Section 5 of the European Communities (Amendment) Act 1993

John Redwood Excerpts

Tuesday 24th April 2012 Commons Chamber

[Mr Hoban]

We have signed up to certain aspects of the stability and growth pact. One precondition is that we present this information, as we have done every year since the Maastricht treaty. I will set out later why the UK is treated differently in this process from other European Union member states, but there is nothing new in the information that we will supply and it has been presented to the House. When the EU sought to revise its economic governance package, we were very clear that, whereas other member states provide information to the Commission in advance of their budget-setting process, the UK will provide it after our process.

[Mr John Redwood (Wokingham) (Con)]

Does the Minister believe the UK is bound by the Maastricht rules that its deficit should be 3% per annum and no more, and that it should have a stock of debt of only 60% of national income?

[Mr Hoban]

We are required to endeavour to achieve the Maastricht criteria. A very different regime is in place for the UK because of the opt-out that John Major negotiated under the Maastricht treaty. We have been clear, as the economic governance package has developed in recent years, on preserving that opt-out and the different treatment for the UK as compared with other European member states. One achievement is that we are not subject, for example, to the sanctions regime to which other member states are subject.

We jealously protect our particular position in the process, as I am sure hon. Members on both sides of the House would want us to do. Clearly, were we to follow the Leader of the Opposition’s policy—he wants us to join the eurozone at some point—we would have to give up those safeguards and protections. That is not a policy that this Government or the Conservative party would support.

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[Mr Hoban]

Different member states have different constitutional requirements and different histories on the use of referendums, so it is not necessarily appropriate for a politician here in Westminster to lecture others on how to ratify treaty changes.

Before I took the intervention from the hon. Member for Blackley and Broughton (Graham Stringer), who has now disappeared, I was talking about how the UK fits into the economic governance measures. We will present the convergence programme to the Commission after the Budget has been presented to Parliament—the process we are going through at the moment. The EU, alongside other international institutions such as the OECD and the International Monetary Fund, can comment on the Budget, but, crucially, we are under no obligation to take action. It is up to the Government, not Brussels, to decide what action to take in the UK.

Of course, as the euro area moves towards closer fiscal integration, we must remain vigilant to protect the UK’s interests. Where matters are rightly for discussion or agreement by all 27 member states—for example, on the single market or financial services—they must be agreed by all 27 member states. In case there is any doubt, I can reassure Members that the UK remains at the heart of the EU’s economic debate. It is because of the Prime Minister’s recent letter with 11 other Heads of State or Government ahead of the March European Council that the Council conclusions were agreed with a commitment to ambitious structural reforms at the EU level. That included concrete Council conclusions on strengthening the single market and its governance; completing the digital single market by 2015; making further progress in reducing administrative burdens; and boosting trade by removing trade barriers and ensuring better market access and investment conditions.

The Government will push for even more ambition, however, because a return to sustainable growth is the only way for EU member states to pay down their debts and exit the current crisis. It is essential that the Commission uses EU-level policy levers fully to support growth, but member states must continue to take tough decisions to prioritise the most growth-enhancing reforms, matching the kind of ambition that the Government have demonstrated since coming to office, including in our most recent Budget. The Budget information we are providing to the Commission in the convergence programme is part of the European semester process, now in its second year, and will be something that the Commission will look at.

[Mr Redwood]

Does the Minister think that, when the Commission reviews the British Government’s homework, it will say that we need to go further and faster with the cuts or endorse the Government’s programme?

[Mr Hoban]

I do not wish to pre-empt the Commission’s conclusion—it would be wrong to do so—but when other international organisations have looked at the Budget and the Government’s path to fiscal reform, they have clearly endorsed keeping to the path and sticking to the course. That is important. It has meant that we have retained the confidence of international markets, and interest rates are low as a consequence, which is to the benefit of households and businesses. That is vital to the programme of continued economic reform in the UK.

