Eurozone Crisis

Henry Smith Excerpts

Thursday 27th October 2011 Commons Chamber

[Mr Osborne]

That is an easy assurance for me to give to my hon. Friend’s constituents. There was a euro preparations unit in the Treasury when I arrived. It was shut down and it will not be reopened.

[Henry Smith (Crawley) (Con)]

Can my right hon. Friend confirm that when the previous Government signed this country up to the Nice treaty 10 years ago, they also signed away our veto on financial assistance to European nations?

[Mr Osborne]

I can confirm that we have lost our veto on financial assistance. That was one of the issues with the so-called EFSM—the European financial stabilisation mechanism—which was the EU27 bail-out fund, which we joined a couple of days before this Government were created. Getting us out of it—[Interruption.] The former Chancellor’s memoirs are very clear about this.

Air Passenger Duty

Henry Smith Excerpts

Thursday 20th October 2011 Commons Chamber

[Henry Smith (Crawley) (Con)]

Thank you very much, Mr Speaker. May I say how extremely grateful I am to have the opportunity to hold this Adjournment debate?

In this place I might be known as the hon. Member for Crawley, but my constituency is perhaps better known for being the home of Gatwick airport, the world’s busiest one runway, two terminal airport. It is also home to a number of significant aviation industry companies, such as Virgin Atlantic Airways, TUI Travel and British Airways. My arguments for not increasing air passenger duty and for simplifying the system are not simply parochial; Great Britain’s historical success has been not only as a politically assured, innovative country, but as a trading nation, and we have a unique set of global links. In addition, approximately 30 million hard-working Britons save each and every year to fly off on well-deserved holidays.

Like the debate we have in the Gatwick area about the future of the airport and whether or not it should expand, the debate on the future of APD is about balancing economic growth and the needs of environmental protection—I care passionately about both. It is right that aviation should contribute to dealing with its environmental impact, but that needs to be put into perspective and weighed against its economic contribution. Aviation accounts for about 5.5% of UK total emissions. To put that in context, road transport emissions account for about 18% and energy production emissions account for about a third of the UK total. In addition, it should be noted that the aviation sector contributes some £53 billion to UK GDP and employs almost 1 million people, in addition to the further 1.5 million employed in our tourism industry, and that about half of this country’s population fly each year.

The history of APD goes back to the early 1990s, when a charge of £5 was introduced for flights to EU countries, with a £10 charge for flights to rest of the world destinations. Under Labour, over the past decade, that was significantly hiked up to a point where British aviation taxation has become by far the highest in Europe—indeed, it is eight and a half times the European average. It is worth noting that only four other European countries charge a form of APD, with a further five European countries—Denmark, Belgium, Norway, Malta and the Netherlands—having abandoned the charging of APD. The Dutch Government abandoned APD as a taxation because it brought in the equivalent of £266 million to their exchequer but cost an estimated equivalent of £950 million to the Dutch economy.

For our own Government’s part, I very much welcome the announcement that my right hon. Friend the Chancellor of the Exchequer made in the last Budget on the freezing of APD. I also very much welcome the taxation of business jet aviation for the first time ever, so long as the collection of that tax does not cost more than it brings in. I very much congratulate the Government on their consultation on the future of APD in order to get the widest possible view on that. That is all in stark contrast to the Labour party, which did not even mention the issue in its pre-election manifesto and does not seem to have a plan B, although we are quite used to Labour not having a plan A on the economy.

[Mr Andy Slaughter (Hammersmith) (Lab)]

This is the second time I have come to listen to what the hon. Gentleman has to say and I had hoped that his speech would be somewhat non-partisan. I remind him and the Minister that the Conservative party said in its manifesto that it would move to a per-plane duty and would not keep the current banding system, which is seen to be wholly unfair. I hope that both the hon. Gentleman and the Minister will address what will be done to remove the unfair anomalies in the system.

[Henry Smith]

I thank the hon. Gentleman for his intervention. He is absolutely right that a per-plane duty was discussed and I understand that there were some legal problems with it. It is important that we as a country should finally get right the future of aviation taxation in the round, not only for the sake of hard-working families who want to enjoy a holiday now and again but, most importantly, for our economy.

Quite apart from what we think in this place about the future of APD, let me quote what a few others have said. Southern rail has added its concerns about a future increase in APD by saying:

“Any tax regime that has the potential to impact negatively on Gatwick Airport’s growth plans also has the potential to impact on Southern’s growth plans. We work closely with the airport and in recent months we have seen growth in airport passenger numbers and growth in its public transport market share. We would not want this momentum to be lost or hampered as this will impact on the medium term growth aspirations of our business”.

The airport has said:

“Gatwick is a family airport. Our passengers pay £400 million in APD every year, which goes straight into the Treasury’s coffers. It is difficult to understand why hardworking families, whose household bills are rising every month, should pay so much extra just to go on holiday. For many of them, it’s a luxury they save all year to afford.”

The Gatwick Diamond Business Association, which represents all the economy and not just the aviation sector in the sub-region, has said:

“The tax regime is having a negative impact on the UK’s ability to connect with emerging markets.”

In his speech in Manchester just a couple of weeks ago, my right hon. Friend the Prime Minister pointed out how one of the keys to UK economic growth is the need to connect better with the growing markets in Asia and South America. The Gatwick Diamond Business Association went on to say:

“Increasing tourism from the Far East is important too and in total the hospitality sector is the fifth largest in the UK. This could grow by 10% over the next five years alone…provided they are given the ability to derive their fair share of the forecasted growth in global travel.”

Another local firm in the Gatwick diamond area, CGGVeritas, has taken about 1,500 flights to meet its global customers in the past year and estimates that it has paid up to £50,000 of its budget just on the APD portion of those air tickets.

Virgin Atlantic, headquartered in my constituency, takes the view that aviation has a critical role to play in UK tourism and the wider economic recovery through encouraging visitors to these shores ahead of the Olympic and Paralympic games, but this economic potential is being stifled by ever increasing levels of air passenger duty, which are already the highest in Europe.

