Lord De Mauley
Main Page: Lord De Mauley (Conservative - Excepted Hereditary)European Communities (Amendment) Act 1993
Lord De Mauley Excerpts
Lord De Mauley
That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.
Lord De Mauley
My Lords, I welcome this opportunity to debate 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 report to the Commission on the UK’s economic and budgetary position in line with our commitments under the EU’s stability and growth pact. The Government are to submit their convergence programme by 30 April. It explains our medium-term fiscal policies as set out in the Autumn Statement, Budget and OBR forecasts, and is drawn entirely from previously published documents that have been presented to Parliament. It makes clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity, and it reiterates our number one priority—tackling the deficit and restoring economic stability.
Last month’s Budget builds on the foundations laid in the 2010 Budget to safeguard our economic stability; to create a fairer, more efficient and simpler tax system; and to drive through reforms to unleash the private sector enterprise and ambition that are critical to our recovery. As my right honourable friend the Chancellor of the Exchequer said in his Budget speech, Britain will earn its way in the world.
Today’s news that UK GDP fell 0.2 per cent in the first quarter is, of course, disappointing. We face a very tough economic situation. It is taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime, even taking account, for example, of the recent fall in unemployment. But over many years this country has built up massive debts, which we are having to pay off, and it is made much harder when so much of the rest of Europe is in recession, or heading into it. The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt. You cannot borrow your way out of a debt crisis.
We can succeed only if we continue to safeguard our economic stability. But because of actions we had already taken, we were able to put forward a Budget this year that has a neutral impact on the public finances, implementing fiscal consolidation as planned, and keeping us on course to achieve a balanced structural current budget by 2016-17, with debt falling as a percentage of national income in 2015-16. Fiscal sustainability is the vital precondition for economic success, but there is much more that we are doing to catalyse growth. First and foremost, we are undertaking far-reaching reform to ensure that our tax system is simple, predictable, fair and supports work. We are committed to creating the most competitive tax system in the G20, cutting, for example, the rate of corporation tax to 22 per cent by 2014, the lowest rate in the G7, fourth lowest in the G20. But as well as creating the right and competitive conditions for business to flourish, we will continue to invest in our future.
We have announced that we will take forward many of Alan Cook’s recommendations for roads and developing national road strategy. We have confirmed investment to provide ultrafast broadband to 10 cities across the UK, with a second wave of cities to follow, and we will continue to support the establishment of a new pension infrastructure platform to unlock an initial £2 billion of investment by as early as 2013.
Of course, a return to prosperity depends not only on what we do here in the United Kingdom, but on events beyond our shores. As the Office for Budget Responsibility said in its March report,
“the situation in the Euro area remains a major risk”,
to the UK’s economic forecast. More than 40 per cent of our exports are to the euro area. In that regard, it is encouraging that progress has been made over the last year. The European Central Bank’s monetary loosening has helped stabilise the banking system. There has been progress in stabilising Greece, and a number of countries have announced economic reforms.
Lord De Mauley
My Lords, I am grateful to all noble Lords for their contributions and for the opportunity to do my best to reply. Following this debate, as I said earlier, the Government are required to report to the European Commission their assessment of the UK’s medium-term economic and budgetary position as they have done since the stability and growth pact came into operation.
There has been a large number of questions, so let me make a start on them. I cannot guarantee that I will have time—I have as much time as I like, but your Lordships may tire. I will do my best. The noble Lord, Lord Eatwell, suggests that the Government’s economic policy is not working. I acknowledged in my opening remarks that it is taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime, even after the recent fall in unemployment. Over many years, this country has built up massive debts, which we are having to pay off. That is made much harder when so much of the rest of Europe is in recession, or heading into it. Fiscal consolidation is critical for the UK to maintain confidence and minimise risks. International institutions and credit rating agencies support the Government’s fiscal strategy, with, for example, the IMF recently saying that it had,
“concluded that the degree of fiscal consolidation for 2012 is right”.
That is why Standard & Poor’s recently reaffirmed the UK’s AAA credit rating. Reversing the historic rise in public debt will strengthen the UK’s medium-term growth prospects. A recent OECD study showed that high levels of debt damage growth but, with respect to the noble Lord, Lord Eatwell, considerable action is being taken to stimulate growth. We are supporting investment in energy. The Government will introduce a package of oil and gas tax measures to secure billions of pounds of additional investment in the UK continental shelf and publish a strategy for gas generation in the autumn of 2010, recognising that gas-fired electricity generation will continue to play a major role in UK energy supplies over the next decade and beyond.
We are supporting the housing market by providing an additional £150 million to the Get Britain Building fund to help to deliver more than 3,000 more homes. We are expanding private investment in infrastructure. The Government have supported the establishment of a new pension infrastructure platform, which will make the first wave of the initial £2 billion of investment infrastructure by early 2013. We are making rail investment. The Budget gives the go-ahead to Network Rail to deliver three elements of the northern hub proposal at a cost of £130 million, subject to a final value-for-money assessment.
