Section 5 of the European Communities (Amendment) Act 1993

Mark Hoban Excerpts

Tuesday 24th April 2012 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I beg to move,

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 UK’s Convergence Programme.

I welcome this opportunity to debate the information that will be provided to the European Commission this year under section 5 of the European Communities (Amendment) Act 1993. As in previous years, the Government will send to the Commission data on the UK’s economic and budgetary position, in line with our commitments under the EU stability and growth pact.

The Government will submit their convergence programme by 30 April, after debates in both Houses. It explains our medium-term fiscal policies, as set out in the autumn statement, the Budget and the Office for Budget Responsibility’s forecasts, and it is drawn entirely from previously published documents that have been presented to Parliament. It makes it clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity, and it reiterates our No. 1 priority of tackling the huge deficit that we inherited from the previous Government.

It is because of the decisive action this Government have taken to tackle that deficit since the June 2010 Budget that we have secured and maintained the stability of the UK economy. Last month’s Budget builds on those strong foundations, safeguarding our economic stability; creating a fairer, more efficient and simpler tax system; and driving through reforms to unleash the private sector enterprise and ambition that are critical to our recovery.

As the Chancellor said in his Budget speech, Britain will earn its way in the world, but we can succeed in that goal only if we continue to safeguard our economic stability, tackling the record deficit and debt we inherited from the previous Government. That is why this year’s Budget 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 and debt falling as a percentage of national income by the end of this Parliament in 2015-16.

Fiscal sustainability is the vital precondition for economic success, but we are doing much more to catalyse growth. First and foremost, we are undertaking far-reaching reform to ensure that our tax system is simple, predictable and fair, and that it supports work.

[Kate Hoey (Vauxhall) (Lab)]

Given that the requirement for the Government’s assessment was passed under the Maastricht treaty, for which no one in the country voted, and that it must go to a Commission that no one in this country has elected, why does an independent British Parliament have to go through this procedure—this charade—every year?

[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.

[Kelvin Hopkins (Luton North) (Lab)]

Setting aside my views on the Budget, which are probably not printable, is not talking about the stability and growth pact at this time simply building castles in the air? We have neither stability nor growth in any part of Europe at the moment. It might be that we are waiting for things to turn, but even in Britain we face savage deflation if we do not change our policies.

[Mr Hoban]

Europe needs to tackle its fiscal deficit and put in place the policies that will lead to economic growth. One reason for such uncertainty in the eurozone is that a series of imbalances have built up in different European economies. It is important that we tackle them and set out a very clear course for growth. I shall come later in my remarks to some of the actions that the UK Government have led to ensure that the EU spends more time talking about growth and finding ways in which we can accelerate economic progress in the European economies.

Let me mention some of the measures we are taking at home that were set out in the Budget. We are committed to creating the most competitive tax system in the G20. We are cutting the rate of corporation tax to 22% by 2014, which will be the lowest rate in the G7 and the fourth lowest in the G20. [Interruption.] The hon. Member for Nottingham East (Chris Leslie) pre-empts my remarks, because I was about to say that we will remove the ineffective and uncompetitive top rate of tax.

I should say to the hon. Gentleman that I talk to businesses that wish to grow and businesses that want to locate here in the UK. They commend the Government for the corporate tax reforms in which we have engaged. In Treasury questions earlier, my right hon. Friend the Chancellor referred to remarks made by the chief executive of GlaxoSmithKline, who responded positively to the tax changes that we introduced. He is not alone—other businesses are moving to the UK as a consequence of our corporate tax arrangements.

Clearly, when we are trying to attract international business men to work here in the UK, and if we want to retain high-paid, talented business leaders here, the 50p tax rate is an issue. It is an outlying issue in G7 countries and affects location decisions for businesses. Cutting the top rate of tax is therefore the right thing to do. We set out the cost—£100 million—in the Red Book and highlighted measures that would raise five times that amount from the very wealthiest in society.

That was a difficult decision, but I believe it was the right one if we want the economy in this country to grow. As was mentioned earlier, one consequence of the higher rate that the previous Government introduced—they did not bother to introduce it in the first 12 years they were in office—was that 20,000 people moved from the UK to Switzerland. That demonstrates the negative impact of a 50p rate. If we want to be competitive, we need a competitive tax regime for both personal and corporate taxes.

[Kelvin Hopkins]

I do not believe that nonsense about people moving because of the top rate of tax. In France, the socialist opposition have suggested a top tax rate of 75% and said that if people move away because of it, plenty of other people who are just as talented will be prepared to take their jobs because they will still earn a lot of money.