[Gavin Shuker (Luton South) (Lab/Co-op)]

I congratulate the hon. Gentleman on securing this debate not once, but twice, not least because it gives me the opportunity to welcome the Economic Secretary to the Treasury to her new role—a well-deserved promotion. Does the hon. Gentleman agree that part of the problem with this issue, with which I am very sympathetic, is the fact that there is a gap between the Treasury and the Department for Transport in that the Treasury leads but the Department for Transport is required to produce plans for airports and aviation?

[Henry Smith]

I am grateful for that intervention. The holy grail of government is joined-up government, with all Departments and the Treasury working together. My right hon. Friend the Minister for the Cabinet Office and Paymaster General is doing a great job in trying to achieve that.

The World Economic Forum’s international tourism competitiveness report ranked the UK 134th out of 138 nations for air taxes, and we are beaten only in the amount we charge by the west African countries of Senegal, Ivory Coast, Mali and Chad. The chief executive of British Airways said:

“Aviation in the UK is the most undervalued and overtaxed industry in Britain. We want to play our full part in assisting Britain’s economic recovery, but we are held back by levels of tax on flying which are higher than anywhere else in the world”.

and added that the increases would cost BA an extra £100 million and put more pressure on ticket prices. At the recent launch of a new Air Asia X route from Kuala Lumpar to London Gatwick, its chief executive stated that it is commercially more difficult to operate from the UK than from France. He pointed out that 10% to 12% of its passengers flying from Paris to Kuala Lumpar are British nationals. That gives a sense of the shift that passengers are already starting to make.

[Naomi Long (Belfast East) (Alliance)]

We in Northern Ireland have an interest in airport duty. Does the hon. Gentleman agree that there is an irony that we, as island nations that have to use air transport to make those important international connections, are taxed so highly in comparison with many other regions? There is also a challenge in trying to join up what happens not just with Her Majesty’s Revenue and Customs and other Departments, but, particularly in terms of the growth of our economy, with the Department for Business, Innovation and Skills.

[Henry Smith]

The hon. Lady makes a very good point. I have been pleased to see that in the context of Ireland, between the north and the south, there has been some improvement. Her point about our being island nations and relying on trade—and therefore in this day and age on aviation—is extremely well made.

The chief executive of the Association of British Travel Agents has said:

“It is vital that the Government understands the damaging impact that APD is having on the tourism industry in the UK. We already pay the highest levels of aviation tax in the world, and if the Government goes ahead with its double-inflationary increase and levies”—

as will happen on 1 January with the European emissions trading scheme tax—

“on top of this…we will see another eye-watering increase in the tax burden on the industry and on holidaymakers”.

The CBI has also rightly highlighted the fact that aviation is a critical pillar of the UK economy. Crawley-based companies such as TUI Travel, which is perhaps better known in the domestic market as First Choice and Thomson Holidays, are world leaders in developing biofuels to mitigate their environmental impact. Indeed, I am delighted that just a couple of weeks ago, they started regular biofuelled flights. Virgin Atlantic, another local company, has invested in the very latest new aircraft with the highest environmental standards.

In addition to those quotes from the industry, I should like to outline some figures that clearly demonstrate how the UK’s aviation tax burden is significantly in excess of those of our nearest competitors. As I have said, we already charge by far the highest in Europe. To fly from the UK to a European destination, we charge £12 in APD, whereas Germany charges £7 and France charges just a single euro to travel within the EU. To travel from the UK to New York, we charge £60 in APD, whereas the Germans charge £22 and the French charge just €5. To travel from the UK to Sydney, Australia, we charge an APD rate of £85 at the moment, whereas Germany charges £39 and France charges just €5. I do not think that anyone can accuse the Germans of not being astute in economic or environmental policy.

If APD were to increase from next April, there would be a huge percentage increase in just six years. For example, a family of four travelling on holiday to Florida in economy class in 2006 paid £80 in APD, whereas they would currently pay £240. If the increase goes ahead, they would pay £260 in 2012, representing an increase of 225%. A business party of four travelling to Shanghai in premium economy in 2006 were charged £160 APD; currently they are charged £600 and in 2012, if the increase goes ahead, the charge will be £656, representing a percentage increase of 310%. My final example is that of a retired couple travelling to Australia to visit family, again in economy class. In 2006, they would have been charged £40 in APD, currently they would be charged £170 and in 2012, if the increase goes ahead, they would be charged £186, representing the biggest percentage increase of 365%.

Simplifying APD would benefit not only citizens of the UK but Her Majesty’s subjects in the overseas territories. For example, the Government of the British Virgin Islands are rightly concerned that, as currently structured, APD is charged at a higher level to travel there than to fly to the west coast of the United States because the system is based on where the capital of a country is. It should not be forgotten that there are five British overseas territories in the Caribbean, as well as the many other Commonwealth countries around the world.

Before I conclude I wish to refute one suggestion mooted recently, which is that London and south-east originating flights should pay an enhanced amount of APD compared with the rest of Great Britain. I am very much opposed to that proposal because it would be unfair, unnecessary, economically misguided and environmentally dubious. It is unfair because, as I have said, we already pay one of the highest duties in the world. Millions of people living in the south-east and London should not have to pay extra just to fly from their local airports. It is unnecessary because the proposed growth of regional airports between now and 2050 is significant.

The proposal is economically misguided because while proponents of the policy say that it would rebalance the UK economy by moving key business routes to regional airports, it misunderstands the fundamental economics of long-haul business routes and ignores the fact that London’s airports serve the whole British economy. Indeed, London is a global-class city and, with the south-east, a world-class region, connecting with and competing against the likes of southern California, the east coast cities of Japan and China, the greater Frankfurt area and the Ile de France among others. Finally, the proposal is environmentally dubious because it perversely risks increased carbon emissions if south-east passengers drive hundreds of miles to regional airports for cheaper flights. More indirect flights—for example, London Heathrow to Manchester; Manchester to New York—would result in more movements and more take-offs and landings.

