Mark Hoban
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European Union Economic Governance
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That this House takes note of European Union Documents (a) 9433/10, Commission Communication on reinforcing economic policy co-ordination, (b) 11807/10, Commission Communication on enhancing economic policy co-ordination for stability, growth and jobs – tools for stronger EU economic governance, (c) 14496/10, Proposal for a Council Regulation (EU) amending Regulation (EC) No. 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure, (d) 14497/10, Proposal for a Council Directive on requirements for budgetary frameworks of the Member States, (e) 14498/10, Proposal for a Regulation of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area, (f) 14512/10, Proposal for a Regulation of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area, (g) 14515/10, Proposal for a Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances, and (h) 14520/10, Proposal for a Regulation of the15 European Parliament and of the Council amending Regulation (EC) No. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies; notes the Report from the Task Force on Economic Governance in the European Union; notes with approval that budgetary and fiscal information will continue to be presented to Parliament before being given to EU20 institutions; and approves the Government’s position, as endorsed by the Task Force that any sanctions proposed should not apply to the United Kingdom in consideration of Protocol 15 of the Treaty on the Functioning of the EU.
I welcome the opportunity to set out the Government’s position on the Commission documents to be debated this evening and our broader position on the co-ordination of economic policy in the EU. As right hon. and hon. Friends will be aware, the European Council last month agreed the report of the EU Economic Governance Task Force chaired by Herman Van Rompuy, and we support its work and conclusions, none of which encroaches on Parliament’s economic sovereignty. I want to be clear about that so that there can be no confusion about our position.
Let me deal first with surveillance. Macro-economic surveillance examines the budget plans of member states, and has been around for more than a decade. There is nothing new in that, and a number of international bodies do the same, such as the OECD and the International Monetary Fund. Does the fact that the EU is doing so mean that we will be subject to sanctions? No, it does not, because under protocol 15 of the existing treaty, sanctions do not apply to us.
Mr William Cash (Stone) (Con)
Is my hon. Friend aware that the same Mr Van Rompuy has today issued a vicious attack on Eurosceptics throughout Europe, saying that what they argued amounts to a national lie?
Mr Hoban
I have not seen Mr Van Rompuy’s comments. As hon. Members will recognise, I have been rather tied up in the Chamber for most of this afternoon.
Let me continue to make the Government’s position clear. Will we have to present our Budget to Europe before we present it to the House? No. Will we have to give Europe access to information for budgetary surveillance that is not similarly shared with organisations such as the IMF, or that is not publicly available on the internet? Again, the answer is no. Will powers over our Budget be transferred from Westminster to Brussels? Again, the answer is no.
Philip Davies (Shipley) (Con)
Does my hon. Friend understand that many people have lost confidence in assurances given whenever a new European treaty is discussed that there will be no loss of sovereignty? Ever since we went into the Common Market, the British public have been told at every stage along the way, “Actually, we’re not giving up any sovereignty. This new treaty doesn’t give anything away,” but people have found time and again that these treaties have done just that. Does my hon. Friend understand people’s concerns that although the powers in question do not apply to the UK at the moment, they may well do so in future, as the European Union is clearly looking at extending sanctions to non-eurozone countries as well?
Jacob Rees-Mogg (North East Somerset) (Con)
But does Mr Van Rompuy’s report not suggest that there should be a binding minimum set of requirements for national fiscal frameworks that would apply to all member states?
Mr Hoban
I think my hon. Friend is reading an earlier draft of the report, because we amended that language at the latest ECOFIN. I will come to this point in a minute, but we believe that fiscal frameworks should be political agreements and should not be driven by directives or regulations.
Mr John Redwood (Wokingham) (Con)
Will the Minister please confirm that the directive on budgetary frameworks for all member states will apply to the United Kingdom, that the second regulation on budgetary surveillance for all member states applies to the United Kingdom, and that the regulation for enforcement for all member states also applies to the United Kingdom? There are twin proposals in each case, some of which apply only to euro members and some of which affect all member states. Surely the Minister must confirm that that is a massive extension of European economic government, and the UK has to comply with a lot of it.
Mr Hoban
There is nothing new in the macro-economic surveillance processes outlined in the document and, as I have said, we are exempt from the sanctions regime that the Commission and others have proposed, which applies only to eurozone countries. Let me now make some progress.
We need to recognise that there are lessons to be learned from the economic crisis, but one lesson that stands out that is relevant to the debate this evening and to the documents is that in an open, global economy, no economy exists in isolation. The failures of economic policy in one country can be exported to other nations, and the imbalances in one economy can have an impact on others. Imbalances such as excessive domestic demand and growth can lead to asset bubbles, an over-reliance on exports or divergence in competition across countries. It is in all our interests to improve co-ordination and co-operation in policy making, to tackle those imbalances and increase the resilience and strength of the global economy.
