Loans to Ireland Bill

Lord Newby Excerpts

Tuesday 21st December 2010 Lords Chamber

[Lord Newby]

I thank the Minister for his very clear introduction to the debate. I was slightly concerned, however, that he did not refer the House with the degree of attention that it may deserve to paragraph 21 of the Explanatory Notes, which deals with the compatibility with the European Convention on Human Rights. I was tempted to ask him whether the law officers had been consulted before the Chancellor of the Exchequer made the statement that,

“pursuant to section 19 of the Human Rights Act 1998 … the Bill is compatible with the Convention rights”.

As this is the first time that we have debated the Bill, the Minister has not had the chance to give any undertaking to speak to the law officers, and it would be invidious to ask him to do so. However, one hopes that that will not be necessary.

Was there any alternative to the loan and the Bill? As the noble Lord, Lord Liddle, has explained, there was not. If the EU had not intervened in the dramatic way in which it did, it is almost certain that Ireland would have had to default and leave the euro. That would have been bad not only for the eurozone but for the UK. It would have been bad for the UK for trade reasons—I shall come back to the point made by the noble Lord, Lord Pearson, a bit later in my speech—as we have a large volume of exports to Ireland. Indeed, 40 per cent of Northern Ireland’s exports go to the Republic. I am sure that the noble Lord, Lord Bew, will expand on that point.

The prospect of Northern Ireland, as a depressed region of the United Kingdom, suffering significantly as the result of a major crisis in the Republic would have had not just a severe impact on Northern Ireland but, obviously, a severe knock-on effect here, including to the public finances. We would have had, in effect, to have filled in some of the hole that would have been knocked in the Northern Ireland economy. Such a crisis would also have been bad for the UK because of the exposure of UK banks. Again, as the noble Lord, Lord Liddle, pointed out, the Bank of England has set out starkly the scale of that issue. A default would have led to instability in sovereign debt markets more generally and could have increased the costs of UK government borrowing.

That does not necessarily mean that we agree with absolutely everything that is being done to restructure the Irish banking system. The arguments for establishing the National Asset Management Agency can be made either way. Effectively nationalising all the risks taken by all the Irish banks raises moral-hazard issues, which we have sought to avoid to a considerable extent in the United Kingdom.

Another issue is whether, even with all this activity, we will have been successful in stabilising the Irish economy. To pose the question that Martin Wolf posed in the Financial Times recently, the question is not whether the Irish banking sector is too big to fail but whether it is too big to save. Hopefully, the answer is that the Irish banking sector can be saved as—heaven knows—it is not lacking resources. The amount that has gone in both from the Irish Government and, via them, from the EU is now considerable.

It would have been irresponsible for the UK not to participate in the Irish bailout, but the Irish problem is not the only issue facing the eurozone. There are broader issues that relate to Greece, Portugal and now Spain and Italy. Given that we are outside the eurozone, it is a logical if inglorious position for us not to commit to taking part in any further bailouts of other member states.

When contemplating this debate, I cast my mind back to the debates that we had a decade ago on whether Britain should join the euro subsequent to, as many noble Lords will remember, the famous five tests. I am pleased to see the noble Lord, Lord Morris, in his place. Uniquely in my hearing, he was able to make a joke—which at least I laughed at at the time—about whether we should join the euro. At a TUC summer reception, he said that, having been asked by the then Chancellor, Gordon Brown, what he thought about the five tests, he had replied, “Well, we’ve won one, we’ve lost one, we’ve drawn one, but I think we might win the series in Sydney”. A decade on, a lot has changed both in cricket and in our perceptions of the euro.

At that time, many of us on these Benches supported Britain’s attempts to join the euro. One of the joys of doing a considerable amount of work with Charles Kennedy, as I was doing then, was that we were summoned from time to time to see the Prime Minister for an uplifting talk on matters of common interest and concern, of which the euro was one. At that point, Charles Kennedy was keen to press the case for British membership of the euro on a Prime Minister who was keen but extremely nervous about that prospect. Indeed, he said at the time that he would like to join the euro but he thought that it was impossible to beat both public opinion and the popular press—he could beat one, he thought, but not both—so he did not attempt it. As a result, we are now in a situation in which nobody seriously thinks that we should join the euro in the foreseeable future. Although it is inconceivable—for the reasons given by Tony Blair among many other reasons—that we should join the euro at this point, some of us at least are not absolutely convinced that we took the right decision a decade ago.

However, if I were to dilate on that argument and those tests, I would no doubt keep your Lordships here all evening. I know how much Members—particularly those opposite—hate overlong speeches. The noble Lord, Lord Hunt, is clearly already extremely impatient with me, and I can understand why that might be the case.

