Draft EU Budget 2011
Michael Connarty Excerpts(14 years, 1 month ago)
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Michael Connarty
I am grateful to my ESC colleague, who is now Chair of the Committee. I do not disagree with his facts and many of his criticisms are fundamental to the approach of the European Commission compared with that of the UK Government and this Parliament, particularly on the proposal for a tax. However, on trying to achieve a blocking minority, would it not be better in fact to support the Government’s proposal than to take an absolutist approach such as the one he proposes in amendment (a) and, quite frankly, the one that is proposed in amendment (b)?
Mr Cash
Mine is not an absolutist position in the sense in which the hon. Gentleman puts it. My amendment (a) says that an increase is simply not justifiable. What is justifiable could also be described as what is fair and right. I have just described what I suspect will happen throughout Europe if people continue to increase the budget irrespective not only of our spending review, but of the crisis in Greece and of the situations in other member states, including very high levels of unemployment, the rise of nationalism that goes with that, and the populism that will emerge from those who want to agitate and create trouble. We want a stable Europe and a stable United Kingdom, which is precisely why I take the view that we need to act responsibly and ensure that the UK Government have every opportunity to achieve their objectives. I assure the House that nobody can accuse me of being in any way reluctant to speak my mind on matters relating to the EU, and I am sure that no one would presume to do so.
Kelvin Hopkins (Luton North) (Lab)
It is a great pleasure to speak in this important debate, although I will not detain hon. Members for long. First, I commend the Chair of the European Scrutiny Committee for what he said. It is interesting to see him as a restraining voice in Euroscepticism. What he said is common sense. The Government have to go to Brussels or Strasbourg—or wherever they meet—with, one would hope, the united backing of the House or, if not, at least the united backing of those on the Government Benches. I will certainly be supporting the hon. Gentleman’s amendment; indeed, I will support both amendments if they are put to a vote.
I have been a member of European Standing Committees for some 13 years. Over those years I have debated European budgets countless times, yet in all that time none of them has been approved by the European Court of Auditors. We just seem to nod through the fact that a budget costing the countries of Europe billions every year is not approved by auditors. We just accept it. One cannot imagine the British Government doing that—not having their Budget approved by auditors—every year.
There has been a significant increase in our net contribution, and that will continue. Attention was drawn to the problem yesterday—very well, I thought—by the hon. Member for Bury St Edmunds (Mr Ruffley) in Treasury questions. Indeed, I have spoken many times about the Blair deal—the deal made that December night a few years ago when, apparently without consulting very many people, he arbitrarily gave away a significant proportion of our rebate. The Economist—not a supporter of left-wing Eurosceptics such as myself—said that no deal would have been better than that deal, and it was right. I shall therefore be supporting the amendments.
The budget is fundamentally flawed and has been so since its inception. Throughout that time, the core of the problem has been the common agricultural policy. I have called many times for the common agricultural policy to be abandoned and for agriculture policy to be returned to member states. Member states have different agricultural industries, and each of us would choose what to subsidise and how to subsidise it. Our own agricultural sector needs some subsidies, particularly in certain areas—an example would be Welsh hill farmers—to preserve our rural heritage and industries; it is sometimes necessary for them to be sustained by subsidy. The way the CAP operates is nonsense, however. We have changed it over time, but it has not been properly dealt with.
Another problem is that the net redistributive effect of the budget acts in an arbitrary way, in that some relatively rich countries are net recipients, whereas some relatively poor ones are, unjustly, net contributors. We have a smaller agricultural sector than many other countries, and we have, unfairly, been a net contributor. I would not agree with Mrs Thatcher on many things, but I thought it was right that she negotiated a rebate. [Hon. Members: “Hear, hear!”]
I shall differ from Conservative Members now, however, by saying that I should like a socialist approach to Europe, whereby the redistributive effects of the budget are balanced in such a way that the poorest countries are net recipients and the richest are net contributors, in proportion to their relative living standards and the success of their economies. As one of the richer countries, we would no doubt be a net contributor, but such a system would be rational and fair. The budget as it stands is neither rational nor fair.
