Section 5 of the European Communities (Amendment) Act 1993

Baroness Morgan of Cotes Excerpts

Wednesday 30th April 2014 Commons Chamber

[The Financial Secretary to the Treasury (Nicky Morgan)]

I beg to move,

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 Budget 2014 and Autumn Statement 2013, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook (2014) and Fiscal Sustainability Report (2013), which forms the basis of the United Kingdom’s Convergence Programme.

I welcome this opportunity to listen to Members’ views on the information that will be provided to the Commission this year under section 5 of the European Communities (Amendment) Act 1993. As in previous years, the Government will inform the Commission of the UK’s economic and budgetary position in line with our commitments under the European Union’s stability and growth pact. The Government plan to submit their convergence programme today, with the approval of both Houses.

The convergence programme explains the Government’s medium-term fiscal policies, as set out in the 2013 autumn statement.

[Mr David Nuttall (Bury North) (Con)]

I am grateful to my hon. Friend for giving way so early in her speech. As she will know, today is the last day for the convergence programme to be submitted under the economic governance pact. As she said, it requires the approval of both Houses. The other place is not sitting today. Has its approval already been obtained and why have we waited until the last day?

[Nicky Morgan]

I know that my hon. Friend is an assiduous follower of these matters, and he is right. The other place had a short debate on the convergence programme on 9 April. He will know, and I am learning, about the vagaries of timetabling debates, which have meant that this was the earliest day that we could debate the convergence programme in the House. I am told that in previous years the convergence programme has been sent in draft to the Commission, but we were keen that we should debate and send the final document. The convergence programme document was put before both Houses in a written ministerial statement dated 3 April, and placed in the Libraries on the same date. Members have therefore had an opportunity to consider the draft document since that date, although I appreciate that the recess has intervened.

[Kelvin Hopkins (Luton North) (Lab)]

I have raised this matter before on similar occasions. First, there is constant talk about convergence, but the European Union’s economies have always exhibited divergence, not convergence. Secondly, do we want to converge with an economy that is failing and growing more slowly than we are?

[Nicky Morgan]

I have read previous debates and know that the hon. Gentleman is assiduous in attending such debates and in following these matters. The language used in titles of various EU programmes is not a matter of choice for this Government. Perhaps a better word could be used, but it has not been selected by the Government. I take his remarks on board. I think all of us know that the eurozone has not been as strong as even those of us outside the eurozone would like it to be—it is important for our businesses and our exporters—but I will come on to show that things are looking better. The recovery taking place in the rest of the European Union is slower and it is important that we are fully aware of, and the European Commission fully monitors, the economies of other eurozone countries, even though—let me make it clear again—the Government have no intention of joining the euro.

The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2013 autumn statement and in Budget 2014, and also includes Office for Budget Responsibility forecasts. As such, it is drawn entirely from previously published documents that have been presented to Parliament. With the Budget on 19 March and Easter recess timings as they were, I appreciate, as I have already mentioned, that the timetable for this debate has been particularly tight. Against this backdrop, the Treasury has made every effort to provide early copies of the convergence programme document in advance of today’s debate. The document makes clear that this year’s Budget reinforces the Government’s determination to return the UK to growth, and reiterates the Government’s No. 1 priority: tackling the deficit. As we have already heard in interventions, there are differing views on the value of submitting stability or convergence programmes, especially for the UK, given that the Government have ruled out joining, or preparing to join, the single currency.

The document forms part of the European semester process, which provides a broad framework for the co-ordination of the monitoring and surveillance of member states’ fiscal and economic policies, including necessary structural reforms across the EU. The positive value of the European semester is that it is a useful means to encourage other member states to grip the urgent growth challenge across the EU.

Budget 2014 set out the Government’s assessment of the UK’s medium-term and budgetary position. The UK economy is still recovering from the most damaging financial crisis in generations. We had the biggest bank bail-out in the world, the biggest deficit since the second world war and suffered the deepest recession in modern times. In the face of such a daunting economic challenge, it is essential to have a clear and comprehensive plan.

In 2010, the Government set out clear, credible and specific medium-term consolidation plans to return the public finances to a sustainable path. Our plan makes clear that we will fix the economy and deal with the deficit, cut tax to encourage investment, back businesses, control welfare and invest in skills. We are putting that plan in place. We have adhered to it and we are delivering results with it. The Government’s fiscal strategy has restored fiscal credibility, allowing activist monetary policy and the automatic stabilisers to support the economy and ensure that the burden is shared fairly across society.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I am extremely grateful to the Minister for outlining the excellent economic policy that Her Majesty’s Government have so successfully been following. I wonder whether she can give me the assurance that no part of that policy has been changed in any way to meet the requirements of European convergence.