However, in our view, increasing co-ordination and co-operation has to be consistent with national sovereignty and the accountability of Parliament. It is those principles that frame our response to the documents and our response to the global economic crisis. There is an intense global debate about those topics in the G20, the IMF and the OECD, and in Europe. We take part in those debates because, as an open economy, we have a strong interest in economic stability. We are acutely aware that imbalances and problems in one economy can have a spill-over effect in another.
Mr Peter Bone (Wellingborough) (Con)
Is the Financial Secretary saying that the taskforce document that I have, dated 21 October, has been rewritten? It concludes:
“Endorsement by the European Council of the recommendations in the present report will contribute to strengthening economic governance in the EU”.
It clearly says “in the EU” as a whole.
Mr James Clappison (Hertsmere) (Con)
My hon. Friend is making his case persuasively, but will he assist me? The same document from Mr Van Rompuy, dated 21 October—I take it that that is the latest report—clearly states in paragraph 34:
“The Task Force recommends deeper macro-economic surveillance with the introduction of a new mechanism underpinned by a new legal framework based on Article 121”
of the treaty on the functioning of the European Union alongside the stability and growth pact
“applying to all EU Member States”.
Perhaps my hon. Friend will help the House by telling us a little about that.
Mr Hoban
I know that that paragraph has caused some interest, but many people stop reading after
“by a new legal framework”.
I am grateful that my hon. Friend did not fall into that trap. The provision is based on existing treaties, and it is about macro-economic surveillance. A number of organisations conduct macro-economic surveillance of the UK economy, and there is nothing new in that.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
I hope that the Financial Secretary realises that we are here to support him in a sensible approach to economic surveillance. Does it not seem rather silly for people to say that a country that is in partnership with many other countries should not be interested if any of those countries are profligate? Clearly, good surveillance and good economic policies throughout the partnership are good for the UK.
Mr Hoban
The hon. Gentleman makes an important point, and I am about to come to that, so his intervention is timely. Given the degree of integration of the European economy, it is in our national interest to support work that looks at the causes of instability and to have in place action to help to tackle them. Over the summer, there have been two parallel processes in Europe. The Commission has its own work stream, which is summarised in the documents before us. However, member states have participated in a separate strand of work on the co-ordination of economic policies under the chairmanship of Herman Van Rompuy. Many of the issues covered are the same, but there are essential differences between the two streams. The Commission’s documents detail solutions, and the Van Rompuy work reflects the political agreements reached between member states. The next step is to bring the Commission’s proposals into line with the taskforce’s recommendations.
I shall deal in more detail with three aspects of the taskforce’s work.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
Is my hon. Friend giving an assurance that not only are there no sanctions—we understand that—but there is absolutely no increase in EU jurisdiction over the British Budget-making process?
Mr Hoban
I do not believe that there is.
Let me deal with the three aspects. In every international economic debate, the issue of increased co-operation and co-ordination arises. At last month’s G20 Finance Ministers conference, the focus was on exchange rates and current account surpluses. At the IMF annual meeting in early October, there was considerable debate about tackling deficits. Those discussions of macro-economic policy are not a new feature of the crisis. For example, since its inception, the IMF has undertaken regular reviews under article 4 of macro-economic policies and made recommendations on policy response, but they are not binding. The EU has had similar procedures in place for a decade. It is in all our interests for there to be economic stability in Europe, and the process needs to be strengthened. What we are doing is simply renewing the existing framework in the light of the economic crisis and updating the tools that we have, to ensure that we can do what we need to do. The measure will broaden the scope of surveillance, but, as far as the UK is concerned, it will not weaken the sovereignty of this Parliament.
Risks to stability often flow from imbalances in the economy, and it is important to look at factors such as current account balances, labour market flexibility and competitiveness across the European Union and to be able to identify problems that could undermine stability. Macro-economic surveillance has an important role to play as an early-warning system.
Mr Hoban
I should like to make a bit more progress on this point.
It is right that we should co-operate with this process, but our co-operation should be consistent with the fiscal sovereignty of the UK. The information that we provide to assist with the surveillance will always be information that has been made available to this House before it is passed to the Commission. Everything that the Commission gets will have been in the public domain, to the extent that a member of the public will have been able to unearth the same data using Google, albeit with less efficiency.
Mark Hendrick
The information might be available elsewhere, but the Minister will know that, as a result of the proposed new regulation Com. (2010)526, there will be an obligation for the UK to provide far more information than it has done in the past. There may not be penalties involved, and we may well run up budget deficits or levels of debt that were unacceptable to the Commission—I am sure we can do that—but the point is that this country will be obliged to provide far more information formally to the Commission than it has in the past. In my view, that constitutes a degree of transfer of power to the Commission.