It is important that we discuss these matters with international partners and have a debate about economic policy in Europe, but at home we have to stick to the path required to deliver the necessary reforms. The Budget builds on the Government’s ambition to create a stable and prosperous economy, it shows our commitment to fiscal consolidation and economic growth, and, along with the OBR’s forecast, forms the basis of the UK’s convergence programme. We are taking the right path, and I hope that—

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[Mr John Redwood (Wokingham) (Con)]

I have some sympathy with the Minister in this debate, which is about colossal issues, such as the future of economic prosperity throughout the European Union and its impact on our own economy, yet it is also a rather absurd debate. Successive Governments have felt that they have to table documentation and figures to the European Union, but they are embarrassed by that fact because they know that many of us feel that it is this Parliament, which answers to the British people, that should debate and settle these issues, and that what we are doing is none of the EU’s business. If we do a good job, we will stay in office; if we do a bad job, we will be thrown out of office, and the British people will rightly choose another group of people as they decided to do in 2010 as this crisis developed. We think that that is the right approach.

I must tell my hon. Friend the Minister that if the Opposition had tabled a motion suggesting that the House should tell Brussels that we would no longer send it these documents, I would probably vote with the Opposition, because I would consider that a sensible way of trying to send an obvious message to Brussels. However, we are being invited to spend more time debating the crucial topic of what kind of economic policy would best promote growth and stability in our own country, and what contribution wider economic policies can make to stability and growth in the European Union as a whole.

The description of the pact that we are debating as a stability and growth pact is a grotesque bad-taste joke at the expense of the European peoples. It is clear from the way in which it now operates in the euroland countries that it is actually an instability and recession pact. It is a pact for mutually assured deflation. It is intended to do more damage at the very point in an economic cycle when an economy is performing very badly, to withdraw spending power from both the private and the public sector in an economy with too little demand, and to take jobs away in an economy with a problem of mass youth unemployment.

[Mark Hendrick]

I accept that the policies of many euro area member states are deflationary, but it is ridiculous to deride them simply because those countries are members of the eurozone when our own Government’s policies are equally deflationary.

[Mr Redwood]

As I shall make clear shortly, our policies are rather different. For one thing, the coalition Government decided to increase current public spending, which is running at £64 billion a year more this year than in the last year of Labour government. The Red Book shows that real current public spending has risen in each of the two years of the coalition Government, although not by very much. The Government are clearly not trying to deflate the economy by introducing massive current spending cuts, given that overall current spending has been rising.

[Stewart Hosie]

The right hon. Gentleman, who knows the Red Book inside out, will recall that it makes it clear that the Government’s projected discretionary consolidation by 2016-17 amounts to £155 billion a year, of which 81% will be delivered by cuts in services and the remainder by tax increases. The hon. Member for Preston (Mark Hendrick) was right: the Government are embarking on precisely the policies for which the right hon. Gentleman is criticising others.

[Mr Redwood]

I am afraid that the hon. Gentleman has not read the Red Book intelligently. The 80:20 statistic on which Members seem to rely relates to changes compared with much bigger growth in public spending that was in inherited programmes. It is not the reality. The reality of the Government’s strategy is a massive increase in taxes over the planned five years of the present Parliament to pay for rather modest increases in current public spending over the life of the Parliament, and to get the deficit down. The 2010 strategy suggested that tax revenues would be £171 billion a year more in year 5 than they had been in the last Labour year. The Government have now had to reduce that figure a bit because—as other Members have pointed out—the expected growth has not been forthcoming, for a variety of reasons.

We need to promote growth vigorously and actively, which is common ground between the Government, coalition Back Benchers and many Opposition Members. The argument, surely, concerns what measures are most likely to bring that about. It appears that over the last four years both Governments have operated policies involving actively increasing public spending, with the exception of capital spend—certainly overall spending has risen—and actively promoting massive borrowing, while at the same time the economy has bombed very badly. I am not suggesting that that is causal, but it should lead Opposition Members to ask why that fiscal injection—massive borrowing and an increase in current public spending—has not done the job. There seems to be some disconnection between the remedy that they recommend and the reality of what is happening.