In conclusion, I believe that if APD is increased further and not simplified we risk damaging growth by increasing the tax burden on families and by giving our European competitors an unfair advantage in a global market. Additionally, it could create an unintended, negative environmental impact when we are already more than off-setting our aviation carbon emissions, and that is before we join the European trading scheme in the new year. Indeed, the TaxPayers Alliance, using the Department for Transport’s own figures, has highlighted the fact that, following the APD increase in 2007, aviation more than covers the cost of its environmental impact by at least £100 million. It also points to research by the Economic and Social Research Institute which found that doubling APD back in 2007 might have actually increased emissions because it reduces the relative price difference between near and far holidays.

In welcoming the Minister to her position and congratulating her, I appeal to her and the Treasury to think again, for the sake of our economy and our hard-working families, about increasing the APD burden further still.

European Union Fiscal Union

Henry Smith Excerpts

Wednesday 14th September 2011 Westminster Hall

[Mr Cash]

I am extremely grateful to the hon. Gentleman. He may recall that I raised the matter in Prime Minister’s questions, when I asked when the Prime Minister would lead us out of the mess that had been created by the existing treaties. This morning on the “Today” programme, we heard Lord Lawson of Blaby echoing that call and saying that he had always had grave reservations about the political union. I can only say that when the Maastricht treaty came and went, a lot of those arguments developed at the same time. The hon. Gentleman is completely right in saying that we must have a constructive alternative.

I have always advocated the idea of our working effectively with a European system capable of producing the right results. In fact, I hope that no one will mind my holding up a copy of a book that I wrote in 1990 called “Against a Federal Europe: the Battle for Britain.” I think I can confidently say that there is not very much in there that I would change and that most of it appears to have come true. To answer the question asked by the hon. Member for East Londonderry (Mr Campbell), I should say that it is very alarming to note that the first chapter is entitled “Britain for Europe”; it is not only a case of “Britain for Britain” but of “Britain for Europe,” because it is certainly true that we are affected by what goes on in the other member states.

As I have said many times before, the answer to the question is to go down the route of having an association of nation states, whereby we would return the right and proper power to this Parliament to make judgments on behalf of the people who have chosen us in a ballot box, to follow through policies, and to try to work in a form of understanding made on the basis of trade and political co-operation.

That was the situation anticipated by the 1975 debate when we had the referendum, which people understood. However since then, there has been onward and continuous progress towards ever further integration in an ever more undemocratic and ever more dictatorial manner. The time has come when we have to draw a line. It should have been drawn a long time ago. We drew it as a party over Lisbon. We said that we would not accept that treaty, but now here we are implementing it like there was no tomorrow.

A rather intriguing article by Camilla Cavendish was published on 8 September—only a few days ago—in The Times, which also had rather a good leader, either on the same day or the day before. It is rather amusing that she says:

“It’s no longer cuckoo to take the Swiss road; Britain and the EU are no longer going in the same direction. We should grab the chance for an amicable divorce”.

She then explains how that would be done. Essentially, she is arguing for an association of nation states, as many of us have. We are at a dangerous crossroads. A particular reason for this debate is the fact that the idea of fiscal union is being promoted. In our opinion—or in my opinion, anyway—that is entirely the wrong direction to take in the context of the broad landscape that I have been seeking to identify.

[Henry Smith (Crawley) (Con)]

My hon. Friend is making a persuasive argument. On the point of European nations not being members of the EU but being very successful, the article that he mentions refers to Switzerland, but there have recently also been articles about how the Norwegian krone is attracting a lot of investment. That is another example of a successful European nation outside the EU, which reinforces the point that an association of nation states rather than a political union is the best way forward.

[Mr Cash]

I endorse entirely what my hon. Friend has said. We are at a crossroads and it is a very dangerous crossroads. We have to get it right. It simply is not good enough to appease the European institutions by going along with their ideas when we have our own national interest to stand by, support and protect. We are not just talking about institutional arguments; we are talking about real people, their real daily lives, the unemployed and the people who cannot increase the enterprise of their businesses.

I was deeply concerned in my exchanges with the Prime Minister. I put a question to him on the question of the single market. In reply, he made it clear that he was conscious of a fact, which I had put in a pamphlet that I had published the day before. The pamphlet, by the way, is called “It’s the EU stupid”, because we have got to a stage where it is obvious that the EU is at the root of so many of these problems.

On the question of the single market, I pointed out to the Prime Minister that if there is a fiscal union of certain member states it is inevitable, as a matter of solidarity, that they will use the treaties to transfer their own wishes, through majority voting and a block vote, in a way that will be contrary to our own domestic economic interests. What would be the point of a fiscal union if, when it came to questions of legislation relating to the economy, the member states were not prepared to vote together? They will. When they do, and they outvote us, that will gravely undermine our competitiveness and our ability to grow small and medium-sized businesses. It will affect our growth. It will damage and destroy our prospects of reducing the deficit, because it will lead to a reduction in growth, which is already stagnant.

--- Later in debate ---

[Mr Cash]

The answer is yes. I did not say it so emphatically, but I said so when the Chancellor made his announcement in the House. I said that even Edward Heath would not have done what we were seeing now, so that probably sums the situation up quite well.

In my exchanges with the Prime Minister about fiscal union—I understand that these things can come out of the blue, but I wonder about the extent to which that was the case—he said:

“Of course, it will have an effect on us, but the clear rule for a referendum…is whether we are transferring power from Britain to Brussels.”

I do not agree that that is the basis for a referendum. It would be under the European Union Act 2011, but where a European decision, treaty or other legal instrument —in this case, there will be a mixture of those—applied on the face of it only to the eurozone, there would, under section 4, be no referendum.

