Debt Relief (Developing Countries) Act 2010 (Permanent Effect) Order 2011

Lord Sassoon Excerpts

Tuesday 17th May 2011 Grand Committee

Moved By

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Debt Relief (Developing Countries) Act 2010 (Permanent Effect) Order 2011.

Relevant documents: 20th Report from the Joint Committee on Statutory Instruments.

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

My Lords, the draft order before us today makes permanent the effect of the Debt Relief (Developing Countries) Act 2010. Perhaps it will assist the Grand Committee if I briefly explain the background to this order.

The Debt Relief (Developing Countries) Act 2010 prevents creditors of heavily indebted poor countries—the so-called HIPCs—recovering in UK courts an amount of debt in excess of that consistent with the HIPC initiative. The 2010 Act contains a sunset clause, which means that it will expire on 7 June 2011 unless an order is made to extend it. The Government support the order for two reasons. First, making the 2010 Act permanent will help achieve our aims for international development. Secondly, evidence suggests that the 2010 Act has had some benefit on HIPCs and no evidence has been found of unintended adverse effects.

The Government are committed to debt relief for the poorest countries. The coalition programme for government states that the coalition will accelerate the process of relieving HIPCs of their debt and review what action can be taken against vulture funds.

The HIPC initiative aims to ensure that no poor country faces a debt burden it cannot manage. Multilateral, bilateral and commercial creditors are all expected to provide the debt relief required to restore external debt sustainability to HIPCs. The majority of creditors provide debt relief consistent with the HIPC initiative. The 2010 Act tackles the problem of the small minority of commercial creditors that free-ride on the relief, litigating and recovering the full value of their debts plus accumulated interest and any associated charges owed to them. This behaviour is inequitable and economically inefficient. The resources implicitly siphoned off by such creditors include the debt cancellation and development assistance funded by UK taxpayers.

The sunset clause was added to the Act because there was a degree of uncertainty about the impact of the legislation. This inclusion was important given the lack of parliamentary time to scrutinise the Bill when it was passed last year and the lack of available evidence at that time about its likely impacts. I should pay tribute at this point to the noble Baroness, Lady Quin, for her sponsorship of the Bill last year. I am delighted to be opposed by her for the first time this afternoon—although I hope that her opposition will not run to opposing the draft order before us. I am grateful to her for indicating that it will not.

It is important that we have had, and have taken, the opportunity to assess the impact of the Act. The Government have consulted a wide range of organisations, including many of those that contributed to the 2009 public consultation—representatives of the international financial institutions, HIPC country Governments, the financial services sector, lawyers and civil society. There is no information to suggest that the Act has adversely affected the availability and cost of lending to HIPCs or other low-income countries. The tightly defined and limited scope of the legislation seems to have prevented this. Additionally, no evidence has been presented to the Government to suggest that the legislation has had an adverse impact on the UK as a centre for financial services or that it has resulted in changes in the choice of law and jurisdiction for financial contracts. However, evidence suggests that the 2010 Act has benefited HIPCs. This is illustrated by the recent case of Liberia.

In June 2010, Liberia received substantial debt relief under the HIPC initiative, including 100 per cent cancellation from the UK. Most of its commercial creditors also provided debt relief, assisted by a buy-back operation of commercial debt under the World Bank’s debt reduction facility in April 2009. In November 2009, the High Court gave judgment for $20 million against Liberia in a claim brought by two commercial creditors that had not participated in the debt buy-back operation. This allowed them to seek to enforce full repayment in the UK of an amount that was then equivalent to about 5 per cent of Liberia’s national budget. However, one year later, by which time the 2010 Act was in place, the two remaining commercial creditors agreed to a second World Bank debt buy-back operation. Consequently, Liberia will have to pay back only 3 per cent of the amount owed—an amount consistent with the HIPC initiative. It seems clear that the 2010 Act was one factor that prompted this settlement.

The order that we are debating makes permanent the effect of the Debt Relief (Developing Countries) Act 2010. Making the legislation permanent will help to achieve the Government’s aims for international development. As I explained, the 2010 Act has already been shown to have had a positive impact on HIPCs, preventing the diversion of resources provided through debt relief, which are intended to support development and poverty reduction; and no evidence has been found that it has had unintended adverse effects on low-income countries or on the UK. I therefore commend it to the Committee.

[Lord Roberts of Llandudno]

My Lords, it is a pleasure for me on behalf of the Liberal Democrats to welcome the order and to thank those whose foresight brought it about. The Debt Relief (Developing Countries) Act 2010 had a sunset clause, as we have heard, which is now removed. The Act will become permanent, as it should.

In the original discussion on the 2010 Act, it was noted that it was a victory over the “vultures”—the private companies that bought bad debts and then demanded interest that ensnared poor countries in even greater poverty. They lost the battle; I am delighted about that. I will give one example. Donegal International bought $15 million-worth of Zambia’s debt for $3.3 million. It then demanded $55 million in the United Kingdom courts. It was eventually awarded $15.5 million. Even that was a profit of $12 million. However, this now will end. I pay tribute to the Jubilee Debt Campaign and to the churches, which all gave tremendous support for this debt relief step. The end of the sunset clause is in many ways the beginning of removing the threat from heavily indebted poor countries. Now possibly they will be able to breathe a little more freely and more hopefully. Once again I say that we are delighted to support the order.

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[Lord Sassoon]

My Lords, I welcome the constructive, focused and brief discussion that we have had this afternoon. Let me address the points that have been raised. First, I thank my noble friend Lord Roberts of Llandudno, particularly because he did not ask me any questions, which makes my life easy.

I again pay tribute to the noble Baroness, Lady Quin, for having brought the legislation forward. She referred again to the questions that my noble friend Lady Noakes asked last year. It was right that my noble friend raised those questions; they were absolutely the right questions to ask about the Bill. The consultation process has addressed and targeted getting answers to those questions and has come up with absolutely the right answer. The cost of the consultation is all taken up in the time of Treasury officials within the existing team that deals with those matters, so there is no material incremental cost as a result of the consultation. As the noble Baroness recognises, if we had not had the consultation process now, it would probably have needed to be substituted by additional time to bottom out those questions a year or more ago, so there has been no material additional cost; it has been absorbed within the Treasury's normal expenditure.

On the noble Baroness’s other question about the Government's commitment to the 0.7 per cent aid target, a few minutes ago in the Chamber, I heard my noble friend Lady Browning being asked that precise question and giving a vigorous and unequivocal answer that the Government remain absolutely committed to the target, and I can only repeat what she said.

In closing, I believe that it is important that the order is approved today, and I am grateful for the Committee’s support. The order makes permanent the effect of the Debt Relief (Developing Countries) Act 2010. It will ensure that creditors of HIPCs cannot recover an amount of debt in excess of that consistent with the HIPC initiative. That will prevent the diversion of resources provided through debt relief which, as I said in my opening speech, are intended to support development and poverty reduction. We must retain our focus on those critical matters. I therefore commend the Motion to the Committee.

Motion agreed.

EU: Budget

Lord Sassoon Excerpts

Monday 16th May 2011 Lords Chamber

[Lord Vinson]

To ask Her Majesty’s Government, in the light of their programme of public sector savings, whether they will approve proposals to increase over the next three years the United Kingdom’s current net contribution of £8 billion to the European Union budget.

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

My Lords, the UK cannot act unilaterally and is required to make its contributions to the EU budget under obligations imposed by the treaties. However, the Government are very concerned about the UK’s growing net contributions and are working hard to reduce them within the constraints of the 2007-13 financial perspective agreed in December 2005. According to the latest forecast, the UK’s net contributions will rise from £4.7 billion in 2009-10 to £8.9 billion in 2014-15.