[Mr Hoban]

To be fair to the hon. Gentleman, I suspect he is one of the few Opposition Members who supported the 50p rate throughout the period of the Labour Government, and is not one of the late converts that many of his hon. Friends have become.

As I have said, it is important that we create the right competitive conditions for business to flourish, and this Government will continue to invest in our nation’s future. We have announced that we will take forward many of Alan Cook’s recommendations on roads and develop a national roads strategy; we have confirmed investment to provide ultrafast broadband to 10 cities across the UK, with a second wave of cities to be identified in future; 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.

However, a return to prosperity in the UK depends not only on what is happening here, but on what happens beyond our shores.

[Mr Stewart Jackson (Peterborough) (Con)]

My hon. Friend makes a coherent argument, but we have been told on many occasions that what happens in the eurozone is important for exports. Without any monetary stimulus, and without major fiscal changes or major structural reforms, how can a cumulative 3% year-on-year reduction of budgets in southern Europe in countries such as Portugal, Greece and Italy possibly assist us in growing our economy out of the recession of the past few years?

[Mr Hoban]

My hon. Friend needs to recognise that, in several countries that have a programme in place, there is a requirement to make structural reforms. A number of member states are already embracing structural reforms, tackling issues such as restrictions on the labour market and looking at ways to tackle the burden of regulation. We are seeing the structural reform that goes hand in hand with fiscal consolidation to create a stable and sustainable platform for economic growth. Here in the UK, we are undergoing fiscal consolidation, but at the same time we are engaging in supply-side reforms to help stimulate growth in the economy. I do not see the two as mutually exclusive. Indeed, they need to go hand in hand if we are to deliver growth.

[Kelvin Hopkins]

I shall reserve most of my remarks for later when I hope to have the chance to speak. However, I must say that supply-side reforms are all very well, but if there is no demand in the economy, it will not grow but contract.

[Mr Hoban]

It has been demonstrated time and again in a host of different economies that supply-side reforms are vital, because they reduce some of the costs on businesses and enable them to invest and improve productivity, and in that way they stimulate demand and growth.

Hon. Members are right to focus 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% of our exports are to the euro area, and recent events in the markets remind us that euro area countries need to make painful adjustments to their public finances and external deficits. It is a difficult path that they have to walk, although new Governments in the likes of Ireland, Portugal, Spain and Italy are walking it. That is the logic of the single currency to which they are all committed, and progress is being made.

The European Central Bank’s monetary loosening has helped to stabilise the banking system, and the trillion dollars pumped in through the long-term refinancing operation has been helpful. There has been progress in stabilising Greece, and—as I have said—a number of countries have announced important economic reforms.

As well as these measures, important longer-term reforms have been made since we last debated the convergence programme. Those reforms include a stronger, more effective stability and growth pact following agreement of the “six pack” in December 2011. A new macroeconomic imbalances procedure will provide an assessment of potential economic risks across Europe, with sanctions for euro area countries that fail to take action. Importantly, the Commission has put forward proposals to improve co-ordination of budgetary processes between euro area countries.

The treaty on stability, co-ordination and governance—the fiscal compact—was signed in March by 25 member states and it also has the potential to embed stronger rules on fiscal discipline. Together, these reforms represent a stronger, reinforced system of economic governance for the EU and the euro area in particular. While many of these stronger measures may not be right for the UK, they can support stability in the single currency area.

[Graham Stringer (Blackley and Broughton) (Lab)]

Will the Minister give way?

[Mr Hoban]

If I may, I will finish my paragraph as it may clear up any misapprehensions that the hon. Gentleman has.

I would like to reassure the House that following these reforms the UK is still not subject to sanctions under the strengthened stability and growth pact—the EU treaty is clear that they apply only to EU area countries. Unlike other countries, the UK will only present its convergence programme to the Commission after the Budget is presented to Parliament—the procedure that we are following today.

[Graham Stringer]

Does the Minister read the newspapers? Has he not noticed that Europe is getting less and less politically stable and that many of the European economies are shrinking? Whatever titles are put on the policies, that is what is really happening. Would it not make sense for the Government and this country to support an as stable as possible break-up of the euro, which would provide growth in Europe and in the United Kingdom?

[Mr Hoban]

It would be inappropriate for the UK Government to dictate the economic policies to be followed by those in the eurozone. Members of the eurozone have made it very clear that they wish to remain part of it, and there are even member states queuing up to join it. Indeed, if we have an independent Scotland, it might consider joining the eurozone. There are challenges, but there is a strong political commitment in the eurozone for the euro to remain in place.

