Section 5 of the European Communities (Amendment) Act 1993

Philip Hollobone Excerpts

Wednesday 30th April 2014 Commons Chamber

[Shabana Mahmood]

And yet people in our country are on average £1,600 a year worse off. Let us look at the combined impact of tax and benefit changes. The Institute for Fiscal Studies figures, analysed for us by the House of Commons Library, show that on average people will by next year be about £1,000 a year worse off. This comes back to the central point: the Government say in the Red Book that pressures on household budgets are easing, but people are worse off, and not by trifling amounts, such as a tenner or £20 quid—they are worse off by nearly £1,000. That is a huge sum and it has a huge impact on a family’s ability to make ends meet.

The Government talk a lot about the personal allowance, and when the charge is made that ordinary people are suffering a deep-seated cost of living crisis, they often say, “But of course we have taken a large number of people out of tax altogether because of the increase in the personal allowance.” Although the personal allowance increases have been welcomed and supported by everybody across the House, they do not in and of themselves give a family the ability to make ends meet. We still have people who are desperately struggling, and who have their head in their hands every time a bill comes through the door. The truth remains that people on lower and middle incomes are worse off, and they will be worse off at the end of this Parliament than they were at the beginning of it. The balm offered, by the increases in the personal allowance in particular, is not enough to heal the deep wound that has been inflicted by all the other changes this Government have implemented since they have been in power. As I say, the combined impact of tax and benefit changes means that by next year people on lower and middle incomes will be about £1,000 a year worse off.

The Red Book also talks a lot about the Government’s economic policy in relation to savers. The Chancellor famously said:

“If you are a maker, a doer or a saver, this Budget is for you.”—[Official Report, 19 March 2014; Vol. 577, c. 781.]

There was not much in the Budget and the Red Book to help those who are making do—the people struggling with the cost of living crisis. But for the savers, there is much in the Red Book: about retirement choices, individual savings accounts and other savings devices. The Red Book has twice as much about savers as about supporting households. Again, however, it is not a true and accurate reflection of what is going on in the economy, because the Red Book fails to recognise that for many people saving, particularly at the moment, is a luxury that is desperately out of reach. I can imagine the welfare Minister I described earlier as being baffled about why people go to food banks being equally baffled about why people cannot save. People go to food banks because they have no money and they are going hungry. People do not save because they do not have any money left once they have met their other costs of living.

Hidden away in the documents that accompanied the Budget we found that the OBR says that the savings ratio has fallen in recent months and is projected to fall every year until 2018. I put that point to the Chancellor yesterday when I asked him to confirm that, despite his Budget for savers, the savings ratio is forecast to go down. He ducked the question and refused to accept that that is what the OBR is saying is happening to the savings ratio.

In recent weeks, we have had a number of surveys, particularly an important one carried out by the Money Advice Service, which have shown that 16 million British people are living life on the edge with no savings at all. Just 27% of people say that they can save on a monthly basis, and 37% say they have fewer savings now than they had last year. The truth, which we do not see in the Red Book, is that savers withdrew money from their accounts last year at the fastest rate for nearly four decades, according to Bank of England figures. Britons ended up taking out £23 billion from long-term savings in 2015. The ability of ordinary people on lower and middle incomes to save and to have enough money left over after the working week to put aside even £1 a day is fairly limited. Again, that is something that has not been spelt out in the Red Book.

[Mr Philip Hollobone (Kettering) (Con)]

It has certainly been spelt out in the convergence document produced by Her Majesty’s Treasury. Page 12 makes it quite clear that falls in the rate of saving are to be expected in periods when confidence is increasing. It goes on to say that total household debt as a percentage of disposable income has fallen more than 30 percentage points since its pre-crisis peak under the previous Government.

[Shabana Mahmood]

I am afraid that that does not get the Government off the hook when it comes to the impact of their own record. The decisions that the Government have made, both in this and previous Budgets, have left ordinary people worse off. The rhetoric around savers and how much there is in the Red Book for savers in our country misses the point and does not spell it out in ordinary language for the ordinary person to understand that saving is a luxury today for millions of people struggling with a deep-seated cost of living crisis.