That is why I have introduced a Bill saying we should have a referendum, and that Bill is supported by no less than six Select Committee Chairs, plus some distinguished Members, such as my right hon. Friend the Member for Wokingham (Mr Redwood), and members of the new intake who have taken a great interest in these matters. As I have said, the Bill has been presented, and the good news is that there will be a ten-minute rule Bill debate in October—the Leader of the House is here, and he knows that already. The Bill is intended to advance the case for a referendum on fiscal union.

In the Liaison Committee, the Prime Minister seemed pretty confident that there would not be a treaty. When I said that

“you are implying that there might not be a treaty” ,

he said—this was on 6 September—

“There is an important point on the issue of the treaty…Let us be clear: no one in Europe at the moment is currently talking about a new major treaty to put in place deeper fiscal union or changes in the eurozone. That may well happen in future…and if it were to happen, there would be consequences for Britain. Britain should think carefully about how to maximise our national interest”.

My answer to that is, first, that we now know that there will be a treaty, because the Chancellor of the Exchequer announced it from Marseilles. Secondly, I do not see how Britain can maximise its national interests when the new treaty, by its very nature, will erode the heart of those vital national interests.

There will be consequences for Britain, which raises another issue. We know there will be a treaty. As Mr Barroso said this morning—the Prime Minister has said this, too—it will be dealt with through a mixed bag of measures. Part of the process will no doubt be dealt with through enhanced co-operation, although the legality of that is very questionable indeed, and the European Scrutiny Committee will certainly look at that. Part of the process may also be dealt with through European Council decisions and intergovernmentalism, if those involved can get away with it. However, the bottom line is that the policy and the judgment are wrong, and we should not promote them. The best thing that I can suggest, therefore, is that we go to the next summit, put down a clear marker and insist that we will refuse to accept the treaty for fiscal union.

[Henry Smith]

Would our position as a country not be further strengthened in the negotiations if other EU members knew that any decision would be subject to a referendum in this country? The worst time to make irreversible treaty changes is during a crisis.

[Mr Cash]

I could not agree more. That is why I am making the plea that we get ahead of the curve now, although it is almost too late. We should get ahead of the curve now, get things right now and make sure that the crisis that we are in is remedied in good time. We will then be able to make sure that we get things right. However, that will involve turning the current treaty arrangements into an association of nation states. It will mean abandoning the current concept of the institutions, directly in opposition to Mr Barroso’s proposals today. The crisis is very great, but our ability to grow our economy and reduce the deficit—the very raison d’être of the coalition agreement, which said that that was the way to proceed—will be totally undermined unless the proposals that I have set out are pursued with vigour now.

Mrs Brooke, I am glad to have been able to make some of the arguments, and I hope that you will listen to the rest of the debate with pleasure.

The Economy

Henry Smith Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Mr Raynsford]

My hon. Friend makes an important point. These factors are all interrelated. The lower impact of unemployment in this latest recession, compared with those of the 1980s and the 1990s, is undoubtedly one of the factors that has contributed to its having less severe consequences.

A year ago, before the Chancellor presented his first Budget, we were seeing recovery in the housing market. New housing starts were beginning to rise and confidence was returning, and it was reasonable to expect that real growth would be sustained through 2010 and 2011. Instead, the market has stalled. Prices are static or slightly falling. There has been a continuing very low level of starts, and consumer confidence is at catastrophic levels. For only the third time in its 37-year history, the GfK NOP consumer confidence barometer has been below the -30% level. That is an indication of just how devastating is the lack of confidence in current market circumstances.

Why are we in this situation? In part, it is the consequence of the Chancellor’s overall economic strategy and the way in which he is managing the British economy and damaging confidence. The confidence issue is not unique to the housing market. It is a much wider issue, as everyone will recognise, although it has a devastating consequence for the housing market. The situation is also the consequence of maladroit policies being pursued by the Government. I would be interested to know how the Chancellor approaches the Localism Bill, which his colleagues from the Department for Communities and Local Government are taking through Parliament with the confident claim that it will devolve more and more control to local neighbourhoods to be able to say no to developments that they do not like. As we heard in his latest Budget, he wants the default position on housing and other planning applications to be yes, but I am afraid that the truth is that most of the communities who have been given the prospect of far greater control over planning decisions want the default position to be no. There is a fundamental tension between the growth aspirations that he talks about and the actions of this Government, which are in many ways damaging growth.

[Henry Smith (Crawley) (Con)]

Does the right hon. Gentleman concede that during the last decade of the Labour Government housing starts were at their lowest since the 1920s because of top-down planning control that did not work?

[Mr Raynsford]

The hon. Gentleman should be aware that during the period leading up to the recession we saw a continual increase in housing output. Net additions to the housing stock—the measure favoured by the DCLG as the best and most accurate measure—showed growth of 10,000 to 15,000 a year from 2001 to 2007. In 2007, net additions to the housing stock, at over 200,000, were the highest for 20 years. That was the position: there was a growth trend. We were seeing increased housing output and getting near to the target of 230,000 homes that the Barker report had indicated was necessary. All that has been put at risk. The number of new starts is now only just over 100,000; consumer confidence is absolutely shattered, as I have described; and the confidence of developers is severely damaged by the fear of such maladroit changes to the planning regime.

We have also seen inept cuts in public expenditure. The Homes and Communities Agency played an absolutely vital role in helping the housing sector through the crisis of the recession and giving confidence back to developers through schemes such as Kickstart and HomeBuy Direct and investment in housing associations. All those programmes have been cut back, except one. Six months after HomeBuy Direct was cut, the Government realised that they had made a terrible mistake, so they rebadged it as Firststart, or something like that. However, I am afraid that the others have gone, and the investment levels of the Homes and Communities Agency, at 65% below what they were under the previous Government, mean that the outlook for affordable and social housing is extremely grim.

We have a Government who talk about growth, but their actions are damaging to growth. The housing market, as a microcosm of the overall economy, shows that while current policies continue we have no prospect of getting the growth we need, the homes we need, and the jobs that will come from that, because the housing market has huge multiplier consequences for the economy as a whole. I hope that the Chancellor will not continue to base his case merely on the arithmetic of deficit and will look at what is happening in the real economy and the damage that his policies are doing.