[Mrs Anne Main (St Albans) (Con)]

The Minister is making a genuine argument in favour of stability, but the rise of the far right—and Marine Le Pen receiving one in five votes in France—shows that whatever was said before, when all these treaties were signed, may not be current now. There is great unrest on the part of the public about what is being done in their name, both abroad and here.

[Mr Hoban]

It is not appropriate for any of us to provide a running commentary on the French presidential elections, but it is important that Governments, whether inside or outside the euro, make their argument as to why they believe that the measures required to bring about fiscal stability and economic growth are necessary. Those arguments need to continue to be made, because that is vital to Europe’s long-term interests. We will wait and see what the outcome of the French presidential election is and what the view of the new President is on the fiscal compact.

[Richard Drax (South Dorset) (Con)]

What will the Minister tell the millions of people in the eurozone when it goes horribly wrong—as it will—and their lives are ruined, given that we have had the chance, as has been suggested, to rebalance the euro from a position of control? It will collapse.

--- Later in debate ---

[Mr Hoban]

My hon. Friend should recognise the strong political consensus in the eurozone for the continuation of the euro. The actions of member states have sought to stabilise the situation in the eurozone, and that is why they have set up the European stability mechanism and boosted it with funds to strengthen the firewall. They are also looking at recapitalisation of banks and trying to stabilise the situation. The actions of eurozone countries are attempts to reinforce the stability of the eurozone, and they have also embarked on reforms to try to bring about closer fiscal integration, and the fiscal compact is part of that.

[Mark Hendrick (Preston) (Lab/Co-op)]

Will the Minister accept that even though we are not members of the eurozone, this country is still teetering on the brink of another recession? Does he also accept that the euro will continue for many decades to come—probably ad infinitum—albeit without some current members?

[Mr Hoban]

I remind the hon. Gentleman that as a consequence of the actions taken in the Budget one of the rating agencies, Standard & Poor’s, reaffirmed the UK’s triple A rating—[Interruption.] If the hon. Member for Nottingham East paid attention and read the newspapers—he accused me of not doing so—he would have seen that post-Budget one of the big rating agencies reaffirmed our credit rating with a stable outlook. Actions have been taken to stabilise the UK economy, and that is important.

This is not a debate about the future of the eurozone and whether individual members should be in or out, because that is a matter for the national Governments of those member states, not for us. What we cannot ignore is that the stability of the European economy is a vital factor in determining the level of economic growth in the UK. As I said, 40% of our trade is with Europe. We still export significant amounts to places such as Ireland and, historically, we have exported more to Ireland than we have to Brazil, Russia, India or China combined. It is important to recognise that jobs in all our constituencies are dependent on trade with the European Union and the strength of European economies.

[Stewart Hosie (Dundee East) (SNP)]

I agree entirely with what the Minister has said about the need for stability, not least for UK recovery. I also welcome what he said about the fiscal compact and the other measures being taken. Does he agree that if there is a legitimate debate in any country about growth versus austerity, it is not—as some more excitable colleagues suggest—any indication of political instability in the eurozone, but merely a debate about the direction of travel that a country’s economy might take?

[Mr Hoban]

The hon. Gentleman makes an important point. In any economy where there is economic change, there will be a political debate, and that political debate is helpful.

[Mr Stewart Jackson]

I thank the Minister for giving way; he is being his normal generous self. Do we not have a responsibility to the millions of young people in southern Europe who are on the edge of penury and economic misery, essentially because of this institutionalised, obdurate approach, principally from the Germans, and the failure to accept that the European Central Bank should be the lender of last resort? This political project, which the euro is, is plunging millions of working people in southern Europe into poverty for the next 10, 15 or 20 years. Surely we have a moral duty not to be complicit.

[Mr Hoban]

My hon. Friend would, I think, be the first to criticise other member states seeking to lecture us on our economic policy, so we need to be careful not to lecture them either. As I said, there is the political will in the eurozone to keep the euro, and its actions are consistent with that. Whether through closer fiscal integration or increased firepower for the European stability mechanism, those signs are there. The fiscal compact is a significant step towards closer fiscal integration.

[Mr Nigel Dodds (Belfast North) (DUP)]

The Minister talks about the political will in Europe to continue with the euro, but one wonders about the popular will among the peoples of Europe. He knows that the Irish Republic will shortly hold a referendum on these measures. Does he welcome that and would he encourage other countries to go to their people and seek their views, as opposed to the consensus among the political elites?