The Red Book gives a rosy picture of what is happening in the UK economy, but is just a good line in rhetoric that is rather removed from the reality of daily life for millions of people in our country. For that reason, I urge Members to reject the Government motion and to support our amendment, which, at the very least, introduces an element of reality into what is a surreal characterisation of today’s British economy.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I welcome my hon. Friend the Member for Loughborough (Nicky Morgan) to her new post as Financial Secretary. It is an enormous pleasure to see her there and one of the great outcomes of the recent reshuffle. I also thank her for her courtesy to this House, which has not always been achieved by her predecessors, for holding this debate before the documents have been given to Brussels, which is an improvement. There was no suggestion on this occasion that the matter be debated in a Committee; it has come straight to the Floor of the House. I am grateful for that as it is important that this House has the ability to discuss such matters properly.

I apologise for the other members of the European Scrutiny Committee, who are meeting at this time. My hon. Friend the Member for Stone (Mr Cash), the Chairman of that Committee, can achieve many things, but unlike Padre Pio, that noted saint, he is unable to manage bilocation. No doubt, in a few years’ time, he will be able to achieve the ability to be in two places at once.

[Mr Hollobone]

Does my hon. Friend think that it is slightly cheeky or that it is just a matter of coincidence that the timetabling for this measure before the House should coincide exactly with when the European Scrutiny Committee is sitting?

[Jacob Rees-Mogg]

I think that it is an unfortunate concurrence of atoms. If we had not had a statement earlier, it would have been possible to fit in both, and that is how things go at the end of a Session. I am not so cynical as to think that this could possibly have been planned.

I want to answer immediately the point about savings made by the hon. Member for Birmingham, Ladywood (Shabana Mahmood). In all that she said on savings, she missed the reclassification of savings that the Office for National Statistics has just introduced. It has roughly doubled our savings rate, because it has reclassified the amounts that private companies put into pension funds as saving rather than as expenditure. That has transformed our savings rate, and therefore the UK economy has had a much higher savings rate than the figures have captured for many years. We should be rather pleased with the savings rate that we have and that we continue to have. Her point on savings, therefore, is, regrettably, fundamentally misfounded.

I want to come on to what underlies this whole debate. People with long memories will be aware that the Government—the British nation—had an opt-out of only stage 3 of monetary union. They did not have an opt-out from the earlier stages, and that included the convergence criteria to be ready to join the euro should that be the wish of the British people at any stage. These documents are part of the convergence criteria to show that we are making headway towards the requirements set out by the European Union under a number of agreements, the latest of which was in 2011, which basically ask for a deficit to be no more than 3% and for the national debt to be no more than 60%. It is about meeting those convergence criteria so that we could if we wished join the euro. It is important to bear that in mind. I am glad about the way the Government have approached this. Had they decided to prepare a whole new set of papers, devoting a great deal of energy and resources on the matter, as the previous Government did with their eurozone entry team, which cost millions of pounds and went on running for years, they would be buying into stages 1 and 2 of convergence for entering the euro. By simply sending the rather splendidly recycled—not just 75% but 100% of the fibre in this document has been recycled—to the European Union, it shows our deep suspicion of the whole process. In the reading of the documents, I could find only two references to performance against EU targets and convergence: on page 22, which runs to a mere three lines, and in the chapter headed “Excessive deficit procedure” on page 53.

I am pleased that the Government are taking an approach of saying, “This is what we understand is happening with the British economy. You, the European Commission, can have it, look at it and chew it over, but we are not running our economic policy in accordance with the convergence criteria.” I was reassured by the Minister’s comments that our policy is not determined by the requirements of convergence, and thank heavens for that. The convergence criteria have been at the heart of the ruination of European economies. There has been one crucial thing that the Government have been able to do since 2010, which the previous Government started, and that is to run a loose monetary policy with a tight fiscal policy. That has ensured that we have been able to get the deficit down without crunching the economy to pieces and without running the risk of a deflationary and elongated depression. That is possible only because we have not been aiming to meet the convergence criteria in the midst of a credit crunch/ depression. We have been able to set our own policy because we have had our own currency and therefore have not been trying to maintain the exchange rate at any particular level. It is notable that, throughout this process, the exchange rate has acted as one of the crucial automatic stabilisers for the economy. In 2009, the sterling-dollar rate bottomed at $1.35 and is now above $1.65, and that has acted as an automatic stabiliser on monetary policy during the process of this downturn—all of which has been dependent on our having our own currency, and has allowed both this Government and the previous one to be tighter on the fiscal side than would otherwise have been possible. It has avoided the absolute disaster affecting the eurozone countries, of having a tight monetary policy and a tight fiscal policy at the same point, which has led, in some countries, to riots.