--- Later in debate ---

[Henry Smith]

My hon. Friend makes a powerful point about the United States, where unemployment is rising because it failed to tackle its deficit early enough. In contrast, in my constituency, Siemens has just announced 600 new jobs. That is proof that our Government’s policies are starting to work.

[Sajid Javid]

I absolutely agree with my hon. Friend.

If we want to make the cuts less painful, that is possible. This does not all have to be about losing jobs. I noticed yesterday that local councils are still advertising for walking co-ordinators, obesity strategy officers, cycling officers and energy island administrators. If the public sector wants to make the cuts less painful, it has the power to do so.

Hon. Members talk about the unfairness of the cuts, but let us look at some of the changes that the Government have boldly introduced. We have put a cap on the amount of benefit that people can claim at the equivalent of about a £35,000 gross salary. What is unfair about that? Why should a family on benefits receive more than the average working family receives in salary? We have put a cap on housing benefit to ensure that claimants cannot live in better accommodation than ordinary, hard-working families. We recently suggested a cap on how much someone living in social housing can earn. There are Opposition Members who are earning a household income of more than £100,000 a year and who continue to live in social housing for about £175 a week. That is unacceptable and the public will find it unacceptable too.

The Chancellor asked why the Opposition do not have a policy on public sector pensions. I suggest that one reason is that the leader of the Labour party was elected and put in place by the trade unions and that many Labour Members get the majority of their funding from trade unions. I would therefore expect nothing else from them.

What alternatives do we have? That question brings me back to economic illiteracy. The shadow Chancellor seems to think that we can force the bond markets to buy our bonds. He seems to think that despite this country being forced to issue £4 billion in bonds a week—that is the amount we borrow plus the amount we have to refinance—and despite the competitive nature of the bond market, bond investors will just purchase our bonds willy-nilly. That is unacceptable economic illiteracy. The truth is that bond investors have a choice. Because of that, we are stranded and have no choice but to deal with the deficit.

In my last two minutes, let us look at the countries that have failed to take action. I have already mentioned the United States, which had huge quantitative easing programmes of $600 billion and $1.7 trillion. It has reached the ceiling on its debt cap and is in serious trouble. It will shortly have to follow similar plans to ours. The shadow Chancellor mentioned the eurozone. He was right to point out the problems in Greece, but wrong to suggest that he has never supported membership of the euro. It is the policy of the Labour party to join the euro, and its last manifesto offered a referendum on the euro. The problem with the euro was created by political dishonesty. Politicians in Europe were not willing to tell the truth about the euro and say that there could not be a single currency without fiscal union.

I suggest that there is similar political dishonesty from the Labour party. It is a party that, like Alice, lives in Wonderland. It believes that one can keep spending without any consequences and that one can abolish boom and bust.

Oral Answers to Questions

Henry Smith Excerpts

Tuesday 21st June 2011 Commons Chamber

[Henry Smith (Crawley) (Con)]

Last week, a consortium of regional airports called for a congestion tax on London airports such as Gatwick in my constituency. Will the Treasury rule out such an absurd and, frankly, anti-free trade measure?

[Justine Greening]

My hon. Friend is right to refer to the importance of the aviation sector. As he will know, the consultation on reform of air passenger duty closed last Friday, and we have received a number of different representations from stakeholders. He will be aware that this is partly about looking at what we can do to support regional airports, but we certainly do not want to do that at the expense of our other key airports in the south-east.

Eurozone Financial Assistance

Henry Smith Excerpts

Tuesday 24th May 2011 Commons Chamber

[Stephen Williams]

I thank the hon. Gentleman for his intervention. I suspect that I may be alone in the Chamber—at least on this side of the Chamber—in being for the euro. I believe that Britain could have benefited from joining back in 1999, but I none the less recognise that the coalition agreement contains a strong statement on how that is simply not up for discussion during the course of this Parliament. I would therefore agree to differ with the hon. Gentleman. Surely one of the reasons why the three states that he mentioned are unable to deliver deficit reduction is not just their membership of the euro, but the fact that their Governments have not been as willing as this Government to take the necessary painful medicine to put themselves back on an even keel.

We have, of course, made bilateral loans as well, recognising that, as the hon. Member for Orpington (Joseph Johnson) said earlier, it is in our own selfish national interest to support our fellow EU member states. Many of those points were made last year in the debates on the Loans to Ireland Act 2010. One statistic, which I thought was implausible when I first heard it—I have now heard it so many times that it must be true—is that Ireland is more significant to our trade than China, India and Brazil, so it is indeed in our national interest to continue to support Ireland.

[Henry Smith (Crawley) (Con)]

My hon. Friend talks about our bilateral and multilateral arrangements. Surely it is in this country’s interest to be flexible and not to get locked into multilateral arrangements, but to have the freedom to make bilateral arrangements when it is in our national interest to do so.

[Stephen Williams]

I thank my hon. Friend for that intervention. He is right to say that we need flexibility. Because we are not in the euro, we are not a participant in the far greater funding of the facility. I think that the figure involved is €400 billion. Our exposure is therefore quite limited.

That leads me on to my next point. The loan to Ireland involves about €7 billion, which is roughly equivalent to the maximum theoretical exposure of the United Kingdom to the loans that we have participated in under the European financial stability mechanism. So what is the cost to the UK? I have already mentioned our IMF and bilateral loan contributions, which we make irrespective of our EU or euro membership. We are outside the EFSM, as I have said, and our EFSM contribution is restricted to the UK share of the European Union budget, which is roughly 12.5%. Our total theoretical exposure is therefore about €7.5 billion, which is roughly equivalent to the bilateral loan that we have decided, of our own volition, to give to our close friend and neighbour, Ireland.