[Lord Vinson]

I thank my noble friend for his carefully considered reply which is, I appreciate, configured by the limitations to his powers. However, does it really make sense to continue to pour billions of pounds into the economies of other EU countries, to bring fantastic infrastructure improvements to Greece, Spain, Portugal and Ireland, while here at home our infrastructure is in decay? Could we at least contemplate at some stage diverting those funds into our economy, which at this stage would be a classical contracyclical investment, not only bringing great strength to our economy and improving our infrastructure but creating, allowing for the multiplier effect, at least 250,000 new jobs just when they are needed? Surely we should put the interests of our unemployed first.

[Lord Sassoon]

My Lords, I completely agree with the need to invest in infrastructure in this country, which is why we launched the first ever national infrastructure plan last autumn, at the beginning of our suite of pro-growth policies. Approximately £40 billion to £50 billion will be invested in the UK's infrastructure each year over the next five years. As to the European budget, it is quite right that we should make our contribution; but it is completely wrong that the previous Government gave away a significant part of the UK's rebate. The European Commission's figures show that in this year alone, the amount of rebate given away by the previous Government in 2005 will cost us £1.98 billion. As the result of the action that my right honourable friends the Prime Minister and the Chancellor took in reducing by half the increase this year, we clawed back £350 million at the December decision. That is the scale of the challenge we face.

[Lord Lea of Crondall]

My Lords, would the Minister care to remind us of the size of the EU budget as a percentage of the gross product of the whole of the EU? Will he confirm that the percentage is roughly the same as it has been for some years?

[Lord Sassoon]

My Lords, there are various ways of peeling that onion, but there is indeed a maximum limit of 1.3 per cent, or thereabouts, of European GNI, and a sub-limit in the current financial perspective of about 1 per cent of European GNI. However, those numbers leave considerable latitude for headroom, and the regrettable fact is that that permits the annual budget to go up, if we do not restrain it, by more than inflation year-on-year. Regrettably, there is not enough constraint on total expenditure and it can rise if we are not vigilantly on the case, as this Government are.

[Lord Newby]

My Lords—

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[Lord Sassoon]

I am very grateful to my noble friend. Of course, we discussed some of the structural reform issues in a debate in the Chamber last Thursday. I can reiterate and confirm that the Government are working very hard indeed to be an active supporter of the whole 2020 structural reform programme. Completing the single market is perhaps the most critical component of that, and the Government are pushing very hard for that to happen.

[Lord Stoddart of Swindon]

My Lords, in the light of the huge increases in our net contribution, which will continue, is it not time that we had a cost-benefit analysis of our membership of the EU; or, perhaps better still, a referendum on whether we should remain in it?

[Lord Sassoon]

My Lords, the analysis is carried out periodically by the Treasury. Reviews of the independent analysis of the benefits of our membership are available on the Treasury website. Europe accounts for 40 to 50 per cent of our exports. It is critical that we play a constructive part in Europe and that we work on factors such as those referred to by my noble friend Lord Newby to make sure that the market works better and that the UK takes full advantage of it.

[Lord Liddle]

My Lords, this is inevitably an extremely difficult issue at a time of stringency, but does the Minister agree that the rise in our contribution agreed in the 2005 budget deal was intended principally to meet this country’s commitment to enlargement and the increase in the structural funds that went with it? Does he also agree that, if we had not made that agreement, Poland and other new member states with living standards of a third or 40 per cent of ours would have ended up contributing to the British rebate? As for the unfairness in our contributions, does he accept that at the end of this financial period the UK net contribution will be on a par with that of France and Italy—member states of similar size and wealth?

[Lord Sassoon]

My Lords, I do not begin to accept any of that analysis. In 2005, the Prime Minister, evidently without consulting his Chancellor, gave away in the rebate a total of €10.5 billion over the current financial perspective period. What the UK got in return is a complete mystery to me. We were promised some leverage in fundamental reform of the common agricultural policy and we got nothing. This Government will not see a repeat of that.

European Financial Stability Mechanism

Lord Sassoon Excerpts

Thursday 12th May 2011 Lords Chamber

[Lord Willoughby de Broke]

To ask Her Majesty’s Government whether, in the light of the constitutional convention that no Parliament may bind its successor, they will review the commitment made by the previous Government to participate in the European financial stability mechanism.

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

My Lords, the constitutional question is a red herring in this case. The Government are focused on looking ahead. At the December European Council, the UK secured an agreement for the European stability mechanism to be replaced, by 2013 at the latest, with a permanent mechanism for assisting eurozone countries. The UK will not be participating in the permanent mechanism.

[Lord Willoughby de Broke]

My Lords, I am grateful to the Minister for that reply, and I am sorry that he thought that part of my Question was a red herring. I will try a fish of a slightly different colour. I remind him that at the Davos economic forum President Sarkozy of France said:

“To those who would bet against the euro, watch out for your money … Mrs Merkel and I will never—do you hear me, never—let the euro fall”.

Given that unambiguous recognition that the eurozone ought to be able to sort out its own problems, will the Government now stop pouring good money after bad and give notice that they will withdraw from the European financial stability mechanism?

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[Lord Sassoon]

My Lords, we inherited the UK’s participation in the European financial stability mechanism from the previous Government. The decision was made between the date of the general election and the change of Government. We inherited that position. We have taken rapid action, and reached agreement at the European Council in December 2010 that the current mechanism will be replaced by a permanent mechanism by 2013 at the very latest, and that the UK will not participate in it. It is great to hear that the eurozone leaders, who the noble Lord quoted, are completely committed—as we understand they are—to supporting the eurozone. That is for them, and the UK will not be part of that future mechanism.

[Lord Harrison]

My Lords—

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[Lord Lamont of Lerwick]

My Lords, does my noble friend agree that there is widespread surprise that the original financial stability mechanism was allowed to be established under Article 122 of the European Union treaty, which deals with natural disasters such as earthquakes and floods, not sovereign defaults, and that that was done despite Article 125, which specifically prohibits sovereign debt bailouts? Although my noble friend is absolutely right that the new stability mechanism is to come into place, that requires unanimity. If that is not achieved, is it not possible that Britain may be dragged into bailing out not just Ireland, for which there was an argument, but Portugal and Greece? If those provisions of the treaty are going to go on being ignored, surely the only result will be more scepticism and cynicism about the way in which the EU operates.

[Lord Sassoon]

My Lords, my noble friend embedded a number of questions in what was apparently one question. As to the use of the different articles, another key part of the agreement at the European Council in December 2010 was that Article 122 would unequivocally not be used in future for these purposes. Without going into the debate about whether Article 122 should ever have been used for this sort of operation, it will not be used in future—that is agreed. As to Article 125, that is used for loans for medium-term financing under things such as the balance of payments facility and quite other purposes, and that will continue. As to the UK’s participation, the new mechanism has been agreed by the Council. Its resolution is completely clear. A treaty amendment will bring in the new mechanism. That position could not be clearer. As to Portugal, my right honourable friend the Chancellor has made it completely clear that as the negotiations go forward to completion, the UK will not participate in any bilateral loan to Portugal. Ireland was a special case, and the same considerations do not apply in the case of Portugal.

[Lord Davies of Oldham]

The House will have noted that the Minister brushed aside the constitutional preamble to the Question. I have some sympathy with him on that, but will he confirm that what took place after the general election had produced an inconclusive result and during the interim period was an entirely proper action by the Chancellor of the Exchequer at the time, Alistair Darling, who sought consensus from the Conservative Party before he went to ECOFIN and subsequently had that consensus confirmed by the Government when the Economic Secretary to the Treasury, Justine Greening, confirmed it on 21 July? Will the noble Lord take the opportunity to clear that up?