We ought to return to the Blair agreement. If we are to negotiate a more sensible budget with our European colleagues, we should start to look at contributions again. If our own contributions had been negotiated in sterling cash terms, rather than euro cash terms, we might not have suffered so much as a result of depreciation. We are paying more because we necessarily depreciated our currency, although I am glad that we kept our own currency and that we are able to flex it according to our own needs.
Other countries have suffered terribly through being unable to do that—Ireland is a case in point. In real terms, it is part of the sterling economy, not the euro economy, and it has suffered as a result of our depreciation, because it has been unable to depreciate its currency. I have told Irish colleagues whom I have met through the European Scrutiny Committee that the logical thing for them to do would be to recreate the punt and devalue against the euro to come into line with sterling. That would be very beneficial for the Irish, and I hope that they will consider doing it at some point. It would be fairer for us if contributions were measured as a proportion of gross domestic product, because they would not be subject to change as a result of depreciation.
I have spoken many times on the European budget, and I believe that it is nonsense. I am waiting for common sense to appear on the horizon, but it has not done so yet. I hope that, if we have to have net fiscal transfers in the future, they will be considerably smaller because there will not be a CAP. I also hope that they will be related to the relative prosperity of the member states, so that the poorer nations benefit and the richer ones contribute.
Michael Connarty
I respect my hon. Friend’s logic, even though I do not support his conclusions on the European Union. He has a background as a trade union negotiator, and I cannot understand why he thinks we should tell the Government that they cannot have a negotiating position and that they must adopt the position that they are given. Surely they need to be able to negotiate what they are looking for—namely the cash equivalent—regardless of how it is balanced within the budget. They will be negotiating with 27 other countries, along with the Council and the Parliament. Is not my hon. Friend’s instinct as a trade unionist to give the negotiators the flexibility to come out with a deal, rather than to given them strict instructions on what they must come out with at the end of the negotiations?
Kelvin Hopkins
I thank my hon. Friend for his intervention, but I believe that all negotiators need to have something in their back pocket—something to argue with. If the Government go into the negotiations saying, “My members will not tolerate an agreement unless it is satisfactory”, that will give them some strength. I hope this House will provide that kind of support to negotiators. I would much prefer to be on the Government than the Opposition side, but I hope that the Government will stand up and do the right thing.
Finally, the Minister spoke about standing up for British interests, but that sort of nationalistic approach does not go far enough. What we need is an arrangement that will secure the support of other member states. We have to persuade them that we need a more rational and sensible approach to the budget that is also fair to all concerned—and, indeed, considerably smaller in view of the need to abolish the CAP. If we can get others on our side, we might start to make progress, but if we argue simply in nationalistic terms, I do not think we will.
That said, Britain has a strong negotiating position. If we were in a position to push hard, we would know that the EU needs our membership more than we need to be a member of it. We have a massive trade deficit with the rest of the EU, which gives us a strong negotiating position. If we were challenged by other strong states, they would know that their economies would suffer if we were no longer part of the EU. If we had trade barriers between member states, they would suffer much more than we would. The point has been made many times.
I have some figures with me. Our trade deficit with the rest of the EU in July—the last month for which figures are available—was £3.9 billion. That is for one month, so we need to multiply that by 12 to get an idea of the annual figure. That amount was an increase on the £3.2 billion of the previous month. The EU needs Britain, so let us try to make an EU that is looser, more democratic and leaves greater powers to member states. Let us have an EU that has not a nonsensical budget, but one that is fair and beneficial to all concerned.
Oral Answers to Questions
Michael Connarty Excerpts(14 years, 1 month ago)
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Michael Connarty (Linlithgow and East Falkirk) (Lab)
With all this talk of fairness, why is it that no one has mentioned VAT? A 14.5% increase in real terms in the VAT rate has been attacked by what I thought were Conservative-voting business people and families in my constituency, and will punish those at the lower end of the income spectrum. Why is such a high rate of VAT being pursued by this Government?