We are supporting technology. The Government are setting an ambition to make the UK the technology hub of Europe. To help achieve this, we will extend mobile phone coverage to 60,000 rural homes and along at least 10 key roads by 2015 and will set up a new £100 million fund to support investment in major new university research facilities. I earlier referred to what we are doing in the area of ultrafast broadband.
We are reforming planning. We are supporting investment across the United Kingdom and are decentralising decision-making power away from central government. We have agreed to proposals by the Greater Manchester Combined Authority to pilot a new model that is set to unlock £1.2 billion of infrastructure investment.
The noble Lord, Lord Eatwell, suggested that the recession was the result of the Government’s policy of austerity. Our credible fiscal plan has helped us maintain our top international credit rating and has lowered interest rates to record lows, making, for example, family mortgages and business loans cheaper. In fact, the one thing that would make us lose our credit rating would be a deliberate decision to increase borrowing and debt. As the noble Lord knows well, we argue that spending more would be counterproductive. It would increase the deficit and put the UK’s status as a safe haven at risk. Cutting the deficit is critical to maintaining market confidence. That is why the Government’s deficit reduction plan is endorsed by the IMF, the OECD, the European Commission, the credit rating agencies and UK business organisations.
The noble Lord, Lord Eatwell, proposed that long-term bonds should be issued. There has been evidence of demand for gilts with long-term maturities against the backdrop of historically low long-term interest rates which provide a direct benefit to the economy and help keep interest payments lower for families, businesses and the taxpayer. In 2012-13, the Debt Management Office will consult on the case for issuing gilts with maturities significantly longer than those currently issued.
The noble Lord, Lord Skidelsky, referred to a line in the convergence programme document stating an expectation that we would avoid technical recession. The Government established the independent Office of Budget Responsibility, and it is the OBR that expects a recovery in underlying growth momentum over the year and that measured GDP growth will be broadly flat in the first half of 2012. That forecast is unchanged, as is the overall OBR forecast for 2012. The noble Lord made quite a number of suggestions. I refer to the Government’s focus on encouraging greater investment in infrastructure, increasing access to finance for SMEs and reforming tax policies to ensure that the UK is the best place to build finance and set up a business. I would like to consider what he said and write to him addressing the issues he raised.
The noble Baroness, Lady Bakewell, is no longer in her place, so I will leave her points.
The noble Lord, Lord Pearson, supported by the noble Lord, Lord Stoddart, asked why we are converging and who we are converging with. Those who are not members of the euro are legally obliged to submit convergence programmes to the European Commission. All the euro-outs, as they are known, with the exception of the UK and Denmark, are committed to join the single currency when they meet the relevant convergence criteria. As noble Lords well know, the UK has an explicit opt-out from joining the single currency under its protocol to the EU treaties, and the Government have made clear that we have no intention of joining or preparing to join the single currency in the lifetime of this Parliament, so we are not converging and we have no intention of doing so. However, it is a legal requirement under the Lisbon treaty to submit this document.
Lord Stoddart of Swindon
I am a little puzzled by what the noble Lord has just said. He appeared to say that we do not need to converge and that there is no requirement for us to do so. Is that what he said, or have I misunderstood him?
Lord De Mauley
There is no requirement to converge, but we none the less believe that we should honour our legal commitments.
I think the gist of what the noble Lord, Lord Pearson, said is that we should not be contributing to the EU budget. The UK remains a committed member of the European Union. However, it is unacceptable for the Commission to impose an inflation-busting budget increase for the 2013 EU budget when Governments across Europe are making difficult decisions on public spending, and we will be pressing for a more realistic budget that recognises the economic reality across Europe.
The noble Lord also suggested that there was no accountability for EU spending. For the 17th successive year, the European Court of Auditors is unable to grant an unqualified positive opinion on the EU accounts. That is entirely unacceptable. The UK Government demand concrete action by the Commission and member states to improve EU financial management.
I am just coming to the noble Lord, Lord Davies of Stamford, and perhaps he will let me have a go at his initial questions.
Lord Davies of Stamford
In response to what the noble Lord just said to the noble Lord, Lord Pearson, is it not the case that the auditors have consistently declined to sign off on those aspects of the accounts of the Union which involve money disbursed by member states—for example, structural funds and CAP funds? There have been a number of difficulties in a number of countries, but there has never been any doubt at all about the robustness of the accounts of the Commission and the institutions of the Community. Therefore, this issue is an indictment of a lack of federalism, not of too much feudalism. If the Commission were directly responsible for disbursing all these funds, there probably would be no problem. The problem is with member states that have had a lot of difficulty in keeping accounts properly.