[Lord Sassoon]

I am very happy to clear up the matter; I thought we had done that a week or two ago. Let me be absolutely clear. The previous Chancellor, Mr Darling, took the decision—it was still for him and the previous Government to take that decision. He consulted the Opposition. My right honourable friend the current Chancellor made it clear that he did not agree with the decision. The previous Chancellor consulted him on the course of action that was proposed and, in the words of my right honourable friend, it was for the previous Chancellor to reach that decision. The previous Chancellor reached the wrong decision. That was his decision; he made it.

[Lord Harrison]

Once again, the Minister is providing inaccurate information. The EFSM, to which we contribute through membership of the IMF, and the ESM, which we will contribute to until 2013, will be conflated into the new European stability mechanism, which we will still be funding through our membership of the IMF. Will he make that very clear?

[Lord Sassoon]

The position as set out in the decision of the European Council is completely clear; it is that the new permanent mechanism will replace the current one. The current mechanism will cease to operate and the new permanent mechanism will deal with any matters that might arise after it comes into operation.

Government: Convergence Programme

Lord Sassoon Excerpts

Thursday 12th May 2011 Lords Chamber

Moved by

[Lord Sassoon]

That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget report, combined with the Office for Budget Responsibility’s economic and fiscal outlook, which forms the basis of the United Kingdom’s convergence programme.

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

My Lords, I welcome this opportunity to debate the information that will be provided to the European Commission under Section 5 of the European Communities (Amendment) Act 1993. I also welcome the chance to exchange views on two closely related topics: the UK’s National Reform Programme 2011, the NRP; and the Government’s response to the Lords EU Select Committee’s 5th report. On behalf of the House, I thank my noble friend Lord Roper, my noble friend Lady O’Cathain, as the sub-committee chair, and the whole committee for putting forward these two reports for debate. I assure noble Lords at the outset that the Government look favourably, in principle, on both the committee’s recommendations.

While it might not be possible to synchronise the national reform programme and the convergence programme, since they are intrinsically different documents and therefore produced according to markedly different internal procedures, we will give careful consideration to debating the NRP alongside the convergence programme again in future years. I also note that the timing of the Budget announcement meant that it was not possible to hold this debate in advance of the spring European Council, in line with the committee’s recommendation.

I now turn to the main matter in hand. Each year the Government report to the Commission on the UK’s economic and budgetary position and our main economic policy measures in line with our commitments under the stability and growth pact. By sharing information from the Budget with our European partners, we can help to maintain an appropriate and effective level of economic policy co-ordination and contribute to stability and growth across the economic union.

European economies have suffered considerably in recent years. The financial crisis, bank bailouts and rising national debts and deficits have all left their legacy. As a continent, we have had to learn the hard way that in an open, global marketplace, no economy exists in isolation. The frailties of economic policy in one country can all too easily be exported to other nations and imbalances are seldom constrained by national borders or jurisdictions. That is why it is in all our interests to improve co-ordination of economic policy-making to tackle those imbalances and to increase the resilience and strength of the European Union as a whole. Our position on EU economic governance could not be clearer. We need better macro-economic surveillance and fiscal frameworks because sustainable economic growth across Europe is vital to the success of the British economy. Even though we are not part of the single currency we cannot consign ourselves to being bystanders in this debate. A strong and stable eurozone is firmly in the UK’s own economic interests. The EU is our largest single trading partner with more than 50 per cent of our exports going to other member states and a long history of shared success and prosperity.

However, just as our success has been and is shared, so are our problems. Therefore, we must act to ensure that the EU has the right warning mechanisms to identify future economic crises with a common set of rules in place and tough measures applied to those who step out of line. These rules exist in the form of the stability and growth pact but in over a decade of monetary union the sanctions it contains have never been used. That is why Britain has welcomed the EU’s recent proposals: to strengthen European economic governance; to encourage greater fiscal responsibility across member states; to address the macroeconomic imbalances that have built up between member states; and to ensure that in the future Europe is able to absorb future shocks.

I should like to reassure the House that the UK is not subject to sanctions under the stability and growth pact. The treaty is clear that they apply only to euro area countries. Moreover, the UK protocol to the treaty, negotiated at Maastricht, clarifies that we are exempt from any extension of sanctions, such as those proposed by the European Commission that are currently under discussion. We fully support the Commission’s moves to ensure greater fiscal responsibility across the euro area and its endorsement of the UK’s domestic consolidation plan. The plan that is enshrined in our convergence programme is one that will tackle our record deficit. Even though noble Lords will be familiar with what follows, I should summarise what constitutes our convergence programme. It is a plan with expenditure falling as a share of income in each and every year of this Parliament, and national debt falling as a proportion of GDP by 2014-2015. That is the right approach, and we need only to look across the Channel to see that this is the case.

Britain has a higher budget deficit than both Portugal and Greece. Last year, we had a similar level of national debt to Ireland. Yet our market interest rates for 10-year sovereign debt are a fraction of those of these three countries. In Greece they stand at more than 15 per cent, in Portugal more than 9 per cent and in Ireland they have increased to more than 10 per cent. In stark contrast, Britain’s market interest rates have fallen to below 3.5 per cent and our triple-A credit rating has been secured.

[Lord Clinton-Davis]

Do experts not forecast that the rate will go up to 5 per cent quite soon?

[Lord Sassoon]

My Lords, we are debating the convergence programme and the national reform programme. What is critical about the convergence programme is that we discipline ourselves in the way that eurozone countries are required to discipline themselves, and that the best test of the basic disciplines that we are putting in place is our relative interest rate. Of course, the Government do not forecast where absolute interest rates will go. However, a critical test of the credibility of our policy is the relative interest rate that the UK enjoys. I am pleased that it is at a very low level.

I turn now to growth, which is critical to the convergence programme. The independent Office for Budget Responsibility has forecast growth in each year of this Parliament, starting with growth of 1.7 per cent for the current year. This is in spite of the rise in world commodity prices and higher than expected inflation, which in turn has a bearing on interest rates, as the noble Lord suggested. The OBR points out that this effect,

“creates scope for slightly stronger growth in later years”,

than previously forecast. Therefore, while it expects real GDP growth of 2.5 per cent next year, it forecasts that that will then rise to 2.9 per cent in 2013 and 2014, and 2.8 per cent in 2015. The European Commission has published its own economic forecasts. These show that the UK will grow more strongly in the coming year than Spain, Italy, France, the average for the eurozone and the average for the EU.

That brings me to the other document that we are here to debate today: the UK’s national reform programme for 2011. The NRP reports on the structural reform agenda that the Government are taking forward. It paints a comprehensive picture, with which noble Lords will be familiar, of the progress that we are making across the UK. I will summarise its main features and stress that the document has a particular focus on the measures taken by the devolved Administrations and on the ways in which civil society stakeholders are helping the Government to deliver the reform agenda. Most importantly, the NRP sets out the Government’s Plan for Growth, which my right honourable friend the Chancellor of the Exchequer set out in the other place as part of this year’s Budget.

The plan has four ambitions at its heart: that Britain will have the most competitive tax system in the G20; that it will be the best place in Europe to start, finance and grow a business; that it will be have more balanced economy, by encouraging exports and investment; and that it will have a more educated workforce that is the most flexible in Europe. These objectives form the basis of the information that we will submit to the Commission. I will touch briefly on each in turn.