Mr Osborne
We are having to take decisions to close the highest budget deficit in the G20. I listened to what the previous Chancellor of the Exchequer said recently on “The Andrew Marr Show”. He was asked:
“we now read from Peter Mandelson’s book that you were quite keen on the idea of VAT going up”.
Alistair Darling replied:
“Well yeah, obviously…It would have allowed you to have done you know a lot more to take down the deficit…and would have…ameliorated some of the worst effects of reductions”.
For once, the previous Chancellor of the Exchequer had the right idea—[Interruption.] That is because he was overruled by the then Prime Minister.
Budget Resolutions and Economic Situation
Michael Connarty Excerpts(14 years, 5 months ago)
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Mr Tyrie
I thank my hon. Friend for reminding me about that, as I had completely forgotten it. The whole House has heard the point he made.
The central judgment in the Budget is about the scale and speed of the fiscal adjustment. Whatever the Chancellor does, there are risks. If he shows lack of resolve on the deficit, the Greek experience beckons, as markets lose confidence in our ability to service our debts. The Chancellor was right to emphasise sovereign debt risk in his speech. That is not a fanciful risk, but a clear and present danger for Britain and he was right to flag it up. If we show too much zeal, too early, on the deficit, some people fear that the Japanese experience awaits us—being caught in a heavily indebted deflationary trap.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
I voted for the hon. Gentleman to hold his new position and even told his opponent that I had done so, but I am deeply concerned that today he is making the same mistake as the Chancellor. He said that the greatest problem facing economies is sovereign debt, when in fact analysis shows that it is bank indebtedness. Greece has a sovereign debt problem, but other countries of Europe have a problem with bank debt. That is the problem, so we are looking at the wrong target.
Mr Tyrie
I agree that both are extremely important. I do not think I said that the greatest threat is necessarily sovereign debt, although Hansard will show whether I did. I said that I agreed with the Chancellor that it was an extremely grave risk. That is supported by the overwhelming majority of commentators—the International Monetary Fund, the OECD and a large number of independent commentators.
From the remarks made by the Leader of the Opposition, I presume that she is more fearful of the recovery being snuffed out by further tightening than of the risk of a downgrade in the bond markets. I shall not form an instant judgment now. I shall want my Committee to take a look at the situation and report to the House. None the less I noted a couple of relevant points. With the benefit of hindsight—looking historically—most fiscal retrenchments in this country have erred on the side of too little, too late, rather than too much, too soon.
My other general comment is that although the Japanese parallel is well worth examining, it should be borne in mind that the Japanese banking system was in a shocking state even by comparison with ours, and it has remained in grave difficulties. The revival of our banking system is crucial if we are to have sustained recovery. In some degree, that answers the point made by the hon. Member for Linlithgow and East Falkirk (Michael Connarty), and agrees with it.
Whether the Chancellor’s judgment turns out to be right or wrong, there are a couple of points on which I should like to hear more from him over the coming days and weeks. First, although he must be resolute in his judgment his policy framework could, and I think should, signal that if the facts change, he will change his mind—he hinted at that in his speech. The global economic situation is fluid and fragile, so if we were to find ourselves in another global downturn, possibly triggered by global fiscal contraction, we need to know that he would deploy whatever tools were required to avoid deflation. There must be some risk of that. It is not just a matter of Governments around the world, and particularly in Europe, beginning to address their deficits after their bail-outs. The banking system, too, will remain under strain. Banks will be subjected to a levy and will be required to secure major increases in capital and liquid assets, both of which will reduce lending. On top of that, there is the risk that household saving might sharply increase at the expense of consumption.