Lord Pearson of Rannoch
Before the noble Lord rises to reply to that well known canard, it is, of course, true—is it not?—that a third of the budget is under the direct control of the European Commission. If the noble Lord, Lord Davies, would like to understand how it really works, instead of continuing to produce Europhile propaganda, I suggests he reads Brussels Laid Bare by Marta Andreasen. Then he will understand how the whole thing works, and we will no longer have these fruitless debates trying to pretend that this is not the fault of the corrupt octopus in Brussels but entirely the fault of the wicked nation states, which are also at fault, of course.
Lord Lea of Crondall
Is it not absolutely clear that the funds directly being disbursed in Brussels by the Brussels bureaucracy, as is often said, are the funds that have a clean bill of health in the auditing? It is the funds down to the nation states that are the reason why the auditors cannot sign off all these accounts. It is as simple as that.
Lord De Mauley
My Lords, I am not going to enter into this discussion any further.
The noble Lord, Lord Davies of Stamford, talked about the general anti-avoidance rule. I am not sure it is entirely relevant to this debate, but I can say that the Government will consult on the GAAR in summer 2012 with a view to bringing forward legislation in the Finance Bill 2013. A targeted GAAR is the right solution to tackle the persistent problem of artificial and abusive tax-avoidance schemes. I will take the noble Lord’s specific points back to the Treasury and write to him on them.
In an amusing speech, the noble Lord, Lord Myners, referred to, among other things, IMF and OECD support. The IMF and the OECD support the Government’s policy. The IMF’s Madame Christine Lagarde said that under the current circumstances the policy in place is the “right thing to do”, and the OECD Secretary-General said on our Budget 2012:
“The Budget announced today is another important step towards a sound fiscal position for the United Kingdom. The confirmation of the UK’s fiscal consolidation programme should keep bond yields low and support the recovery”.
Lord Myners
Will the Minister also acknowledge that the OECD has said that if the UK’s growth performance is lower than that forecast by the OBR, it will be necessary to revisit the fiscal strategy being pursued, and to ask whether that was contributing to the problem rather than solving it? In the interests of completeness, the Minister should give the full position of the OECD rather than a highly selective summary.
Lord De Mauley
Perhaps I can come back to that in a moment. The noble Lord, Lord Layard, suggested that there were optimistic assumptions in the OBR forecast, in particular on oil prices and risks from the euro area. The OBR says that,
“oil prices remain a significant uncertainty and the possibility of a further temporary spike in prices represents a risk to our forecast”.
Renewed upward pressure from the record oil prices in recent weeks is also recognised as a risk to the Bank of England’s forecast, most recently in the minutes of April’s MPC meeting.
The noble Lord, Lord Lea of Crondall, spoke about what might happen in the forthcoming French presidential election. He will appreciate that it is not for me to speculate on the outcome of the French election. Of course, the UK is not a party to the fiscal compact; it does not apply to us. The SGP was strengthened last year. Any proposal for fundamental change would require treaty change and that would require the consent of all 27 nations.
Lord Davies of Stamford
Can the noble Lord tell the House why, apparently on two occasions, the Prime Minister has refused to meet with Monsieur Hollande? Are his judgment and power of prediction in political matters as bad as in economic matters?
Lord De Mauley
My Lords, no, I cannot answer that question. The noble Lord, Lord Stoddart, asked what would be the repercussions if the House voted against this Motion this evening. The result would be that the Government would not have the statutory authority to submit the information that forms the basis of the convergence programme. The UK would therefore breach its obligations under the EU treaties, which could lead to infraction proceedings brought by the Commission under Article 258 of the treaty, for failure “to fulfil an obligation”. As I have said before, the Government take their legal obligations seriously.
It is worth saying that a strong Europe is in the UK’s economic interests. The Government want to contribute to a strong, prosperous Europe, while safeguarding our interests.
Lord Stoddart of Swindon
Can the Minister explain what would happen if Parliament decided that it did not want to obey this particular instruction or law under the treaty, and infraction proceedings took place? Is it possible for the United Kingdom to be fined? If it refused to pay the fine, what would then happen?
Lord De Mauley
My Lords, as I said, we would be in breach and subject to infraction proceedings and, yes, I am sure that we would be subject to a fine. I do not want to speculate on what would happen if we did not pay it.
There were a number of questions that I have been unable to answer, including the recent question posed by the noble Lord, Lord Davies. I will, of course, write to noble Lords with answers to those questions.
It is right that we share our budgetary and economic plans with the European Commission and other member states through the convergence programme and our national reform programme. This is a key step in the European semester process. These plans are provided after the Budget is presented to Parliament, and the Budget makes clear that Britain will earn its way in the world. It shows our commitment to fiscal consolidation and economic growth and, along with the OBR’s forecast, it forms the basis of the UK’s convergence programme.