I turn first to taxation. Britain used to have the third-lowest corporate tax rate in Europe. We now have the sixth highest. At the same time, our tax code has become so complex that it is now the longest in the world. This is something that we have to address. Our taxes should be fair, predictable, simple to understand and easy to comply with. They should also be efficient and support growth. Therefore, in April, our corporation tax was reduced not just by 1 per cent, as we announced last June, but by 2 per cent, and will continue to fall by 1 per cent in each of the next three years, thus taking our corporate tax rate down to 23 per cent. That rate, in relation to other European countries, is 11 per cent lower than France and 7 per cent lower than Germany, and will give us the lowest corporate tax rate in the G7. That is alongside our decision to introduce a highly competitive tax rate on profits derived from patents and our fundamental reform of the complex rules for controlled foreign companies making them more territorial.

As I have said, it is also the Government’s ambition for Britain to become the best place in Europe to start, finance and grow a business. In the past decade alone, countries such as Germany, Denmark, and Finland have all overtaken us in the international rankings of competitiveness. In the Government’s Plan for Growth and, hence, in the NRP, we have taken action to abolish £350 million worth of specific regulations; to implement, in full, the recommendations on health and safety laws made by my noble friend Lord Young of Graffham; and to impose a moratorium exempting businesses employing fewer than 10 people, and all genuine start-ups, from new domestic regulation for the next three years. That will free the private sector from the unnecessary burdens that have been holding them back.

The Government’s third ambition for growth is to encourage investment and exports as a route to a more balanced economy. In the Plan for Growth we set out specific measures to help a wide range of businesses. In life sciences, we will radically reduce the time it takes to get approval for clinical trials. In our digital and creative industries, we will improve the intellectual property regime, and in manufacturing we are also taking forward important reforms.

Over the past decade, manufacturing as a share of our economy has fallen by almost a half, yet under this Government we are already seeing a reversal of this trend. Manufacturing, as a sector, has been growing at a record rate. To help that continue the Government are creating new export credits to help smaller businesses, launching Britain’s first technology and innovation centre for high-value manufacturing, and funding a further nine university centres for innovative manufacturing. This will help ensure that we have a more balanced economy with growth across a broader range of sectors and places. Lastly, we want to create a better educated workforce that is the most flexible in Europe.

It is alarming to see that Britain’s working age population has lower skills than the same demographic in France and Germany, which is perhaps the biggest problem facing our economy in the future. That is why the Government are committed to funding new university technical colleges, which we were discussing a few minutes ago in this House, to provide 11 to 19 year olds with vocational training that is among the best in the world.

However, that alone will not solve the problem. In Austria, Germany and Switzerland around one in four employers offers apprenticeships, while in England fewer than one in 10 employers do so, which has got to change. That is why we are providing funding for another 40,000 apprenticeships for the young and the unemployed, which will deliver a total of 250,000 more apprenticeships over the next four years as a direct result of the Government’s policies. That will help to ensure that all parts of the country have access to a better educated workforce. In brief summary, that is the content of the two major documents in front of us.

Submitting the NRP and CP to the European Commission is an essential step in the new European semester process but it is far from the end of the road on the process. The Commission will now examine both documents in detail and will shortly come forward with proposals for recommendations based on its analysis. These recommendations will be agreed by heads of state and Governments at the European Council on 28 June.

The Government support the multilateral surveillance of member states’ economies. The role of the European Council is particularly important since it allows for a genuine peer review process at the highest levels and enables member states to take account of the advice addressed to them when formulating future policy. Member states will reflect progress against the recommendations issued to them in their next national reform and stability and convergence programmes. However, it is important to note that the EU’s advice is just that, merely a set of recommendations, and it will be up to the Government, not Brussels, to decide whether and to what extent they should be implemented in the UK. No matter what they decide, as I pointed out earlier, our opt-out from the single currency means that the UK cannot be subjected to any sanctions.

To conclude, our budget, our growth and our spending plans are wholly consistent with the EU’s objectives under the stability and growth pact and under the Europe 2020 strategy. So the Budget document, along with the forecast produced by the independent OBR, forms the basis of the UK’s convergence programme. I have taken up a lot of the time of the House, so I hesitate to stress that in what I have said and what the documents contain, there is no information on the convergence programme. It is drawn entirely from material that has already been presented to Parliament and is in the public domain. The national reform programme also draws on a range of material, including the Budget and the Government’s Plan for Growth, and contains no new information. These documents restate the Government’s plans to deal with the economic problems they inherited and set the UK’s economy on a path towards sustainable growth. It is clearly important that we do not have to include additional information. If we did have to do so, it would show that our own domestic plans were deficient.

The Government are clear that their plans for the economy should be presented to Parliament before they are seen by the EU. That is exactly what we have done. I hope, therefore, that your Lordships will support these Motions, which I commend to the House.

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[Lord Sassoon]

My Lords, we have had an interesting and valuable debate. It got into a new gear towards the end. We were having some very positive and practical suggestions about the content of the documents that we are talking about today and how they should be handled both domestically and in Europe, and then we suddenly went off into hyperspace, thanks to the contribution of the noble Lords, Lord Clinton-Davis and Lord Davies of Oldham. My response, therefore, will be in two parts. I thank all noble Lords for their contributions. I think my noble friend Lady O’Cathain was criticising Europe for a lack of oomph in relation to Lisbon. She certainly got the debate off with plenty of positive oomph but we ended with a lot of tired hot air coming from certain of the Benches.

I start by confirming that we will be reporting to the Commission each year. We are required to report on the UK’s economic and budgetary position, which is part of our commitment under the stability and growth pact. This is, of course, to ensure that we can help to maintain an appropriate level of macroeconomic policy co-ordination, which in itself contributes to stability and growth across the economic union. This is where the debate, particularly in its second half, presents some difficulties. What we get from certain noble Lords on the opposition Benches is all carping and critique but absolutely no alternative. The NRP and convergence programme is clear and comprehensive—not remotely complacent, to use the charge of the noble Lord, Lord Clinton-Davis.

[Lord Clinton-Davis]

I meant the Minister rather than the Government as a whole.

[Lord Sassoon]

It would be nice to know what on earth the Opposition have to offer and we could then have a meaningful debate about the alternatives. Only this morning, one of Gordon Brown’s close former Treasury and Downing Street advisers, Mr Dan Corry, wrote an article in the City A.M. newspaper, headed:

“Balls must offer alternative instead of carping”.

I would insert the names of a couple of noble Lords for “Balls”.

The article states:

“Balls and Miliband … should spend time developing and articulating what Labour’s economic strategy for growth is, and why it can work. That is the real task ahead and they need to get to it”.

I very much address those remarks to the noble Lord, Lord Davies of Oldham, and it would be much easier if next time we had a debate when we knew the alternative.

What underpins the plans is a,

“strong and credible multi-year fiscal deficit reduction plan … essential to ensure debt sustainability”.

Those are not my words but the words of the IMF in September last year, and that is what we are talking about this afternoon. Of course there are issues on which we are not remotely complacent as a Government. We have said all along that the recovery will be choppy and difficult. Yes, we recognise that inflation will be high this year but it is forecast by independent forecasters at the OBR and elsewhere to be coming down very significantly in 2012. We could trade all sorts of critiques about our plans all night, but one of the latest commentators with immense credibility on this, the US Treasury Secretary, said only recently that he was impressed with the basic strategy that had been adopted. He said that if we do not act with force to stabilise confidence, we will be confined to a much worse outcome economically. When asked whether we were going too fast, the US Treasury answered, “I don’t think so”.

We could spend a long time going over the substance of the Government’s basic economic strategy but I would merely say that the debate confirms that we certainly have a very clear strategy. It is at the heart of the documents we are discussing today. As I say, it would be nice in due course for the Opposition to come forward with something of an alternative if they think that our plans are not appropriate for the economy.