However, looking at things from an international perspective, I am heartened by the global growth forecasts of the IMF, which suggest that global growth for the next two years will be running in excess of 4%. I have not yet had a chance to see what the Office for Budget Responsibility has written in, but I suspect it will probably be in line, which would appear to buttress the Chancellor’s judgment that the cuts are sustainable.
My second question to the Chancellor relates to the first: what is the overall macro-economic framework for the Budget judgment? I should like more information about that. In previous squeezes on fiscal policy, it has been reasonable to argue that tight policy has created room for a compensating looser monetary policy through short-term interest rates. This time, however, interest rates are already very low, so the only offset comes in long-term bond rates. Interestingly, the OBR has already published a second estimate for gross debt interest, which takes account of the tighter fiscal policy that has just been announced. On its forecast, the figures show a reduction in central Government gross debt interest of £7 billion over the planning period, so there is a long-term bond yield dividend to be had from the tighter fiscal policy.
In any case, the Chancellor may have spelt out his macro-economic framework in more detail in the Red Book. None of us has yet had a chance to read it, although some people may be taking that opportunity while I am speaking. It would be worth hearing more about the policy framework, because it must leave the Chancellor with enough room to alter course if circumstances change, otherwise credibility could collapse in the face of unforeseen events. The one thing I can predict is that there will be quite a few of those.
Whatever else people conclude about the Budget, it is fair to say that it shows extraordinary political courage by the Chancellor and by the coalition Government. There will be rumblings in the undergrowth in both coalition parties. The vested interest groups will cause enormous trouble, just as they would have done if a Labour Government had been implementing their cuts. It will take sustained resolution by the Prime Minister, his Deputy and the Chancellor to stick to their course. The relationship between No. 10 and No. 11 will be absolutely crucial in the months ahead.
I have concentrated on the deficit and the macro-economic framework, but the Budget will be judged on more than just accountancy. There are a number of other important issues. Does the Budget pave the way for providing better economic performance in the long run? Does it adequately protect the poorest and the most vulnerable in our society? I hope the Treasury Committee will look at that issue. Does it take enough account of both regional and structural imbalances in the economy? What role will Britain play in addressing the large global imbalances that still remain? Those are some of the questions that I very much hope my colleagues on the Treasury Committee will agree should be looked at in the months and years ahead.
I look forward to the formation of the Committee, the first-ever Treasury Committee that will benefit from a democratic mandate. Our task now is to get on with the job. I am open to suggestions from both sides of the House about what exactly we should look at; indeed I am already being inundated with proposals and suggestions, so we shall need to prioritise. Of course, I shall await the views of my Committee colleagues, but it would surprise no one—certainly not me—if we concluded that the central fiscal judgment of the Budget, and both the structure and early output of the new Office for Budget Responsibility, should be high on our agenda.
Malcolm Bruce
Well, it was not viable and it did not add up, because it was not local. That was the problem. It was a central measure. Indeed, the hon. Gentleman might also want to listen to the fact that the centralisation of business rates is one reason why north-east Scotland is so underfunded. The city of Aberdeen pays £150 million a year in business rates to Edinburgh—to the SNP Government—and gets £75 million back. That is a pretty bad deal for a city that supports the economy and has severe financial difficulties, so I do not think that we need to hear any more from the SNP.
Oral Answers to Questions
Michael Connarty Excerpts(14 years, 5 months ago)
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Mr Gauke
We are keen for the independent commission to design the scheme, but one of the points that we have made clear is that the dependants of deceased policyholders should be included in the scheme to address that point. Clearly, however, my hon. Friend highlights the need to move quickly, after 10 years of inadequate progress.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
On the question of Equitable Life, there can be few constituencies that do not contain people who are waiting for payment or people who have died while waiting for payment. Is it not shocking that one of the main perpetrators of the Equitable Life fraud—for that is what it was—will, after last weekend, be able to take up a senior position in a financial institution? Can the Government re-examine what happened in that process, so that these people are not allowed to have senior financial positions in future?