Even though we are agreed that we should not join the euro, two interlinked questions need to be considered—we cannot amend the Bill, and it would be foolish to attempt to do so—in this discussion on the Bill, which gives us an opportunity to range slightly wider. Realistically, what should our role be in terms of ensuring financial stability within Europe? And what should the eurozone do now? As I say, the two issues are inextricably linked, but the first principle should surely be to support eurozone members in doing whatever they agree is prudent to strengthen the working of the eurozone. For example, it would surely be perverse and ridiculous if the Government committed themselves to having a referendum on changes to the EU treaties that eurozone members decided were necessary to allow eurozone members to support each other more effectively. Can the Minister assure us that, as a non-eurozone member, we will wave through any proposed changes to the EU treaties without requiring a referendum in the United Kingdom?

As the noble Lord, Lord Liddle, has pointed out, the Chancellor is more generally in an extremely odd position when considering the development of the eurozone. The eurozone’s success or failure is obviously of crucial importance to the future of the British economy, as has been exemplified by the situation in Ireland. However, as the noble Lord pointed out, there are three reasons why the success or failure of the euro and the eurozone is important to us. The first of those reasons, to which he referred—and on which he was challenged by the noble Lord, Lord Pearson of Rannoch—relates to trade. It seems to me bizarre and sad that we export more to Ireland than to the BRICs combined. However, that may be a slightly misleading figure, as I suspect that the figure includes all the re-exports of goods that come from the rest of the world to Ireland via the UK. For example, I suspect that goods that are shipped from France to Ireland by road through the UK count as UK exports to Ireland. I may be wrong on that, but that may slightly inflate the figure. Even if that is not the case, the figure is still very high.

However, if one wants suddenly to change gear completely and export significantly greater amounts to the BRICs, the problem is that, frankly, that is easier said than done. It is not easy for a small business suddenly to decide to sell its products in China or Brazil, given the problems of language and distance. Therefore, even with the best will in the world, it would take a while before we could re-orientate our trade significantly away from the eurozone, particularly given that our strength rests in exports of services, many of which are easier to export to the eurozone than to the BRICs. That is particularly the case in countries where there are institutional barriers to exports of services. It is not simply that a lawyer or accountant seeking to open an office in India has their work cut out for them but that they cannot do it. Therefore, it would be an extremely difficult challenge for the UK simply to do a handbrake turn and suddenly start newly exporting huge quantities of goods to the BRICs. Therefore, we need the eurozone to do well, because that is where many of our exporters already have links and where, as we grow, they could develop those links significantly more.

[Lord Pearson of Rannoch]

My Lords, of course I admit that our trade with the eurozone is important, but is the noble Lord aware that our trade with the rest of the world—both inwards and outwards—is in fact increasing very much faster than that with the eurozone? Surely that points the way to the future rather than to the past.

[Lord Newby]

My Lords, the fact that such trade may be increasing more quickly is not surprising for two reasons. First, it is increasing from a smaller base, so it is easier to achieve a higher percentage increase. Secondly, most of those economies are growing more quickly than the eurozone, so you are feeding into a more buoyant economy. I completely accept that, but my point was slightly different. Incidentally, another problem about exporting to some of those other countries is that the newly passed Bribery Act is making many companies, not least small-to-medium-sized companies, very wary about their ability to export to China or India, for example, because they fear—sometimes rightly and sometimes, no doubt, incorrectly—that they may be faced with business practices there which they need to follow in order to gain access to a market but which they would not have to follow in the eurozone. In the medium term, I am extremely optimistic about the prospects for exports to the BRICs, but in the short term, given that we are starting from a relatively low base, it is a forlorn hope to think that the BRICs can solve our export problems.

[Lord McAvoy]

My Lords, I hope that the noble Lord will forgive me, but I will be extremely brief. In the interests of transparency, would the noble Lord care to share with your Lordships’ House the contents of the note that he has received from his Chief Whip?

[Lord Newby]

I may be mistaken—I do not know the noble Lord desperately well—but I think that, in a former incarnation, he was a Whip. It is not normal, when asked a question, to pose a question back, but I would be inclined to ask the noble Lord, if the House so allowed me, whether, when he was a Whip, he thought it a good idea that everyone who received a note from him in another place be required to divulge the contents of that note. My guess—I may be wrong—is that he would not necessarily have been desperately happy at that.

[Lord McAvoy]

I did not have to send notes. I just looked encouraging.

[Lord Newby]

Well, as I am sure the noble Lord is learning, we do things differently in your Lordships' House. I realise that I must make progress.

[Lord Pearson of Rannoch]

Even in your Lordships' House, I believe that I am right in saying that the Companion suggests that Second Reading speeches should be curtailed to some 15 minutes. We are now in the 17th minute of the noble Lord's peroration.

[Lord Newby]

My Lords, I am extremely grateful to the noble Lord for making that point. He will be aware that I have been interrupted on a number of occasions. However, I am well aware of the conventions of the House and will happily draw my speech to a conclusion by saying, as I said at the beginning, that we support the Bill.