaty changes will be discussed at the meeting of heads of state at the European Council tomorrow. My right honourable friend the Prime Minister will be there. If treaty changes come forward, the coalition agreement is clear. We will look at any other proposals if they do not transfer powers from London to Brussels. That is the position.

[Lord Williamson of Horton]

Since the Statement refers not only to governance but, briefly, to the budget, and since media and other comment on the budget also refers frequently to the risk to the United Kingdom rebate, will the Minister confirm that there is no possibility of a change to the UK rebate, except with the agreement of the United Kingdom Government, because it is subject to unanimity?

[Lord Sassoon]

Indeed, my Lords, that is the position. It is worth reminding ourselves that since my noble friend Lady Thatcher won that rebate at Fontainebleau it has saved Britain £88 billion. That is what tough negotiations in Europe achieved. The previous Government agreed to significant changes to those arrangements, which mean that the abatement has come down very significantly. However, my right honourable friend the Chancellor said after the ECOFIN meeting on 8 September that we will make it clear from the start that:

“We are not going to give way on the rebate. No doubt others will want to put it into the mix but they’ll be wasting their time. People better know that at the beginning of the process or they are certainly going to discover it at the end”.

Noble Lords can see that my right honourable friend the Chancellor will be in the robust tradition set for us by my noble friend Lady Thatcher on these matters.

[Lord Marlesford]

My Lords—

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[Lord Richard]

My Lords, did I hear the Minister saying that the Government would consider changes to the treaty that did not involve a transfer of sovereignty from this country to the EU? Did he say that? If he did, what are the implications of that for the Prime Minister’s commitment that there would be a referendum on the Lisbon treaty if there were any changes to it? There is a distinction between any changes to the treaty and changes that transfer sovereignty from Britain to the EU. Which is it?

[Lord Sassoon]

My Lords, there will be a referendum on all proposed treaty changes that would transfer competence to Brussels. In terms of whether we look at treaty changes, if any treaty changes come forward and are proposed at the council tomorrow or at any other time, the UK Government will of course look at them and consider whether they propose to move competences. Depending on which category they fall into, we will act accordingly.

[Lord Marlesford]

Does Britain have the power to veto any increase in the EU budget?

[Lord Sassoon]

My Lords, as I understand it, the financial framework and perspective have to be agreed unanimously. Discussions are starting on the framework that will cover the years 2014 to 2021.

[Lord Liddle]

Will the Minister confirm that tomorrow at the European Council the leaders of France and Germany are going to propose treaty changes on the debt crisis resolution mechanism? Is it not slightly odd that the British Government are going to that meeting without having a view on those proposals?

[Lord Sassoon]

My Lords, I sometimes struggle to speak for all the policy matters covered by Her Majesty’s Treasury, which are wide enough. I absolutely cannot speak for what the leaders of France and Germany are going to say when they come to the council tomorrow. I am sure that the Government will be prepared to answer any proposals that come forward. We will hear more about this after the meeting on Monday.

[Lord Stoddart of Swindon]

My Lords, would not any proposals coming from France, Germany or anywhere else for a treaty change require to be passed by unanimity? If so, can we have an assurance that the Government will not agree to any such change? If they do—to take up the point made by the noble Lord, Lord Richard—can we have an absolute assurance that there will be a referendum?

[Lord Sassoon]

My Lords, I do not think that I can add anything to my earlier answers on this matter. I have tried to make the position as clear as possible. We will treat any proposed treaty changes on their merits and depending on whether they suggest any changes in competences between the UK and Brussels.

[Lord Stoddart of Swindon]

Does that require unanimity?

[Lord Sassoon]

Yes.

[Lord Grenfell]

Does the increase proposed in the European Union budget violate the current financial framework or is it within the limits that were set?

[Lord Sassoon]

At the moment, the proposals floating around sit within the various statutory limits for Europe. However, just because those statutory limits are set at some theoretical level, that does not mean that it is at all appropriate in the view of the Government for people to go around suggesting 6 per cent increases in the budget next year or anything remotely like it. At a time when the UK and many other members of the EU are tightening their belts appropriately, the EU budget should do the same.

[Lord Hannay of Chiswick]

Does the Minister agree that there are perfectly respectable arguments against treaty change at this stage that do not need to delve into the intricacies of Britain’s relationship with the European Union? Given that what is being sought is greater stability in the eurozone, which is in our interest, respectable arguments against treaty change—such as that the ratification by countries quite different from ourselves might be problematic and might lead to a loss of confidence in the euro as a result—ought to be deployable by any member state.

[Lord Sassoon]

My Lords, the task force has come forward with some significant proposals for strengthening the framework within the eurozone. I echo the noble Lord’s sentiments in respect of the task force proposals, but those proposals, which would be a significant step forward, do not themselves require any treaty changes. There may be other suggestions, such as the idea of a permanent crisis resolution framework, which may require treaty change. The UK Government absolutely support the euro area’s desire to take positive action to overcome its problems through the creation of an appropriate framework. If that has treaty consequences, we will look at it in that spirit.

[Lord Tomlinson]

My Lords, the Minister did a bit of a soft-shoe shuffle in replying to the question asked by the noble Lord, Lord Marlesford. He talked about the next financial perspective, whereas I am sure that the noble Lord was arguing about next year’s budget. In the interests of clarity, will the Minister tell us how Her Majesty’s Government voted in council in relation to the budget for the year 2011? Did they show financial discipline or did they vote in favour of it?

[Lord Sassoon]

My Lords, forgive me, but I cannot recite how we voted on each matter at each council meeting. However, I will write to the noble Lord in answer to that question.