Mr Hoban
Let me repeat that this involves information that is already out there in the public domain. It is information that will already have been made available through, for example, the House of Commons Library, the Budget documents, the Red Book or the Green Book. It is information that is already out there, so I do not believe that supplying it will be a problem.
Mark Hendrick
The point is not that the information will have been made available elsewhere; it is that there will be an obligation on the Government themselves to make it available. If the Commission wanted to go out and find it elsewhere, I am sure that it would do so, but there will now be a new obligation on the Government, as a result of a new treaty, to give it information that they were not previously required to give.
Mr Hoban
I simply do not take the view that giving the Commission more information is going to be a problem. This goes back to the intervention by my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), who asked whether there is to be an increase in EU jurisdiction as a result of this measure. No, there is not. All that the EU will do is make recommendations, but they will not bind us or be imposed on us. We can simply ignore them. There will be no increase in EU jurisdiction as a consequence of this measure.
Mr Cash
The explanatory memorandum dealing with the jurisdictional question, which was supplied to the European Scrutiny Committee on 23 October, states, under the heading “Impact on United Kingdom Law”:
“The Regulations once adopted would be ‘binding in their entirety and directly applicable in all Member States’. However, in accordance with Article 1 of the proposed Regulation, the Regulation on enforcement measures will apply (only) to the Member States whose currency is the euro.”
That is made absolutely clear by the Minister’s own document that he supplied to the Committee.
Mr Redwood
Will the Minister confirm that there are two big new regulations that relate directly to the United Kingdom? One relates to budgetary surveillance on all member states, and the other relates to enforcement against “macro-economic imbalances”, as the Commission so elegantly describes them. These are new powers in new regulations. Why are the Government consenting to them?
Mr Hoban
The enforcement point does not apply to the United Kingdom as a consequence of protocol 15 of the existing treaty framework, because we have opted out of that part. My right hon. Friend is knowledgeable about these things, and he will recognise that the Commission makes proposals, and that ECOFIN and the European Council have set out a clear policy framework on this, as reflected in the conclusions of the Van Rompuy taskforce, which make it very clear that sanctions do not apply in the UK.
Mr Hoban
Let me make some more progress; otherwise, hon. Members will not have the opportunity to participate in the debate. Let me continue for a few more moments.
Many organisations and individuals, including the IMF and the OECD, scrutinise our economy and our budgets. Many make recommendations or, as happened recently, praise our fiscal consolidation plans. We have nothing to hide from any of these bodies that want to look at what we announce to Parliament or at the economic figures published through the Office for National Statistics or through Departments. It is our decision whether or not we listen to their advice. The UK will continue to prepare its Budget independently; others can make recommendations about it, but, crucially, we are under no obligation to take action and, by virtue of our opt-out, we are not subject to sanctions. Any recommendations, as with those made by any other body, will remain just that. It will be down to the Treasury and Parliament, not to the EU, to construct our Budget.
Lady Hermon (North Down) (Ind)
I am enormously grateful to the Minister for taking my intervention. As the hon. Member for Stone (Mr Cash) said, these regulations are entirely binding on the United Kingdom. Can the Minister assure us that, if the Government decline to give the information requested under these regulations, the European Commission will not take enforcement proceedings against the UK Government for not complying with them?
Andrew Percy (Brigg and Goole) (Con)
I am getting a little confused. If the information is already in the public domain and any organisation can find it, and if we do not have to listen to any recommendations made, what is the point of our agreeing to this?
Mr Hoban
Given that the process is very straightforward, I begin to wonder why it is causing so much excitement. The reality is that the information is already available and the recommendations do not apply to us. The enforcement mechanism applies to eurozone states; they are subject to sanctions, but we have a carve-out from that because of protocol 15.
Michael Connarty
May I suggest to the Minister that one of the attractions of the new procedure is that every country in Europe will have to carry this out? They would find out well before any crisis—as we saw in Greece, for example—that they were in trouble. It is a little bit of information to give and a lot to get back. I think that the “Euro-loony party” contingent should leave the Conservative party, so that people with some common sense can deal with Europe sensibly.
Mr Hoban
I am not going to go down that route, but it is important that information be available. Over the course of the financial crisis—not just in the EU, but globally—we have seen the importance of understanding structural imbalances and their impact on other economies. This is an important strand of debate and it will be continued when the G20 meets later this week. It was certainly an important strand in the G20 Finance Ministers’ meeting last month, and, indeed, in the IMF’s annual meeting in October. There is nothing new in discussing these issues.