In the rest of the debate, many constructive points were made. I will first address issues to do with consultation, the way in which the document was presented and how it might evolve. A number of useful policy and other issues were raised; I may have time to address a few of them. Similarly, a group of points was raised concerning the handling in Europe of the NRP and the convergence programme, and how the process will go forward. I will take the points broadly in those groupings.

I turn first to the nature of the process that led to the document. My noble friend Lady O’Cathain and the noble Lord, Lord Haskel, asked about consultation and the inclusiveness of the process. Certainly I can confirm that as we drew up the growth plan that underpins the document, we consulted all those parts of society that my noble friend mentioned—NGOs, the private sector, civil society partners, local authorities and so on—and we will continue to engage in this process as we consult on the next iteration of the Government's growth plans.

As far as concerns the nature of the document, the noble Lord, Lord Haskel, was suitably challenging and positive about the way in which the NRP and Europe 2020 should be presented. It would be great if the enthusiasm that he shows for making this a more popular document in which a wider set of people was interested could be fulfilled. However, we should not be overambitious in this area. I very much take to heart some of his suggestions about the way in which the document could be structured. We are, in particular when it comes to setting out the bottlenecks, following a template that Europe sets for us. The noble Lord suggested that the document should show what has changed from year to year. I agree with him. This is the first full NRP under Europe 2020, and I am sure that future documents will chart progress from year to year.

The noble Lord has very high standards and perhaps was a little uncharitable about some of the themes that were not in the document, such as the impact on people. Our aim was to give the document more colour, flavour, appeal and interest to a broader readership. Noble Lords will know that there are a number of boxes throughout the document that give practical studies of the way in which some of the reform ideas can operate, whether through colleges, major companies, small businesses or voluntary organisations. I take the noble Lord's point, but we worked hard to make sure that the document contained illustrations from a broad section of society of how the themes in the NRP should operate.

I turn now to one or two specific policy areas to which attention was drawn. The noble Baroness, Lady Valentine, referred in particular to employment and labour law. This theme was touched on by the noble Lord, Lord Clinton-Davis. I should like to assure the noble Baroness that as we go forward with our reform work, employment law will be at the heart of it. As my right honourable friend the Chancellor said only yesterday at the Institute of Directors conference, the Government will publish a detailed timetable for the wholesale review of employment law in this country. It will include plans to review the unlimited penalties currently applied in discrimination employment tribunals, to simplify the administration of the national minimum wage, to review the TUPE regulations and to reform the consultation period for collective redundancies. The Government of course recognise that some of these issues may be controversial but, as we go forward with a challenging reform programme, it is essential and necessary that we leave no stone unturned, including in the area of employment law.

The noble Lord, Lord Haskel, questioned whether the NRP was thin on green detail—for example, on energy policy. Although I am sure that the noble Lord has seen it, I would point out that there is a section on climate change and energy which details the Government’s key objectives and policy actions in that area. Of course they cannot give the full detail, but the underlying policy documents are referenced in the NRP. More generally, on the question of a transition to the low-carbon economy, the announcement in the Budget of the carbon price floor sets a very challenging underpinning and basis on which investment can be made in the range of energy projects which we need going forward in this country, including, critically, in the low-carbon space.

The NRP sets out for each bottleneck and target the Government’s key objectives and details the policy action being taken forward towards meeting those objectives. As I have described already, we have examples of the way in which stakeholders are implementing these policies. Although the noble Lord, Lord Haskel, may challenge the structure of the document, it is very much responding to the way in which the European Commission would like to see it. We have tried to make it as illustrative as it can be, but of course we will take note of any suggestions as we think about the second and future iterations of it.

My noble friend Lord Newby raised a number of questions, including a very important one about trade and the Doha round. Of course he is right that Europe needs to become one of the key engines of world trade. I can confirm that the Government support concluding the Doha development round this year, but I would also bracket that by saying that there is another important European dimension to this. We want the European Union to build on the success of recent bilateral free trade agreements—that with Korea in particular—and further agreements to be concluded with India, Canada and Singapore this year. I am grateful to my noble friend for drawing attention to that. Europe has an important role to play on both Doha and the bilateral agreements and we will be pressing it forward in both those dimensions.

I turn now to some of the other Europe-wide issues and the process points on the documents. My noble friend Lord Newby asked whether the EU has its own bottlenecks and what is it doing about them. That is absolutely the right question to ask, and it will certainly strengthen my own resolve to make sure that we put the institutions at the heart of Europe on the spot in terms of identifying the bottlenecks in the areas for which they are responsible. Principally that means strengthening and deepening the single market, the free trade issues to which my noble friend drew attention, and reducing regulatory burdens at the EU level. Those are issues that we press vigorously with Europe, but his read-across on the bottleneck theme is an interesting one, although this particular exercise is principally one for individual member states.

On how this is now being addressed, my noble friend Lady O’Cathain asked about the robustness of discussions. They are indeed robust and I hope that, as we get into the key discussions that will take place over the summer, they will continue to be so. There are some interesting differences perhaps of expectation about the nature of the process going forward. I have to say that on balance I am probably more in tune with the way the noble Baroness, Lady Valentine, characterised at the beginning of her speech the nature of the scrutiny process and the expectations we should have of it rather than with my noble friend Lord Newby. What is critical about this is that these issues will be debated at heads of government level, having first been discussed at ECOFIN. Of course we cannot expect leaders to debate all the fine detail, but what is important about this—I take up a point made by my noble friend Lady O’Cathain—is that there is a basis on which national governments can be held to account. Peer group pressure by discussion at heads of government level is very important, and the UK has certainly put down a document that challenges our partners in a number of key respects.

Lastly, my noble friend asked about independent analysis. We would like to see independent analysis of the sort that the Centre for European Reform has been conducting to carry on, but of course it is independent and it is for the centre to come forward with further analysis. We would welcome that.

In conclusion, this has been a full and interesting debate. The UK has laid down an NRP and a CP which are challenging documents in that they show how we are going to reverse the trend that we have seen over the past decade to create an economy that is more balanced and one in which the deficit is brought under control. These are plans that we will drive through and plans on the basis of which we will participate enthusiastically in exerting peer pressure on our member state partners. We will use this process as far as we can to enhance Europe’s fiscal disciplines and to encourage the structural reforms in Europe that are necessary to underpin Europe’s sustained growth.

Motion agreed.

National Reform Programme 2011

Lord Sassoon Excerpts

Thursday 12th May 2011 Lords Chamber

Moved By

[Lord Sassoon]

That this House takes note of the National Reform Programme 2011.

Motion agreed.

Public Expenditure: Reserve

Lord Sassoon Excerpts

Monday 9th May 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether the public expenditure reserve is adequate to meet any potential requirement.

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

My Lords, the contingency set aside in the Government’s public expenditure plans over the period 2011-12 to 2014-15 amounts to 0.6 per cent, 0.8 per cent, 0.9 per cent, and 1 per cent of each year’s total managed expenditure. The Government believe that this is a prudent level of contingency to hold against unforeseen costs during the 2010 spending review period, but it is not intended to cover all possible eventualities.

[Lord Barnett]

I thank the Minister for his Answer, but would not some flexibility be positively helpful? For example, if growth was not as good as we all hoped and unemployment continued to rise, could not additional funds for the contingency reserve be a sort of plan B? The Chancellor need not call it that but just do it, as it would be positively helpful. Indeed, that would help the deficit reduction by increasing growth and reducing unemployment.