Our contribution to those loans—I emphasise that they are loans—is at risk only if there is a default on the part of the member states receiving them. It is the expectation, when loans are made in the ordinary course of business, and certainly between nation states, that they will be repaid without default, and that they will be repaid with interest. If Ireland and Portugal repay those loans in a timely manner and with interest—the interest rate is quite a hefty one—it will be important to ensure that the interest is credited back to the United Kingdom.

A real cost would be incurred if we did not support our fellow EU member states, which are, after all, our closest trading partners. It would simply not be in the UK’s national interest to watch the eurozone fail and even break up, as I suspect some of my coalition colleagues would like it to do. The resulting massive instability among our closest trading partners on our doorstep would not be in our national interest. I plead with the ministerial team to make the case more strongly on behalf of the Government that UK assistance at this time is in the British national interest, and that it is not merely the result of some philosophical commitment to the European Union, whether by the Liberal Democrats—whom I heard being blamed earlier—or by anyone else. Indeed, if we were not making those contributions via the European financial stability mechanism, it is possible that we would be making higher bilateral contributions or having a higher call on our funds because of our treaty obligations relating to the IMF. It is also right, however, that any such support should be temporary, and that, from 2013, the eurozone should be able to wash its own face and support itself through the proposed new European stability mechanism. It will then be up to Britain to decide whether it wishes to give bilateral assistance, when it is in our national interest to support our closest friends and neighbours.

Court of Auditors 2009 Report

Henry Smith Excerpts

Wednesday 2nd February 2011 Commons Chamber

[Justine Greening]

My hon. Friend echoes a sentiment that many people in the country will feel. Clearly, we have a legal obligation in terms of our payments to the EU budget, but the challenge is sorting out the underlying problem and even doing what he suggests would not do that. We have to address the underlying problem now, and there are ways in which we can do that.

If I can make a little progress, I shall provide some context and talk about the steps that we are taking and are planning to take. It is important to have this debate, because the views of Members across the House and their constituents on the budget are key in pointing out how important this matter is not only for the UK Government but to represent in Europe, which we plan to do. To give some background, the European Court of Auditors report on the 2009 EU budget was published on 9 November 2010. As hon. Members will know, at that time the Government were taking extremely tough decisions domestically, having just published the spending review that was our plan to deal with the largest peacetime deficit in British history. At home, we are taking the steps needed to cut the deficit and start tackling our debt. Actually, the experience is the same for most people and most countries across Europe—member states bringing their deficits under control by cutting spending.

[Henry Smith (Crawley) (Con)]

I do not doubt the determination of the UK Government to bring down the deficit—nor do I doubt the determination of many other countries in the EU to bring down their deficits—but is it not telling that great countries trying to work together to bring down deficits do not seem to be able to make an impact on the EU, because it is so remote from the peoples of Europe, particularly the people of this country?

[Justine Greening]

That remoteness—the lack of the ability, day to day, rigorously to monitor how spend is going on—is one reason why we have reached this stage today. Also, it is fair to recognise that 80% of the spending happens at member state level. Therefore, there is some challenging complexity for any system in ensuring that that spend across those disparate member states, some of them new, is effective.

In spite of that, we have to get a grip. Our Government in the UK are getting a grip on departmental spending and the EU needs to do the same. I say to my hon. Friend the Member for Crawley (Henry Smith) that I think that there is now an appetite across member states to start to address the issue. There is more of a common agenda—perhaps at the EU and member state level—to address financial management. I welcome that development, but I am also determined to harness it while it is there to get change for the better.

As I was saying, the Court of Auditors report was published at the same time as the EU-level negotiations were taking place on the 2011 annual budget.

--- Later in debate ---

[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to follow the hon. Member for Stone (Mr Cash), who does such an excellent job in chairing the European Scrutiny Committee, of which I have the honour to be a member and in which I do my best under his chairmanship.

The problem that we face has existed for many years. This is the 14th speech that I have made on these matters. I made the first 13 in European Standing Committees, and I am pleased to be able to make this one on the Floor of the House. Although we are given less time on the Floor of the House, there is a greater focus on debates here and they gain a higher status.

Although I may have said the same thing repeatedly for 14 years, at least the numbers change. Let me introduce a few facts to the debate. In agriculture, which I mentioned earlier, the number of reported irregularities increased by 43% in a single year. The number of irregularities relating to cohesion policy increased by about 20%, and the number of irregularities involving pre-accession funds by 35%. Those are significant figures.

My hon. Friend the Member for Bristol East (Kerry McCarthy) cited some of the positive conclusions of the report by the Court of Auditors. The big negative is that it was

“unable to give a positive Statement of Assurance on the legality and regularity of expenditure in the areas of agriculture and natural resources, cohesion, research, energy and transport, external aid, development and enlargement and education and citizenship”.

That is pretty much what the budget is about. There is not much left, really.

[Henry Smith]

Does the hon. Gentleman believe that, despite the best and, I believe, sincere efforts of Her Majesty’s Government, the Court of Auditors will ever be able to sign off an EU budget? I doubt it.

[Kelvin Hopkins]

The evidence that we have seen so far is not very encouraging, is it? I must say that I agree with the hon. Gentleman.

The hon. Member for Stone made the serious point that the Court of Auditors is not really a separate organisation in the sense that the National Audit Office is in Britain. I should like it to be much stricter. If it were stricter, it might reveal even more irregularities and fraud than it does now, and might bring the European Union into even greater negative focus.

At the end of our last presidency, I urged the Government—from the other side of the Chamber—to call for the abolition of the common agricultural policy, which is the main problem in relation to the budget. We were given endless assurances about reform of the CAP at that time. Apparently, at the end of our presidency, the then Prime Minister, Tony Blair, went to the European Union to call for its reform, if not its abolition, but what he came back with was no reform at all. As was pointed out by the Economic Secretary to the Treasury, he had given away a substantial proportion of our rebate. According to her, it amounted to some £10 billion over a five-year Parliament, or £2 billion a year, which is four times the sum that the Government plan to save by abolishing education maintenance allowance. Tony Blair gave that money away, and not one question was raised before he did it. Apparently he did it on the spur of the moment, hardly even checking with the then Chancellor of the Exchequer.