[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—

[Kate Hoey]

rose—

[Mr Hoban]

Oh, go on.

[Kate Hoey]

I want to be clear in my own mind, because obviously this is important. If the House was to say no to this tonight and say, “Actually, we don’t think it’s got anything to do with the Commission what we are doing in our independent country. We’re not part of the eurozone,” what would be the repercussions? What would it matter?

[Mr Hoban]

As I said, all the information in the convergence programme is already in the public domain. It was published at the time of the Budget by both the Treasury and the OBR, in accordance with our commitments.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

rose—

[Mr Hoban]

No, I will allow the hon. Gentleman to make his own contribution in his distinctive style, and doubtless I will have a chance to wind up and respond to the points made. However, I have gone on for nearly 30 minutes, and other hon. Members want to take part. I will now allow him to do so.

--- Later in debate ---

[Mr David Nuttall (Bury North) (Con)]

As always, it is a great pleasure to follow the hon. Member for Luton North (Kelvin Hopkins). He referred to the fact that only a few Conservative Members voted with the then Labour Opposition on the Maastricht treaty—I rather suspect that I may have been one of them at that time.

May I correct the hon. Gentleman on one matter, however? He referred to our sending the Red Book. I wish that it were so, but we are not sending the Red Book; instead we are sending the 210 pages of the “2011-12 Convergence Programme for the United Kingdom, submitted in line with the Stability and Growth Pact”. It is a specially produced document. As last year, I oppose the submission of this convergence document to the European Union.

No doubt by contrast to the previous speaker, I entirely accept that the Government are pursuing a sensible economic policy that is designed to enable this country to start to live within its means once more. Of course there is a debate to be had in the House about whether taxation is at the right level in certain areas or whether public expenditure should be reduced further and faster, but those matters are not what this debate is about. It is specifically about whether the Government assessment of our economic position should be approved

“for the purposes of section 5 of the European Communities (Amendment) Act 1993”,

which requires this country to submit an assessment every year of how well we are progressing on convergence. I object to that, as, I suspect, do many millions of my fellow Britons.

I wish to raise three questions about this convergence. First, what are we supposed to be converging with? Is it the eurozone? It probably is, and I certainly suspect that that is what the Eurocrats want us to do, but why on earth would anyone want to converge with the eurozone at present? It has a failing currency and is based on a failed idea that is continuing to survive in its current form only thanks to bail-out after bail-out and the failure of European leaders in Brussels to wake up and accept the reality that, as any sensible independent commentator can see, it is folly to try to tie together the economies of different countries with such widely divergent characteristics. Such a plan is doomed to fail.

Secondly, who are we supposed to be converging with? Surely not the struggling economies of southern Europe. Things are still going very badly wrong across the eurozone, as we saw only yesterday with the collapse of the Dutch Government because of the fall-out from the eurozone crisis. In addition, there are the economic data: first-quarter GDP shrank by a further 0.4% in Spain, and the eurozone’s own composite purchasing managers index—a useful measure of progress in the eurozone—has slumped to 47.4 in April, down dramatically from March’s 49.1, and we must note that any index figure of less than 50 means contraction. That collapse was both in services, down from 49.2 to 47.9, and in manufacturing, down from 47.7 to 45.0. Even the mighty German economy is being affected by the struggling eurozone. Its overall purchasing managers index figure is down to 50.9, with even German manufacturing at a 33-month low of 46.3. It is clear, therefore, that despite all the bail-outs and the firewalls and the new IMF fund that has just been created, the eurozone remains mired in deep crisis, and I submit that we do not want to converge with it.

Thirdly—and perhaps most importantly—why are we converging? Has anybody bothered to ask the British people if they want to be converging with the countries of the eurozone? We ought to be pursuing the policies that are right for this country, regardless of what the unelected bureaucrats in Brussels think.

[Mr Hoban]

May I reiterate an assurance that I gave earlier? We are following the policies that we think are right and are in this country’s interests. We are not going to be dictated to by Brussels bureaucrats.

[Mr Nuttall]

I am most grateful, as I am sure are all Members, for that confirmation from the Minister. That answer raises the following question, however. No doubt many officials at the Treasury have been engaged in the preparation of this convergence document, spending many hours of precious time and energy on it, but why? What a complete waste of time! As was ascertained last year, anybody who is interested in this information could glean all of it from the internet, without any need to move any paper about. This is a complete, gigantic waste of time. It is a giant, paper-shuffling exercise.