[Lord Sassoon]

No, my Lords, that would not be the right approach at all. The words of a distinguished former Chief Secretary to the Treasury in another place on 17 March 1977 got it absolutely right:

“It is no good drawing up elaborate spending plans without the determination and means of ensuring that the planned total”,

expenditure,

“is not exceeded. We have that determination … The contingency reserve regime is strict. We do not allow additional expenditure to count against the contingency reserve until we are fully satisfied that offsetting savings are not to be had”.—[Official Report, Commons, 17/3/77; col. 641.]

That is what the noble Lord, Lord Barnett, said in 1977, and he got it absolutely right.

[Lord Newby]

My Lords, do not the comments of Standard & Poor in the US on the possible downgrading of American debt show the folly of building up too great a deficit, however tempting it might be to spend more money on things which we would all like to see?

[Lord Sassoon]

Yes, indeed. As ever, my noble friend Lord Newby gets it absolutely right. Fiscal discipline is absolutely the watchword of this Government. I should say that the Armed Forces will get all the expenditure that they need in relation to net additional costs of military operations in Libya and elsewhere, but that is the exception to the rule.

[Lord Eatwell]

My Lords, before answering my question, perhaps the noble Lord could tell the noble Lord, Lord Newby, what impact the threatened downgrading by Standard & Poor has had on the funding of US debt. I am sure that I could help the noble Lord by telling him that its impact was nil. Will the noble Lord tell us what criteria the Treasury uses to judge whether events merit using the reserve and, given those criteria, would an increase in unemployment of 100,000 or 250,000 fall within the rules?

[Lord Sassoon]

My Lords, first, in relation to this discussion about borrowing costs, I am pleased to say that as of last week the UK’s 10-year borrowing costs, the benchmark for our gilts, hit practically the lowest that they have ever done, while the margin we pay in relation to the German bund has hit its best position since the general election. We absolutely must do these things to make sure that our interest rates remain low. As to how the reserve operates, I am happy to copy to the noble Lord the published rules that the Treasury uses. However, they are for consideration only in exceptional circumstances and would not be linked to the sorts of factors that he sets out.

[Lord Higgins]

My Lords, did the European bailout of the Greek Government deplete this reserve and would any extension of that process deplete it?

[Lord Sassoon]

No, it did not and I will not talk about hypothetical situations.

[Lord Peston]

It is difficult not be cynical about any discussion of this subject. I spent the morning—I probably wasted it—looking at the history of what Governments say about their attitudes to contingencies. In all cases, they say exactly what the Minister has said, except for one thing. When the chips are down and they have what they call a crisis, which they are never short of, they spend all the money that they want to spend.

[Lord Sassoon]

My Lords, I have been back and looked at the record and it is certainly the case that the previous Government went and topped up the reserve on at least 10 occasions. They increased borrowings when it looked as if expenditure was going to exceed their totals. This Government, when they set a total for managed expenditure, intend that it will not be exceeded.

[Lord Naseby]

Has my noble friend seen the number of recent articles about the Office for National Statistics and the conflict between the figures that it has produced for the output of the construction industry and the figures that that industry believes are correct? The difference appears to be 0.3 per cent of national growth. This is a severe and difficult area and therefore should not the Office for National Statistics resolve that issue once and for all before the next lot of statistics come out?

[Lord Sassoon]

We are straying a bit from the subject of this Question but, as there do not seem to be many other noble Lords wanting to get in, I will say that I know how difficult it is for the ONS to produce these statistics. I am sure that it will continue to look at all ways of improving the way that it deals with the data. There was a one-off change to the way in which construction data were reported and the industry is questioning that. I am sure that the ONS is on the case.

[Lord Barnett]

My Lords, I am flattered that the Minister thought it necessary to research what I said 34 years ago when I was that much younger, but could he try to answer my supplementary Question this time?

[Lord Sassoon]

I am hearing that people seemed to think that I gave quite a sufficient answer the first time around. The noble Lord got it absolutely right when he was Chief Secretary and that is what my right honourable friend the present Chief Secretary will be doing.

Fraud: Staffing Levels

Lord Sassoon Excerpts

Monday 9th May 2011 Lords Chamber

[Lord Phillips of Sudbury]

To ask Her Majesty’s Government what assessment they have made of the staff levels at Government agencies dealing with financial, banking and tax fraud.

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

My Lords, the Government are determined to step up the fight against fraud. This important work is done by both government and non-government bodies, including the Serious Fraud Office, Her Majesty’s Revenue and Customs, the Serious Organised Crime Agency and the Financial Services Authority. Ensuring that staff levels are adequate is a matter for each individual body, but I understand that the SFO expects to be able to adjust its numbers as necessary to meet its business needs, and that HMRC will be increasing the number of staff tackling fraud and tax avoidance.

[Lord Phillips of Sudbury]

I am grateful to the Minister for his reply, but he must be aware that HMRC will suffer massive cuts over the next three years, and that the current level of tax fraud and avoidance, on its own estimate, is £40 billion a year. Will he therefore look urgently at that state of affairs and have regard to the position of the Serious Fraud Office, which has lost roughly half its most senior personnel in the past few months to American law firms and banks, which makes its role in tackling complex fraud super difficult?

[Lord Sassoon]

My Lords, this is an extraordinarily difficult area. As my noble friend says, the level of tax fraud and uncollected tax receipts is extraordinarily large. That is precisely why, within a tight settlement for HMRC and every other department, HMRC has been allocated an additional £900 million over the spending review period. That will take up the number of full-time equivalent staff dealing with fraud and other tax avoidance matters from 20,000 at present to some 23,000 by 2014-15. That adjustment has already been planned for. As far as the SFO is concerned, we are clearly not talking about remotely the same order of magnitude of numbers of people, as that body has fewer than 400 people. The new management of the SFO has taken enormous strides since 2008, when the management changed. For example, the average time taken over its investigations has dropped from an average of five years on pre-2008 cases to some 15 months on newer cases, and the conviction rate has significantly increased, so the SFO is very much showing how it has become more effective with less resource.

[Lord O'Neill of Clackmannan]

Is the Minister satisfied by the resources that were made available for the investigation into the Phoenix four—the people involved in the so-called saving of Rover—which has resulted in no criminal charges being made, and literally a slap on the wrist being given to the directors who behaved so scandalously and betrayed the trust of so many people in Longbridge?

[Lord Sassoon]

My Lords, I will not be drawn into second-guessing decisions taken by the investigating authorities on any cases. However, I have heard absolutely no suggestion that the investigations in that case were in any way circumscribed by a lack of resource.

[Lord Newby]

My Lords, does the Minister accept that, while the additional £900 million that HMRC has to fight fraud is very welcome, the hollowing out of the HMRC regional structure means that many individuals and firms around the country now feel that there is no adequate, as it were, day-to-day supervision of their tax affairs, and that therefore they can get away with it? Will he take back to his colleagues at HMRC the fact that it is not just the people dealing with fraud who need to be reinforced, but that we need to have a continuing robust structure of local management of individuals’ and companies’ tax affairs if fraud is not to take place in the first place?

[Lord Sassoon]

I am grateful to my noble friend for bringing up that specific issue. Of course the question of local coverage is important. I will do as he suggests and take that back to my ministerial colleagues and to the management of HMRC.

[Lord Eatwell]

My Lords, the Minister will be aware that many of the organisations involved here, especially the FSA, have suffered serious and debilitating rates of staff turnover in the past few months—in part explained by the uncertainties associated with the reorganisation of financial regulation and management. A major source of that uncertainty has been that the Government’s Bill to change the status of the FSA and associated organisations is at least four months late. When will the Government bring this legislation forward? Why did they not get on with it and end the uncertainty?