The Economic Secretary and others have mentioned the previous Government. I believe that the former Prime Minister, who is still a Member of Parliament—my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown)—was on our side, in a sense. He prevented us from joining the European single currency despite immense pressure from Tony Blair and others, and it could be said that by doing so he saved us from worse difficulties.

[Kelvin Hopkins]

I do not see many Members on any Benches who are in favour of it at the moment, and I am greatly encouraged by that. I believe that we have a kind of common sense.

I should say to the Economic Secretary that I appreciate her sincerity. I believe that she will fight as hard as she can to support our interests, and the interests of the European Union as a whole as well. It is important for other countries as well as ours that we get these things right as much as we can. As the hon. Member for Stone has suggested, the Economic Secretary and everybody else faces serious inherent problems when considering these matters. It is the system.

The common agricultural policy is one of those problems. If it did not exist and member states simply managed their own agricultural industries, choosing to subsidise where they thought appropriate, not where someone else thought appropriate, the system would be much better. The CAP will cause more difficulty, because when it comes into full effect in respect of the new member states, it will cost much more than anybody anticipated. That is because wages have risen in those countries, so the cost of subsidising agriculture in them will be much higher. There are ongoing problems with the CAP and we ought seriously to suggest to the European Union that the CAP should be abolished, by being phased out or whatever. Let us give notice that we want it abolished—let us say within the next five years, in order to give France time to adjust. That would save a lot of problems, as a range of difficulties in the budget would disappear.

Other areas of the budget have problems, too. The suggestion that I have made several times in the Chamber and in Committee is that we should get rid of the budget in its current form, which is about fiscal transfers. It is about transferring income or money from the more wealthy nations to the poorer ones; it is a redistribution policy. It does not work very well because of the formulaic way in which it is done, with some countries unfairly contributing too much and other countries unfairly receiving too much.

Let us suppose that there were no such thing as the CAP and all the other budgetary arrangements, and the European Union simply transferred a substantial sum to countries that needed it from countries that could afford to pay. For example, we might contribute 0.5% of our gross domestic product and Romania might receive 1% of its GDP. A lump sum would be handed over to the Governments of the countries involved and they would then decide how to spend that largesse. That would be more accountable because those Governments would be accountable to their own electorates. At the moment, no direct accountability is involved and we cannot do much to control the budget spending, but the member states themselves, with their own democratic Parliaments and Governments, could control that spending. That could be done in Britain at least and one hopes that that would spread to other countries.

I have suggested many times that instead of having this complicated arrangement of special budgets for all sorts of different things, we should have a system of a simple payment each year from the more wealthy countries to the poorer countries, in proportion to their living standards. So the wealthiest nations would give according to their wealth and the poorer nations would receive according to their need.

[Henry Smith]

Does the hon. Gentleman think that the concept of zero-based budgeting would be helpful?

[Kelvin Hopkins]

The hon. Gentleman would have to explain the position to me, because I am not an accountant, but if there were no budget and no European Union at all, that would solve the problem entirely. Given that we are generous by nature and would want to help our fellow European countries to develop, some sort of transfer might be helpful and the European Union would be a way of doing it. So I am not against the idea of wealthy countries contributing to poorer countries, but the current cumbersome approach, which invites corruption and irregularity, is not the way to do it and does not work out fairly. I have made my suggestion a number of times and I hope that, in time, our Government at least will take it seriously. Perhaps we will be able to debate that in the European Councils themselves and discuss completely changing the method by which these fiscal transfers take place. I have made my point and I have spoken for long enough.

National Insurance Contributions Bill

Henry Smith Excerpts

Thursday 13th January 2011 Commons Chamber

[Mr Hanson]

I am grateful to my hon. Friend. Would I ever try to miss out the good constituency of Ilford South? My purpose was to indicate that the inclusion criterion that the Minister has selected is based on one simple issue: how to compensate for and deal with public sector job losses and provide a mechanism to help to support the creation of new jobs where public sector jobs are lost. On his criterion, 23 of the 100—or 28 of the 105, to take my hon. Friend’s figures—show that those issues are not being dealt with in the way in which the Minister has said.

If I look at the impact of the possible 490,000 public sector job losses, I see that they will hit hardest those constituencies with public sector employees. If I add to that, as I have to do, the benefits of job creation and look at local authorities on the economic deprivation index, I see that no fewer than seven of the top 12 of those economically deprived boroughs fall within areas that are excluded from the scheme. The boroughs of Hackney, Newham, which is represented here today by my right hon. Friend the Member for East Ham (Stephen Timms) and my hon. Friend the Member for West Ham (Lyn Brown), Tower Hamlets, Islington, Barking and Dagenham, Haringey and Lambeth are all in the top 12 economically deprived boroughs, yet they cannot avail themselves of the scheme.

Other constituencies throughout the country—again, I will alight on Tatton, because its is the Chancellor’s constituency and one that I know well—where unemployment is low and there are many business start-ups and great pockets of wealth, will benefit from the scheme and can apply to include businesses in the scheme, while boroughs such as Newham, Tower Hamlets and others that I have mentioned will not be able to do so. If we look at the unemployment rate across the United Kingdom, which is 7.9% on the latest figures, we see that unemployment in London is 9.1%.

[Henry Smith (Crawley) (Con)]

As an MP from the south-east, I resent being put into this invidious situation. But why does the right hon. Gentleman think that we are in this invidious situation, whereby we must make tough choices to re-stimulate the economy after the economic disaster in which the Labour party left the country?

[Mr Hanson]

I am happy to discuss macro and micro-economic issues with the hon. Gentleman. There is a clear divide between the current Government and the previous Government. We had a deficit reduction plan over three years. We would have cut public expenditure and made savings. In the Department in which I was a Minister in the last Government, we had earmarked £1.5 billion of savings over the next three years. We would have done that.