There is an existing mechanism for surveillance in place through the broad economic policy guidelines, but the warning mechanism has been used only twice: it was used for Ireland in 2001, and Greece received a warning in February this year. An improved mechanism would help towards achieving greater economic stability and it is particularly important for the eurozone, where the effects of imbalances and instability have a greater impact on its members, as has been apparent in recent months. That is why eurozone member states support a sanctions regime, penalising eurozone members whose economic policies undermine the stability of the currency and the eurozone economy. The sanctions do not apply to us, as I have said. I give way—
Mr Speaker
Order. Before the hon. Gentleman intervenes, I note that the Minister has been on his feet for 21 minutes and has attended most assiduously to a number of interventions, and that is perfectly in order. However, I emphasise that there is an hour and a half for this debate, and a substantial number of Back-Bench Members have indicated to me that they wish to speak. It would be a very sad and unsatisfactory state of affairs if contributions from those on the Front Bench were to exceed in total those from Back Benchers. On that basis, I feel sure that the Minister, who is an adroit fellow, will be bringing his remarks to a close ere long.
Mr Hoban
I thank you, Mr Speaker, for that encouragement and guidance, and I apologise for being generous in taking interventions. Let me make rapid progress.
On the issue of sanctions, the same principle applies for those eurozone countries that are in breach of the stability and growth pact excess deficit procedures. In the run-up to the crisis, there was a lack of fiscal discipline, for those inside and outside the euro. Despite the existence of the stability and growth pact and the excess deficit procedure, the eurozone was still undermined by a failure to exert fiscal discipline, and a number of member states in the eurozone have to take tough action to tackle the deficit.
To avoid a recurrence, the Commission and member states in the eurozone have sought to reduce the discretion on the application of the sanction process. The position reached by eurozone countries is set out in the taskforce report. Again, it is worth reminding the House that the sanctions regime does not apply to the UK by virtue of protocol 15 of the current treaty.
Mr Hoban
I will not give way. I listen carefully to the guidance of Mr Speaker.
To secure fiscal discipline, strong fiscal frameworks are required, as our experience in recent years demonstrates. The fiscal rules developed by the previous Government failed, because their flawed design and remarkable flexibility meant that, despite the rules being met, this country still ended up with a financial crisis. A strong fiscal framework is necessary if we are to have strong public finances. We have shown leadership on that, for example in creating the Office for Budget Responsibility, a move that has been welcomed by the IMF and the European Commission. Our reforms meet the highest possible standards, and we support responsible fiscal rules at home and abroad. We have achieved that through the mandate the Chancellor set in his emergency Budget.
Mr Hoban
Although strong fiscal frameworks are vital, we also believe that fiscal sovereignty is crucial, and that is why the frameworks—the mandates, mechanisms and institutions—should be decided by national Governments and not by European legislation. That position is reflected in the taskforce report, and it is the position that we will adopt in discussions with the Commission.
Mr Hoban
We have protected the sovereignty of the House on fiscal matters, and our position on EU economic governance is clear. We need better macro-economic surveillance and fiscal frameworks, because stable and sustainable economic growth across Europe is in the long-term interest of this country. However, that should not be at the cost of our fiscal and economic sovereignty. The Van Rompuy taskforce updates and strengthens the existing framework. On surveillance, therefore, the taskforce recognises, with explicit references to protocol 15, that the UK’s opt-outs mean that we are not subject to the sanctions regime.
Fiscal frameworks should be stronger, but should not be dictated by Europe. It is the history of this House to defend fiercely our fiscal sovereignty. Through the agreement reached, the Government have achieved that. No sanctions will be imposed on Britain, and we will be free to set the right fiscal policies for our country’s needs.
Mr Hoban
I have listened carefully to hon. Members’ concerns tonight, and I want to state yet again that the proposals from the Van Rompuy taskforce strengthen an existing framework, crucially without encroaching on fiscal and economic sovereignty. There is much more work to be done on this, but let me assure my right hon. and hon. Friends that the Government are committed to securing the best outcome from the proposals, to defending Britain’s interests and to protecting this Parliament’s right to set and scrutinise our fiscal policy. Anything less would not be acceptable.
I shall deal with some of the issues that have been raised in the debate. Does the fact that the EU, along with other organisations, undertakes surveillance mean that we will be subject to sanctions? No, it does not. Does the measure mean that we will need to follow any of the recommendations made? No. Will we have to present our Budget to Europe before we present it to this House? No. Will we have to give the EU information that has not been presented to this House first? No. Will the provision of information erode our sovereignty? No. Perhaps more importantly, will any powers over our Budget be transferred from Westminster to Brussels? Again, no. I hope that I have been clear and explicit on those points, and it is for those reasons that I ask Members to support the motion tonight.
Question put.