When we look at the way in which other countries have pulled out of crises of this kind, and, indeed, the way in which Britain has pulled out of similar but, perhaps, less aggressively damaging crises than the one that we inherited, we see that there is nearly always a period during which public spending must be reduced or controlled quite strongly to make room for a private sector recovery, and that a series of measures to promote that recovery will then be necessary. As I have explained at length in the past, banking reform and competitive banking are crucial. The Government’s theory favours a tight fiscal policy and a loose monetary policy. They want to allow more money to circulate through the private sector through credit and through the banking system, and they want to lower the deficit gradually in the public sector so that the fiscal policy becomes a bit tighter.

[Mark Hendrick]

The right hon. Gentleman makes great play of tax revenues. We all know where they come from—they come from those who can least afford to provide them—but given that only one private sector job is coming along to replace every 10 jobs that are being lost in the economy, where will they come from in future?

[Mr Redwood]

So far the strategy has generated quite a lot of new private sector jobs, which is very welcome, but it is obvious that it needs to generate many, many more over the next three years if it is to secure the savings on welfare benefits that I am sure all Members wish to see.

It is nonsensical for Opposition Members to say that the poor will be paying the taxes. We have just seen a big increase in thresholds which takes many people out of income tax altogether at the lower end of the income scale. Moreover, if the hon. Gentleman looks at the Red Book, he will see that there will be a sharp acceleration in self-assessment income tax—the income tax that is paid mainly by the rich—once we get the rate down. I know that Opposition Members do not like reading the figures in the Red Book, but it provides a much better case than Ministers ever provide for why we need to get back closer to Labour’s rates of income tax.

One of the things that I most admired about the former Prime Minister and last Chancellor of the Exchequer but one was his insistence that 40% was the highest rate of income tax that could be charged to optimise the amount of money obtained from the rich. He stuck to that view throughout his time as Chancellor and most of his time as Prime Minister. We all know that he only put it in as a political trap at the end of his period in office when he could see the writing on the wall, but it is obvious from the Red Book figures that he was right: 40% is about as high as we can go to optimise the revenue.

According to the forecast in the Red Book, the revenue will stream in after the rate falls to 45p. If Opposition Members look at the Red Book, they will see that last year, under the 50p regime, self-assessment income tax fell by an amazing 9%. That was because rich people who have a lot of freedom and ability to decide how much to pay themselves—I know that Opposition Members do not like that, but it happens to be the state of play—decided to pay themselves a great deal less. Both the outgoing and the incoming Governments had said that the tax was temporary, so they decided that they would hold back their income. It was obvious that they would do that.

[Gavin Shuker]

The right hon. Gentleman is talking like a cheerleader about the Laffer curve. Why does he think that the UK economy is not growing?

[Mr Redwood]

I think that the UK economy may be growing. We will know the facts tomorrow, when we see the first quarter figures, but I suspect that the economy will grow this year. I accept the Government’s forecast of a slow and modest rate of growth. Why, though, is the economy not growing more quickly? There are two main reasons.

The first reason is banking. All the cash that the Bank of England is printing is not going into circulation in the private sector. It is very helpful to keep the Government’s rate of interest down, and it is very helpful to make the increase in public spending more affordable because it controls the interest rate cost for the Government; but the money cannot enter the private sector in any real quantity because the banks are under a huge regulatory cosh to hold more cash and capital at what is, in my view, the wrong stage in the cycle, which means that we cannot secure the growth in banking credit that would finance a better recovery.

The second reason is that taxation is now very high overall in the United Kingdom, which—combined with the inflation tax that has resulted from the high inflation rate that we inherited, which has remained persistently high—means that real incomes are being badly squeezed. It is plain to us all that real incomes started the squeeze under Labour, when the recession really hit, and that that squeeze has continued. A progressive squeeze on the scale that we have experienced since 2008 hits demand and makes recovery that much more difficult.