There is a difference about the scale and depth of the cuts. The hon. Gentleman and I can argue about that, but he needs to recognise that, if he walks through the Lobby to vote against the amendment today, he will be denying new businesses in his constituency the ability to gain access to the scheme, while allowing areas with lower unemployment and lower deprivation, perhaps in parts of the north of England, which are not completely a desert, to benefit from the scheme. He has to wrestle with that issue. Let me advise him that however he deals with it, we have the ability to let the residents of Crawley know what he will do on the issue. He and others need to look at that. There is still time for him to vote with the Government today, but then to speak to the Minister privately, to get his colleagues from Kent, other parts of Sussex, Berkshire and Hampshire together, to get them to talk to the Minister, and to get the Minister to reflect on this in the other place, so that we can make the scheme much wider. Colleagues from London and I would give him credit for doing that.

I put this to the Minister: the unemployment rate in London is higher than in the south-west, in my region and in that of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), in Wales. It is higher than in Scotland, the east midlands and the north-west, and it is above the UK average. The unemployment rate in the constituency of my hon. Friend the Member for West Ham was 6.8% at the last count. The rate is 7.7% in Tottenham, and 6% in Camberwell and Peckham; in Tatton, Richmond and Derbyshire Dales, it is under 2%.

I have no objection to a scheme being developed to help create employment where employment is lost, but if the logic of the scheme is what the Minister has made it out to be—to deal with public sector employment —I should point out that at the moment 23 of the 100 constituencies with the highest levels of public sector employment are not included. If it is to deal with unemployment, which is higher in the places that I have mentioned than in other parts of the country, the Minister needs to reflect on that in relation to what he has done today.

The Minister does not need to listen to me; John Walker, the national chairman of the Federation of Small Businesses, has said:

“With small firms in the South East most likely to be working below capacity, this shows how wrong the Government is to not include this vital region, as well as the East and London, in its proposals for a National Insurance holiday…With 600,000 public sector jobs expected to be lost, stimulating private sector job creation…in small firms, will be vital to rebalancing the economy.”

The Thames Gateway London Partnership makes similar points:

“the data clearly shows that…the National Insurance Holiday is unfair as it excludes areas in the Thames Gateway which we believe would otherwise be targeted for government support.”

The partnership has helpfully shown—this backs up what my right hon. Friend the Member for Lewisham, Deptford (Joan Ruddock) has said—that there are high levels of public sector employment in the London area, which would benefit from the scheme.

Oral Answers to Questions

Henry Smith Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Hoban]

I hardly think that a Government who have embarked on a programme of radical regulatory reform of the financial services sector, introduced the bank levy, and set up the independent banking commission to consider the structure of banking in the UK could be viewed by anybody other than the Labour party as a roadblock to reform.

[Henry Smith (Crawley) (Con)]

18. What estimate he made of the effect on public finances of the introduction of a graduate tax.

[The Chief Secretary to the Treasury (Danny Alexander)]

I agree with the assessment of the graduate tax that the Chancellor gave in answer to earlier questions. I add that, under a graduate tax, those on the lowest incomes after leaving university would pay more than they do under our proposals. From a progressive point of view, there is an important argument against a graduate tax.

[Henry Smith]

I am grateful to my right hon. Friend for that answer. Does he agree that a graduate tax is neither fair nor progressive and that it would do nothing to help the 17% of my constituents who go on to higher education?

[Danny Alexander]

I agree. Our proposals, which the House has agreed, ensure that no one will make a payment up front when they go to university, or start repaying until they earn more than £21,000 after leaving university. I note that some hon. Members now advocate a graduate tax. They have said that they will produce their detailed plans by the end of the year, and we greatly look forward to seeing them.

Draft EU Budget 2011

Henry Smith Excerpts

Wednesday 13th October 2010 Commons Chamber

[Kerry McCarthy]

The CAP represented 71% of the EU budget, but it is now down to 40%, so that is significant progress, although I agree that there is more work to be done on that front. I shall come to that.

[Henry Smith (Crawley) (Con)]

If this truly is a global circumstance, how come, apart from the Republic of Ireland, this country has the largest deficit of any in the EU and the largest of any in the G20?

[Kerry McCarthy]

That is obviously partly related to the fact that the UK has probably the largest financial centre globally—it is certainly far and away the largest financial services sector in the EU. There is a more significant impact on the UK economy, London being as it is, as opposed to other countries.

To return to my speech, I shall not take any more interventions for a while. Labour Members believe, as we have always done, that the EU should always scrutinise its expenditure carefully and closely in cutting waste. We want to ensure that the budget is spent wisely and well, and that there is demonstrable added value for the member states and regions as a result of such expenditure.

We welcome the fact that the EU Parliament has chosen, for the first time, not to go above the ceiling set out in the budget at a time when member states face economic hardship. That demonstrates that the Parliament has at least gone some way to appreciating the challenges, but the issue today is whether we should go further. The Government, despite all their talk and bluster, seem to be singularly failing in their aim of putting a lid on what the EU Parliament wants to spend.

Labour Members fully support the principle that the EU budget needs to play its part in an era of fiscal consolidation, and we do not think it right that there should be significant real increases next year, but we should avoid throwing the baby out with the bathwater. The EU has key roles to play, and it was noticeable in the Minister’s speech that she made only passing reference to the good things that come out of working with our European partners. In particular, it is important that the EU continues to foster growth and recovery, which is the priority for us here in Britain. As Europe is our largest export partner, growth in Europe is an essential precondition for our recovery.

We welcome the stated key objectives for the draft 2011 budget, which are to support the EU economy and recovery from the economic and financial crisis, and to help EU citizens by reinforcing economic growth and employment opportunities. It is somewhat ironic that as the European Parliament debates and votes on the draft budget on Wednesday 20 October, when it will focus on the admirable and important objectives of supporting recovery and growth, we in the UK Parliament will hear a statement on the comprehensive spending review from the Chancellor, who clearly rejects an active role for the Government in securing such objectives and believes that cuts, cuts and cuts alone are the way forward.