I am broadly reassured, but there are inevitably some concerns. As I have mentioned, this is about meeting the convergence criteria that allow us to enter the euro. The European Union has no specific enforcement powers, but there are certain commitments that we have made. We are obliged, as are other EU member states not in the euro, to submit a convergence programme focused on the national fiscal policy. From 2011, EU legislation on economic governance introduced a new obligation on member states, including the United Kingdom, to take due account of EU guidance issued to them in the development of their economic, employment and budgetary policies before taking key decisions on their national budgets for the succeeding years, and progress will be monitored by the Commission.

--- Later in debate ---

[Graham Stringer]

The EU is not only a thin-end-of-the-wedge organisation but absolutely not a learning organisation. It is ideologically committed to ever-greater and closer union. It will not listen to arguments, however sensible they are, and however well this economy has or has not done over the past five or 10 years, and it will not take empirical lessons because its ideology is different from that. I will not repeat my previous points about starting the process of this sovereign Parliament’s reporting to the EU.

[Mr Hollobone]

I am listening to the hon. Gentleman with great interest, and he has evident expertise in matters European. Does he share my concern that one of the problems with our so-called convergence with Europe is the impact on our trade deficit with Europe, which, I understand, is large and growing? That might well be partly a consequence of the tremendous economic recovery in this country and competitive devaluation in Germany, but, given that we are meant to talk about convergence today, my concern is about the growing deficit in trade with our European partners.

--- Later in debate ---

[Nicky Morgan]

I thank all hon. Members who have contributed to this extremely interesting debate. I will deal briefly with some of the points that have been raised. I hope to address all of them, but if I do not I will obviously be happy to discuss them afterwards and to try to answer any further questions.

I thank the shadow Minister for welcoming me to my new post. She is absolutely right that we will be seeing a lot of each other over the next few weeks as we deliberate the Finance Bill upstairs in the Committee Room. What I think was most interesting about her speech was that, rather like the Leader of the Opposition’s response to the Budget statement, it did not mention the EU very much at all. She went through the Opposition’s views on the Government’s economic policy, but I must say that I did not detect any signs of their own economic policy, which appears to be missing. That was interesting, given that the hon. Member for Blackley and Broughton (Graham Stringer) did mention the EU—I will mention his speech in a moment.

It is extraordinary that the Opposition, having previously claimed that there would be no recovery, that any recovery would be choked off and that we would have 1 million more unemployed people, are now saying that the recovery is too slow. No doubt they will move on to another form of criticism in due course. However, I am pleased that the hon. Lady did at least welcome yesterday’s figures on GDP growth, which are significant. As I said in my opening remarks, they show that the economy is growing and that we have momentum, but the job is not yet done.

[Mr Hollobone]

My hon. Friend is being far too modest —hiding her lamp under a bushel—because her own publication clearly states:

“Since early 2010, the pace of net employment creation has been 3 times as fast as over the same period in previous recessions and recoveries”

since 1973.

[Nicky Morgan]

I thank my hon. Friend for reading the document assiduously and quoting from it. Yesterday’s figures are a positive step, and the employment figures are very encouraging. As we know from the note left by the last Chief Secretary to the Treasury under the previous Government, there was no money left, because they had spent it all. This Government have had quite a task to rebalance our economy and fix the deficit.