[Nicky Morgan]

I am certainly not aware of any changes. In fact, I think it would be fair to say that we have led the way in Europe and the eurozone in showing exactly how important it is to return to growth and the actions that need to be taken. It is interesting to see other European countries watching what this country has done and following some of the policies that we have put in place so assiduously. It is, as I have said, very important that they return to growth for the sake of our businesses and exporters, too.

The long-term economic plan has protected the economy through a period of global uncertainty and provided the foundations for the UK’s economic recovery, which is now well established. Since last year, economic growth has exceeded forecasts and has been balanced across the main sectors of the economy. Inflation is below target and the deficit has been reduced year on year. More than 1.5 million private sector jobs have been created. Employment is at record levels and interest rates are near record lows, helping to keep costs down for families and businesses. The Government are also making significant progress in reversing the unprecedented rise in borrowing between 2007-08 and 2009-10. The deficit has been cut by a third, as a percentage of GDP, over three years, and is projected to have fallen by a half, as a percentage of GDP, by 2014-15. The OBR also forecasts public sector net borrowing to reach a small surplus in 2018-19. The independent OBR has judged that the Government remain on track to meet the fiscal mandate one year early.

The Government’s consolidation plans have been central to the reduction in the deficit, with £64 billion of the £80 billion spending reductions in spending review 2010 already implemented. The Government are continuing to take action to improve financial management and spending control. Departments remain ahead of their consolidation targets and are again forecast to underspend by £7 billion in 2013-14. The OBR judges that fiscal consolidation has not had a larger drag on the economy than it expected in June 2010, and the UK’s fiscal vulnerabilities argue strongly in favour of maintaining our commitment to deficit reduction. The OBR forecasts that the underlying structural deficit is falling, but it is falling no faster than previously forecast, despite higher growth.

The persistence of the structural challenge supports the Government’s argument that economic growth alone cannot be relied on to eliminate a structural deficit. As my right hon. Friend the Chancellor has said, the job is not yet done. More work will need to be done to tackle historic weaknesses, including low productivity, poor skills and inadequate infrastructure. The deficit is still one of the highest in the developed world and the UK needs to continue to deal with its debts. We are on the right track. The deficit has already been cut by one third. Budget 2014 is fiscally neutral, despite lower borrowing across the forecast period, with an overall reduction in tax funded by a reduction in spending. We have set out our fiscal consolidation plan and it is vital to stick to it in future years.

Budget 2014 announced that the Government are cutting income taxes and freezing fuel duty to help hard-working people to be more financially secure; creating more jobs by backing small business and enterprise with better infrastructure and lower job taxes; capping welfare and controlling immigration, so that the UK economy delivers for people who want to work hard and play by the rules; and delivering the best schools, skills and apprenticeships for our young people. The OBR has revised the UK’s growth forecast upwards and it is now among the highest in the EU.

As the Chancellor said, the job is not yet done and the same is true for the rest of the EU, which is the UK’s most important trading partner. Some 45% of our exports are destined for the EU, and seven of the UK’s top 10 trading partners are EU member states. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. Much of the answers to these problems lie with national-level reforms, such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments. The UK has an interest in making sure those reforms happen. An ambitious EU-level reform agenda is also a key part of this equation and an essential counterpart to national-level reforms. While I can understand that some may be cautious about encouraging the UK to do more, an EU growth agenda would make a major contribution to growth across the EU as a whole and benefit the UK. Recent European Councils have underscored the strong commitment of Heads of State or Government to supporting growth and competitiveness. I know that the Prime Minister has been driving forward this agenda, along with leaders from a substantial group of like-minded member states.

Some would claim that we cannot have EU economic growth without EU spending growth. I disagree. While some areas of the EU budget, such as spending on innovation and research and development, have the potential to support growth, this in fact represents only 13% of the total EU budget. However, deploying EU-level policies in support of economic growth, such as the single market, regulatory reform and EU-level free trade agreements, can achieve maximum growth impact at the least cost.

[Ian Swales (Redcar) (LD)]

The Minister makes a point about EU spending. Does she join me in welcoming the fact that certain parts of the country have EU transitional status, which causes EU money to flow to areas such as the Tees valley?

[Nicky Morgan]

My hon. Friend is absolutely right. As we are a part of the EU and contribute, as a country, to the EU budget, it is absolutely right that some of that money comes back to this country—or to particular parts of this country—and we see the benefit of that financial contribution. He mentions his area of the country, and I know that EU funding in the midlands has been particularly valuable in supporting vital work on things such skills and apprenticeships.