[Graham Stringer]

Is there not a third reason: that we are in the wrong part of the world, next to the eurozone, which has no mechanism for the poorer countries to get rid of their trade imbalances or for Germany to get rid of its trade surplus? Normally that would be done by revaluing or devaluing those currencies, but having one currency makes it impossible.

[Mr Redwood]

I know that you would like me to wind up quickly, Mr Deputy Speaker, because others wish to contribute, but it is such a pity, as this is a crucial issue. I entirely agree with the hon. Gentleman that there is great difficulty in financing the big balance of payments deficits in the eurozone. Now that a mechanism has been found—German surplus deposits in the ECB being routed to weak member states’ banks through the ECB—the Germans are kicking up a fuss, because they suddenly realise that they have €600 billion at risk and they are not very happy. However, as the main surplus country, Germany has to finance the transfers in the union, and until she does so actively and in an encouraging way, there will be all these kinds of problems.

We have problems in Greece, Portugal and Ireland, which we know about. We now have deep problems developing in Spain, and we even have a problem in the Netherlands—which was meant to be one of the good guys—because of a falling out over the rather modest cuts needed to hit the Maastricht criteria. I agree that we need to get to 3% and 60% in due course—I have no problems with the European targets—but I feel strongly that we should do so for our own reasons, in our own time. It is nothing to do with Europe how we run this economy, and the sooner Ministers have the courage to tell Europe that, the better.

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[Mr Nuttall]

I entirely agree with my hon. Friend on both those points: first, this is a complete waste of time, and secondly, we certainly ought to have a referendum. That is not, of course, the matter before us tonight, however. Instead, this is the question under discussion tonight: what is the point of sending this document to Brussels?

The Minister admits that we pay no attention to what Brussels says to us, and that we govern our own affairs, so what is the point of producing this document? We should be honest with the people in Brussels and say, “Look, we’re not going to listen to you anyway. We’re independent in these matters, and we’re going to stop sending you this document every year.” It is a complete waste of time to send it this year—and I would be very interested to know what happened to last year’s document.

[Mr Redwood]

Does my hon. Friend also agree that it is a cruel paradox that the EU lectures member states to get their deficit down and then demands more money from them by way of public spending?

[Mr Nuttall]

My right hon. Friend makes a very good point, and it prompts the following: if the bureaucrats in Brussels are keeping an eye on the eurozone, something has gone pretty badly wrong because right across the eurozone nobody is sticking to the rules and regulations. The growth and stability pact went west years ago. If the bureaucrats had stuck to it a bit more closely, all the bail-outs, mechanisms and IMF funds would not have been necessary. If they had spent a little less time reading convergence documents and a little more time concentrating on the problems in the eurozone, our country might be better off because our European neighbours might be better off too and would therefore want to buy our goods and services.

There is no useful purpose to our constituents in this document being sent to Brussels, and I urge the House to vote against the motion.

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[Mrs Main]

As usual, my hon. Friend is absolutely right. Why do we want to converge? I do not believe that the British public even know that we are converging, given that this is so lost in the mists of time.

[Mr Redwood]

I fear that the convergence programme began so that countries could converge with the Maastricht criteria to join the euro. As it is clear that we do not want to join the euro, we should in no way be talking about convergence.

[Mrs Main]

I shall not be supporting this motion, because I fundamentally disagree with what is on the front of the document—convergence. I do not think that our currency or our country should be converging with anything in Europe. Our sovereign Parliament should not have to hand in its notes to see whether or not they are acceptable to Europe. If there is convergence, I am sure that somebody is marking us out of 10 on how far down the road we have gone. If we have gone down that road, I would happily stop doing so right this minute. I conclude by saying that at some point this Parliament has got to stand up for itself and say, “We are not going to do this any more.” I would like this to be the year when we are not going to do this any more.