[Lord Sassoon]

My Lords, I suppose it is my fault for raising the FSA in my Answer, even though it is not a government agency and therefore, more than the other bodies we have been talking about, manages its own affairs. I would not for one moment, though, agree with the noble Lord’s assertion about the state of staffing at the FSA, which continues to do an important and extremely difficult job—albeit within a flawed regulatory structure. We have been through rounds of consultation. If we brought the legislation forward too quickly, I would be criticised about the lack of pre-legislative consultation and scrutiny. It is coming forward with due speed because, as the noble Lord recognises, this is a big mess that we have to clean up, we have to get it right this time, and we will do so.

[Lord Brooke of Alverthorpe]

Will the noble Lord be prepared to place in the Library the response that he gets from his colleagues to the question asked by the noble Lord, Lord Newby? Secondly, in that reply, will he give details on the number of HMRC revenue offices that will be closing annually between now and 2014?

--- Later in debate ---

[Lord Sassoon]

My Lords, I will certainly take that away and see whether a useful information note on the regional question can be produced without disproportionate cost. I will certainly see whether an information note can be produced on HMRC’s regional coverage.

EU: Budget

Lord Sassoon Excerpts

Thursday 28th April 2011 Lords Chamber

[Lord Campbell of Alloway]

To ask Her Majesty’s Government what proportion of the United Kingdom contribution to the European Union Budget has been signed off by the Court of Auditors over the last 16 years.

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

My Lords, the UK contributes to the EU budget as a whole, not to individual spending programmes. Therefore, data on UK contributions to the EU budget not signed off by the Court of Auditors are unavailable. However, the recurrent failure to achieve a positive audit opinion from the court on the EU’s accounts is unacceptable. The Government set out recommendations to improve EU financial management and transparency at ECOFIN in February this year.

[Lord Campbell of Alloway]

I thank the noble Lord for his explanatory exposition of this aspect of the unacceptable, on which we have not spoken previously. I merely seek to establish a transparent, independent regime and to deal with the problem of inclusion in the budget of expenditure which has been signed off in the accounts by the Court of Auditors. Perhaps I may ask a short question. Is it not a relevant consideration in the ongoing negotiations to seek to establish an acceptable regime?

[Lord Sassoon]

I am grateful to my noble friend for once again drawing attention to the unacceptable situation that we face with regard to the European audit. I think that he puts his finger on one of the key issues, which is that we need to work towards a much simpler and more transparent regime. If the rules around the various European expenditure programmes were made less complex, it would be much easier for member states to comply with those rules. It is very much on that practical aspect of the regime that my honourable friend the Economic Secretary is working with the Audit Commissioner, others in Brussels and member states to make sure that we move to a simpler, clearer and more auditable regime.

[Lord Tomlinson]

Is the noble Lord aware that, just before he retired, the former Comptroller and Auditor-General of the United Kingdom, Sir John Bourn, said that if he had to apply to the expenditure accounts of the United Kingdom the system for audit employed in the European Union, he would refuse to give a positive assurance on any of those accounts because the real problem with the statement of assurance in the European Union is the statistical basis on which that audit is conducted? Will the noble Lord undertake to look at that question and to see whether, if one ever wants to get a clean audit, it is appropriate to try to initiate a reform of the statistical base of the statement of assurance?

[Lord Sassoon]

My Lords, I am happy to say that we are already on the case in this matter. At the ECOFIN in February, the UK issued a joint statement with the Netherlands and Sweden making various points about what we believed needed to be done by the European Commission and the auditors in coming years. That included, among other things, moving the European audit basis to a more risk-based approach, which I think precisely addresses the point that the noble Lord rightly brings up.

[Lord Pearson of Rannoch]

My Lords—

[Lord Marlesford]

My Lords, did not my noble friend’s earlier answer, when he described how information was not available, give a bit of a clue as to one way in which we can make progress? Would it not be much more satisfactory if there were full details of any failure properly to account for national expenditures in the EU budget? In that way we would at least know who was not doing things properly, by how much and when, and that shaming could have some role in getting people to behave better.

[Lord Sassoon]

Again, I completely agree. That is precisely why the other two of the three key points made in the joint statement at the February ECOFIN were about greater member state responsibility for items of expenditure and greater transparency. Therefore, I think that we have already identified the three key areas where improvement needs to be made and needs to be made quickly.

[Lord Davies of Oldham]

We of course wish the Minister and the Government well in their labours with regard to this issue but we do not underestimate the challenge of the task and are not anticipating early progress. However, there is one set of sums of money relating to Europe in which the nation is greatly interested and on which I am sure the Minister is well briefed and aware of what is involved, and that is the amount of money we are committed to on eurozone bailouts. Will the Minister enlighten the House with those figures?

[Lord Sassoon]

My Lords, much as I would like to talk about European bailouts, we talk about them on other occasions and I think that we are straying a bit far from the audit issue on which other noble Lords may want to ask questions.

--- Later in debate ---

[The Countess of Mar]

My Lords, I recall some 20 years ago the late Lord Bruce of Donington asking very much the same questions repeatedly. Can the Minister say why it is taking so long to resolve this problem?

[Lord Sassoon]

My Lords, I think that the answer to that lies on the Benches opposite. If we want to get into history, the previous Government in 2005 gave away a substantial part of the UK’s abatement and signed on to a financial perspective that set a course of significantly increasing EU expenditure. If, instead, they had worried more about the management of the funds that were going out from Europe rather than merely signing on to an ever-increasing UK contribution to an expanding budget, we would not be in the position that we are in today.

EU: Financial Management

Lord Sassoon Excerpts

Wednesday 6th April 2011 Lords Chamber

[Lord Campbell of Alloway]

To ask Her Majesty’s Government what representations they will make to the Council of Ministers to give consideration to the joint declaration by the Netherlands, Sweden and the United Kingdom regarding the financial management of European Union funds, made at the Economic and Financial Council on 15 February, before the European Union Budget for 2010 is discharged.

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

My Lords, the failure to achieve a positive opinion from the European Court of Auditors on the EU accounts is unacceptable. The Government are working to resolve this and have been clear that they want to see simpler rules surrounding EU programmes to facilitate proper scrutiny of EU spending. The Government continue to build on the February joint declaration. This includes negotiations on the financial regulation and the principles governing EU budget implementation.

[Lord Campbell of Alloway]

I thank the noble Lord for that constructive response not only about representations that will be made to the Council of Ministers for approval of the joint declaration, but also about the initiative to set up negotiations, without which no new effective regime could be established. I add shortly that, having read the reports of yesterday—if you can understand them at all—it is apparent that a referendum is in no way related to this matter because, whether you call it a power, a competence or whatever, nothing is being taken away from us; it is in fact just given to us and to others.

I have two short questions. What practical steps will be taken to address the management of EU funds which relate to the EU budget and to make them transparent? Could the Government—of course we cannot deal with this issue at Question Time—arrange for a debate in which these matters may be considered by your Lordships?

[Lord Sassoon]

My Lords, I am very grateful to my noble friend for recognising the practical steps that the Government are taking to get round this issue. I very much respect his many years of involvement in European issues. We are working very practically. Only next week, my honourable friend the Economic Secretary is meeting the three Commissioners who have responsibilities for the budget and the audit of the budget. She plans to meet the Court of Auditors and she has met the one and only state Minister who is solely responsible for the management of EU funds. We are very much on the case in making sure that EU funds are handled in a much simpler and transparent way in the future so that control can be improved.

On the question about a debate, I shall take that suggestion on board. In another place, I believe they have a debate in committee which normally takes place in January or February before ECOFIN considers the annual discharge. We shall consider that suggestion.