[Jacob Rees-Mogg]

I wonder whether my hon. Friend should be a bit careful about welcoming EU spending in this country because it was our money in the first place and it is not necessarily being spent in the way that Her Majesty’s Government would wish to spend it because it has to meet the requirements of the European Union. Therefore there is the risk of getting inefficient spending out of our own net contributions. We risk wasting money and having a bigger deficit by dong this through a third party, rather than through the actions of our own Government.

[Nicky Morgan]

My hon. Friend is right, and he tempts me down a particular path—to say whether membership of the EU broadly benefits this country. I am sure that we could have a whole debate on that, and I know that he could go on for hours and hours on that particular subject. [Interruption.] We will not do that, Madam Deputy Speaker; I take your guidance. Of course, this Parliament is getting less money because the previous Government gave away at least a percentage, if not half, of our rebate. Over the course of this Parliament, this country will receive about £10 billion less from the EU than we would have done had we stuck to the rebate arrangements agreed by a previous Prime Minister—probably the best part of 30 years ago.

[Mr Andrew Turner (Isle of Wight) (Con)]

Is the Minister aware that this very morning, money was granted to the Isle of Wight and plenty of other parts of the country through the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon). Yet instead of that being done here and now, the money had to go all the way over to Europe for the EU to sort out some mad scheme.

[Nicky Morgan]

To respond briefly, I entirely understand my hon. Friend’s point. I suspect he will be pleased that the money has come to the Isle of Wight. I take his broader point about the benefits of membership and the amounts of money spent, which could be the subject for a different debate at a different time. In respect of the EU budget, it is also worth remembering that the Prime Minister went to Europe last year to negotiate a smaller future budget contribution over the course of the next seven years, which had never been achieved before. His determination to work with like-minded member states to achieve that is what enabled it to happen. I would have thought that all Members, and particularly Conservative Members, would hugely welcome that.

The need comprehensively to address Europe’s growth challenge, tackling overall low productivity and the lack of economic dynamism and flexibility, is more pressing than ever before, and it is in our interest to make urgent progress. That is why the UK will continue to push this agenda at the highest levels and encourage the new Commission to take structural reform seriously.

To conclude, the Government are committed to ensuring that, in line with section 5 of the European Communities (Amendment) Act 1993, this House approves the economic and budgetary assessment that forms the basis of the convergence programme. Following what I hope will be the House’s approval of that assessment, the Government will submit the convergence programme to the European Commission, which will make its recommendations to all EU member states in early June. These recommendations will then be considered by the ECOFIN Council on 20 June and agreed by Heads of State or Government at the European Council on 26 and 27 June.

To reiterate, the convergence programme contains no new information, but only information that has been presented previously to Parliament—information from the OBR’s economic and fiscal outlook and from the Budget, which sets out the Government’s strategy to return the UK to sustainable growth. For the reasons I have outlined, I ask the House to support the Government motion and I look forward to hearing the debate.

--- Later in debate ---

[Nicky Morgan]

I thank all hon. Members who have contributed to this extremely interesting debate. I will deal briefly with some of the points that have been raised. I hope to address all of them, but if I do not I will obviously be happy to discuss them afterwards and to try to answer any further questions.

I thank the shadow Minister for welcoming me to my new post. She is absolutely right that we will be seeing a lot of each other over the next few weeks as we deliberate the Finance Bill upstairs in the Committee Room. What I think was most interesting about her speech was that, rather like the Leader of the Opposition’s response to the Budget statement, it did not mention the EU very much at all. She went through the Opposition’s views on the Government’s economic policy, but I must say that I did not detect any signs of their own economic policy, which appears to be missing. That was interesting, given that the hon. Member for Blackley and Broughton (Graham Stringer) did mention the EU—I will mention his speech in a moment.

It is extraordinary that the Opposition, having previously claimed that there would be no recovery, that any recovery would be choked off and that we would have 1 million more unemployed people, are now saying that the recovery is too slow. No doubt they will move on to another form of criticism in due course. However, I am pleased that the hon. Lady did at least welcome yesterday’s figures on GDP growth, which are significant. As I said in my opening remarks, they show that the economy is growing and that we have momentum, but the job is not yet done.

[Mr Hollobone]

My hon. Friend is being far too modest —hiding her lamp under a bushel—because her own publication clearly states:

“Since early 2010, the pace of net employment creation has been 3 times as fast as over the same period in previous recessions and recoveries”

since 1973.