The shadow Minister mentioned the Budget’s focus on savers. Let me tell her that millions of basic rate taxpayers are savers, because she somehow dismissed them by saying that we are not talking about households. I do not know where she thinks savers live, but they form their own households. As my right hon. Friend the Chancellor said, we are on the side of savers and hard-working people of all types. She also mentioned the savings ratio. The latest OBR forecast shows that the savings ratio will be around 4% over the next two years, which is still well above the pre-recession low of 0.2%. I honestly do not know how she has the nerve to criticise the ratio when people are still saving more in this country.

Let me move on to the characteristically eloquent speech from my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), which showed his expert understanding. I was delighted not only that he could be here for the debate, but that he supports the Government’s approach. I have taken his comments on board, but I am glad that he can support the announcements my right hon. Friend the Chancellor made on recent fiscal events and this document. That is very important.

The hon. Member for Blackley and Broughton set out his unhappiness with the process. I understand what he was saying. He also mentioned the impact of the eurozone crisis on our economy over the past few years, which was important, and I am glad that he did so. He asked two specific questions. On the multi-annual financial framework, the Prime Minister agreed a real-terms cut in the payment ceiling to €908.4 billion, which is €80 billion lower than the Commission’s original proposal, €35 billion lower than the 2007-2013 multi-annual financial framework and €24 billion below a real-terms freeze on the last completed budget in 2012. That is why I could make my remarks about the Prime Minister’s achievements in negotiating a real-terms cut in the multi-annual financial framework.

The hon. Gentleman also mentioned the financial transaction tax, and we have heard the news today from the European Court of Justice. Let me set out that the UK will not be joining the enhanced co-operation financial transaction tax. Today’s judgment confirmed that the UK can challenge the final proposal for a financial transaction tax if it is not in our national interest and undermines the integrity of the single market. Today’s announcement also confirms that the UK can challenge the eventual implementation if necessary without running the risk of the challenge being too late. We needed to make an early challenge in order to set out our stall for later negotiations for a financial transaction tax should they prove to be disadvantageous to the UK.

My hon. Friend the Member for Bury North (Mr Nuttall) set out in his characteristically forthright style that he fundamentally disagrees with the whole process, which I fully respect. I am, however, sorry that he will not be joining us in the Lobby this afternoon. He will understand that we are currently part of a treaty that requires us to submit this convergence programme, and I explained to him following his earlier intervention why we wanted to submit a final document, rather than the draft that has been submitted in previous years.

My hon. Friend also asked about last year’s response from the EU. There was a response and I sent the European Scrutiny Committee an explanatory memorandum about that. He also asked about renegotiation, and I take note of what he said. We clearly will not be setting out a negotiating stance at present, but I draw his attention to the recent article written by my right hon. Friend the Prime Minister in The Sunday Telegraph—I do not have the exact date, but it was certainly within the past month or so—in which he set out some key areas for renegotiation. He talked about:

“Powers flowing away from Brussels, not always to it”,

and about

“National parliaments able to work together to block unwanted European legislation.”

I hope that all of that is music to the ears of my hon. Friend the Member for Bury North. As he would expect, further announcements will be made in due course.

Following this debate and Parliament’s approval, the Government will inform the European Commission of their assessment of the UK’s medium-term economic and budgetary position. The convergence programme will be submitted later today, which is a legal requirement under the EU’s stability and growth pact. The Government of course take legal requirements seriously. At the same time, however, I reiterate to hon. Members that, as in previous years, the document is based entirely on previously published documents that have already been presented to Parliament. The submission of convergence programmes by euro-outs and stability programmes by euro area member states provides a framework for co-ordinating fiscal policies. As I said, a degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is in the UK’s national interest. It is important that we continue to use the European semester process to encourage member states to take national decisions on structural reform and growth that will help to support the European economy.

Budget 2014 set out the next steps in the Government’s long-term economic plan to secure the recovery and build a resilient economy, which requires tough decisions to put the public finances on a sustainable path. Budget 2014 supports businesses to invest, to export and to create jobs and cuts taxes for hard-working people. There is much still to do, however, and the Government are not complacent.

Ultimately, sustainable growth is the only way for both the UK and other EU member states to pay down their debts and to exit the current difficult economic times. The UK Government are leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the motion to the House.

Question put.