[Lord Eatwell]

In his first answer to the noble Lord, Lord Campbell of Alloway, the Minister referred to the development of the process of financial regulation. As that term usually applies to regulation in the private sector, I was a little unfamiliar with its use in respect of the public sector. Can he explain what practical measures of financial regulation are relevant in this case?

[Lord Sassoon]

My Lords, I am not responsible for some of the curious terminology which the EU uses, but I believe that financial regulation is the term it uses in this context. The relevant issue about which the Government are concerned is reducing the administrative burden on how expenditure is handled, particularly at member state level. We are worried about some specific questions: the proposal, for example, that loans might be used by the Commission to purchase EU buildings, which is something that the Government oppose; and the question of introducing a concept of tolerable risk of error within the accounting framework, which we oppose. I said before but I will say again that we want to push for much greater transparency in how assigned revenue is used. A host of issues come under that heading, but I cannot be responsible for the terminology.

[Lord Newby]

My Lords, the UK Government had support solely from the Netherlands and Sweden for the declaration submitted to the relevant meeting in February. What was the reaction of the other 24 member states at that meeting? What are the Government doing not just, as it were, to lobby the Commission but to persuade other member states that what seems a sensible series of reforms should get wider support?

[Lord Sassoon]

I am grateful to my noble friend, because he gives me an opportunity to refer to the joint letter in December, very much led by my right honourable friend the Prime Minister, to which Germany, France, Finland and the Netherlands were also signatories. That talks about the need progressively to tighten up on and limit the growth of payments into the EU budget in 2012-13 and makes important observations about the necessity for growth in the EU budget through the next financial perspective to be limited. That is a forward-looking set of proposals to which a significant number of member states are already committed.

[Lord Harrison]

Has the noble Lord read the Court of Auditors report, which demonstrates that: there is a welcome downward trend in infringements; 99.9 per cent of the infringements are of an administrative nature; 80 per cent of the spending is by European member states; and the most guilty member state is the United Kingdom itself? That can be examined in the Comptroller's recent evidence to the Treasury Committee.

[Lord Sassoon]

My Lords, it is the 16th consecutive year in which the Court of Auditors has been unable to give a clean opinion on the legality and regularity of the underlying transactions in the EU's expenditure, and that is an unacceptable state of affairs.

EU: European Financial Stabilisation Mechanism

Lord Sassoon Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord McAvoy]

To ask Her Majesty’s Government what discussions took place between the then Chancellor of the Exchequer, Mr Alistair Darling, and his successor, Mr George Osborne, before the decision was taken to join the European Financial Stabilisation Mechanism on 9 May 2010.

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

My Lords, the European financial stability mechanism was created following agreement by a qualified majority of member states at ECOFIN on 9 May 2010. All contact between the Treasury and the then opposition parties in that period followed the agreed Cabinet Office guidelines for the 2010 general election. Both my right honourable friend the Chancellor and the previous Chancellor set out their accounts of the discussions in their written evidence to the Political and Constitutional Reform Committee.

[Lord McAvoy]

My Lords, I thank the Minister for his Answer. Which of the two following positions is correct—David Cameron saying that George Osborne objected to joining the mechanism or Treasury Minister Justine Greening, who signed the document, saying that cross-party consensus had been gained?

[Lord Sassoon]

My Lords, they are both correct. It may be helpful if I explain the situation a bit further. The discussion on which there was consensus concerned the process that would apply at the ECOFIN meeting on 9 May. There was no consensus on the question of the underlying policy matter. As my right honourable friend the Chancellor said in his written evidence to the Political and Constitutional Reform Committee:

“The purpose of the phone call was not to reach agreement, but for Mr Darling to consult me on the course of action he proposed. Given he was still Chancellor of the Exchequer at that point, representing the UK in a dynamic negotiating environment, it was for him to reach decisions. He did this, aware of my views”.

That is the evidence of my right honourable friend the Chancellor.

[Lord Lawson of Blaby]

My Lords, can my noble friend confirm that, whatever precisely may have happened on that regrettable occasion in the recent past, so far as the future is concerned there is firm agreement between us and the European Union that, when the present mechanism is replaced by a new mechanism in a couple of years’ time, we shall not be part of or bound by that new mechanism?

[Lord Sassoon]

My Lords, I am grateful to my noble friend Lord Lawson of Blaby, who, as is customary, brings us back to what is really important. I can absolutely confirm what he says. At the European Council on 17 December 2010, this Government did what the previous Government failed to do, which was to get agreement that there would be an amendment to the treaty that would achieve a permanent mechanism to be established by the member states of the euro area to safeguard the financial stability of the euro area as a whole. Therefore, it is indeed correct that, as of 2013 at the latest, the United Kingdom, being outside the euro area, will not be part of this mechanism. That is the critical point, which I can confirm.

[Lord Davies of Oldham]

My Lords, I agree that this is an important point of public policy. However, it should be appreciated that there is a significant matter at stake, because my right honourable friend Alistair Darling appears to have been accused by the Prime Minister of acting out of faith as far as the present Government are concerned. The document signed by Justine Greening, the Economic Secretary and therefore answerable to the Chancellor, related to the legislation. It is headed “Explanatory Memorandum on European Union Legislation” and the last paragraph is as follows:

“It should be noted that whilst agreement on behalf of the UK was given by the previous administration, cross-party consensus had been gained”.

Is an apology not due to my right honourable friend, who acted entirely properly and consistently with this note?

[Lord Sassoon]

No, my Lords. No apology is due. I have already tried to make it clear, but let me make it absolutely clear again. Consensus was reached on the process by which the ECOFIN qualified majority voting meeting would take place. That, as has also been made completely clear, is quite a separate matter from my right honourable friend the Chancellor making clear his position on the underlying policy matter. The two matters are distinct. The decision on the policy matter was for the then Chancellor, Mr Alistair Darling. He was the Chancellor at the time and he took the decision.

[Lord Newby]

In view of the stress tests on the Irish banks that were recently announced, will the Minister confirm that any further support that the Irish banks might need via European mechanism facilities that are already in place will not require any additional funding from the European financial stability mechanism?

[Lord Sassoon]

I am grateful to my noble friend Lord Newby for again bringing us back to important current matters. The results of the Irish banks’ stress tests, as I understand it, will be released by the Central Bank of Ireland at 4.30 this afternoon, so it would be inappropriate to comment on them. Of course, the Irish authorities have consulted Her Majesty’s Treasury, the Bank of England and the FSA about the impact of bank restructuring, and the Government expect that the forthcoming announcement will remain in line with the broad principles of the support package provided to Ireland. I would just add that the Government have made clear their commitment to ensure that the Northern Ireland banking sector continues fully to meet the needs of businesses and consumers in Northern Ireland.

[Lord Pearson of Rannoch]

In view of what the noble Lord has said, whatever Mr Darling and Mr Osborne may have said to each other is entirely irrelevant because the Commission had the nerve to bring forward the mechanism under a clause in the treaty—in fact, the clause is to allow member nations to help one another in natural disasters—which is decided by majority voting in the Council. Therefore, the British Government had no hope of avoiding our 14 per cent share of £50 billion, which we can ill afford at the moment.

[Lord Sassoon]

My Lords, without rerunning previous discussions with the noble Lord, Lord Pearson of Rannoch, on the precise interpretation of the articles, the critical thing is that under the agreement reached at the European Council on 17 December, and very much led by my right honourable friend the Prime Minister, it is clear that Article 122(2) of the treaty will no longer be needed for purposes of support in this form. Without debating what has happened in the past, let me just say that my right honourable friend at the European Council has secured complete clarity for the future.