[Nicky Morgan]

I thank my hon. Friend for reading the document assiduously and quoting from it. Yesterday’s figures are a positive step, and the employment figures are very encouraging. As we know from the note left by the last Chief Secretary to the Treasury under the previous Government, there was no money left, because they had spent it all. This Government have had quite a task to rebalance our economy and fix the deficit.

The shadow Minister mentioned the Budget’s focus on savers. Let me tell her that millions of basic rate taxpayers are savers, because she somehow dismissed them by saying that we are not talking about households. I do not know where she thinks savers live, but they form their own households. As my right hon. Friend the Chancellor said, we are on the side of savers and hard-working people of all types. She also mentioned the savings ratio. The latest OBR forecast shows that the savings ratio will be around 4% over the next two years, which is still well above the pre-recession low of 0.2%. I honestly do not know how she has the nerve to criticise the ratio when people are still saving more in this country.

Let me move on to the characteristically eloquent speech from my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), which showed his expert understanding. I was delighted not only that he could be here for the debate, but that he supports the Government’s approach. I have taken his comments on board, but I am glad that he can support the announcements my right hon. Friend the Chancellor made on recent fiscal events and this document. That is very important.

The hon. Member for Blackley and Broughton set out his unhappiness with the process. I understand what he was saying. He also mentioned the impact of the eurozone crisis on our economy over the past few years, which was important, and I am glad that he did so. He asked two specific questions. On the multi-annual financial framework, the Prime Minister agreed a real-terms cut in the payment ceiling to €908.4 billion, which is €80 billion lower than the Commission’s original proposal, €35 billion lower than the 2007-2013 multi-annual financial framework and €24 billion below a real-terms freeze on the last completed budget in 2012. That is why I could make my remarks about the Prime Minister’s achievements in negotiating a real-terms cut in the multi-annual financial framework.

The hon. Gentleman also mentioned the financial transaction tax, and we have heard the news today from the European Court of Justice. Let me set out that the UK will not be joining the enhanced co-operation financial transaction tax. Today’s judgment confirmed that the UK can challenge the final proposal for a financial transaction tax if it is not in our national interest and undermines the integrity of the single market. Today’s announcement also confirms that the UK can challenge the eventual implementation if necessary without running the risk of the challenge being too late. We needed to make an early challenge in order to set out our stall for later negotiations for a financial transaction tax should they prove to be disadvantageous to the UK.

My hon. Friend the Member for Bury North (Mr Nuttall) set out in his characteristically forthright style that he fundamentally disagrees with the whole process, which I fully respect. I am, however, sorry that he will not be joining us in the Lobby this afternoon. He will understand that we are currently part of a treaty that requires us to submit this convergence programme, and I explained to him following his earlier intervention why we wanted to submit a final document, rather than the draft that has been submitted in previous years.

My hon. Friend also asked about last year’s response from the EU. There was a response and I sent the European Scrutiny Committee an explanatory memorandum about that. He also asked about renegotiation, and I take note of what he said. We clearly will not be setting out a negotiating stance at present, but I draw his attention to the recent article written by my right hon. Friend the Prime Minister in The Sunday Telegraph—I do not have the exact date, but it was certainly within the past month or so—in which he set out some key areas for renegotiation. He talked about:

“Powers flowing away from Brussels, not always to it”,

and about

“National parliaments able to work together to block unwanted European legislation.”

I hope that all of that is music to the ears of my hon. Friend the Member for Bury North. As he would expect, further announcements will be made in due course.

Following this debate and Parliament’s approval, the Government will inform the European Commission of their assessment of the UK’s medium-term economic and budgetary position. The convergence programme will be submitted later today, which is a legal requirement under the EU’s stability and growth pact. The Government of course take legal requirements seriously. At the same time, however, I reiterate to hon. Members that, as in previous years, the document is based entirely on previously published documents that have already been presented to Parliament. The submission of convergence programmes by euro-outs and stability programmes by euro area member states provides a framework for co-ordinating fiscal policies. As I said, a degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is in the UK’s national interest. It is important that we continue to use the European semester process to encourage member states to take national decisions on structural reform and growth that will help to support the European economy.

Budget 2014 set out the next steps in the Government’s long-term economic plan to secure the recovery and build a resilient economy, which requires tough decisions to put the public finances on a sustainable path. Budget 2014 supports businesses to invest, to export and to create jobs and cuts taxes for hard-working people. There is much still to do, however, and the Government are not complacent.

Ultimately, sustainable growth is the only way for both the UK and other EU member states to pay down their debts and to exit the current difficult economic times. The UK Government are leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the motion to the House.

Question put.