European Budgets 2014 to 2020

William Cash Excerpts

Tuesday 8th November 2011 Commons Chamber

[Andrea Leadsom (South Northamptonshire) (Con)]

Will the Financial Secretary give way?

[Mr William Cash (Stone) (Con)]

Will the Financial Secretary give way?

[Mr Hoban]

Let me finish a couple of sentences and then I will give way.

Tackling financial mismanagement in the EU can help meet spending commitments, so our message on spending is clear. There should be a real-terms freeze on spending, a focus on the amounts actually spent, not plans dreamt up over five years ago when the world was different. Let us tackle waste and financial mismanagement across the EU. I give way to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom).

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[Mr Hoban]

This goes back to some of the challenges in the Commission’s presentation of its numbers. The budget proposed by the Commission is £100 billion larger than the real freeze in spending that the UK and its allies have proposed. [Interruption.] The right hon. Member for Rotherham (Mr MacShane) says that I have not answered the question. It is clear that the way in which the European Commission has structured its budget, by having some things on or off-budget and by talking about commitments rather than actual spending, confuses and clouds the position, leaving some to think that the Commission has embarked on a freeze on the budget, whereas in reality the EU is proposing a real-terms increase in the budget.

Let me move on to the second issue in relation to the funding of the EU budget. The Government strongly oppose the proposal for new taxes to fund the European Union budget. They attach considerable importance to the principle of tax sovereignty. Tax is a matter for member states to decide at a national level. We oppose any new taxes or changes to the existing system that increase the UK’s contributions or pose a threat to our long-term position, including a financial transactions tax to fund the EU budget. We cannot accept a budget which asks for more and asks for a greater share from taxpayers and from the UK.

A year ago, the Government set out their plans for the consolidation of public expenditure at the spending review. Supported by the International Monetary Fund and OECD, the Government set out plans to reduce the deficit. We have shown our resolve by keeping the UK out of the storm that has engulfed the euro area, and we will show the same resolve with the European Commission. The inflation-busting increases proposed by the Commission are out of touch with the realities felt by taxpayers across Europe, and out of touch with the views of José Manuel Barroso, who in June argued that many states

“need to show more ambition when it comes to fiscal consolidation”.

We as a Government believe that the Commission needs to show much more ambition, too, when it comes to fiscal consolidation. We will continue to press the European Commission and member states to deliver a multi-annual framework that delivers real fiscal consolidation. This will be a challenging negotiation.

[Mr Cash]

Will my hon. Friend give way?

[Mr Hoban]

There will always be pressure from others to spend more, and a failure to agree the framework would shift the focus to the annual budget process which, unlike the framework, is decided by qualified majority voting. It is an uncertain prospect that we are eager to avoid. That is why we will work tirelessly to seek the best deal on the multi-annual framework, but a deal on our terms—a deal that curbs EU spending and puts a brake on the Commission’s plans for EU-wide taxes and seizing some of our rebate—

[Mr Cash]

Will my hon. Friend give way?

[Mr Hoban]

I was about to conclude to give my hon. Friend time to speak in the debate, but let me take his intervention.

[Mr Cash]

This gives me an opportunity to put one thing on the record, not necessarily in a spirit of cynicism. Last year I moved an amendment, which was accepted by the House, that we would have no increase in the budget. By the end of the convolutions that took place, the Government accepted an increase of 2.9%. May I be absolutely assured that on this occasion, given the robust nature and the tenor of what my hon. Friend has said, that there will be no increase whatsoever?

[Mr Hoban]

My hon. Friend is well versed in the intricacies of the European Union. As he knows, the budget negotiations later this month are done on a QMV basis. We do not have a veto on the 2012 budget and we will be seeking to build a coalition of allies who are as committed as we are to curbing the expenditure of the EU, and who are as committed as we are to opposing the inflation-busting increase proposed by the European Commission. I am sure that when we reach that deal later this month, my hon. Friend will seek to hold the Government to account on that. I can assure him that we are doing everything in our power to ensure that we curb the EU’s plans and reduce the spending levels proposed by the Commission.

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[Kelvin Hopkins (Luton North) (Lab)]

Although we are all going to acquiesce in this motion—I understand that there will not be a vote—and although I support the conclusion that we should not increase our spending on the European budget, and, indeed, that it should be reduced, I do not support some of the wording in the motion.

I agree that we should not increase our UK contribution to the EU budget, now or at any time. We have to look towards a world where we reduce our contribution very substantially. The right hon. Member for Wokingham (Mr Redwood) and others have mentioned the common agricultural policy. Many times, when sitting on the Government Benches in previous Parliaments, I have called for the abolition of the common agricultural policy. If it were abolished and we carried on subsidising our own farmers at the level they are subsidised now, we would have a massive reduction in our contribution to the EU budget.

The proposed changes to UK abatement and new taxes are unacceptable. We should decide what our level of taxes should be. The UK abatement was wrongly reduced in a previous negotiation on the common agricultural policy that did not result in anything beneficial for Britain. At the time, The Economist said that the deal was so bad that it could have been better to have had no deal. I agree. I support the Government’s efforts to reduce the Commission’s proposed budget. The numbers that are being talked about are clearly unacceptable. It is regrettable, too, that all these things are governed by qualified majority voting instead of unanimity, but there we are.

I do not care for the wording of the motion. It refers to “economic fragility in Europe”. Yes, the situation is certainly very fragile at the moment, and we will not recover from that fragility until we have more common sense about the eurozone. Certain members should be allowed to recreate their own currencies, find an appropriate parity for their currencies, and then reflate behind those currencies. That is the way forward for those countries, and it will benefit the eurozone and the European Union, and indeed the world economy overall, when that is allowed to happen.

[Mr Cash]

I should like to correct the hon. Gentleman on something. The multi-annual financial framework is governed by article 312 of the treaty on the functioning of the European Union, under which:

“The European Council may, unanimously,”—

in other words, we could have imposed a veto—

“adopt a decision authorising the Council to act by qualified majority when adopting the regulation”.

That means that it is unanimity first, and then QMV.

[Kelvin Hopkins]

I would like to see Governments, and in particular our Government, using their veto from time to time in a more bold and radical way.

The wording that I am particularly concerned about is that which talks about

“tough decisions being taken…to bring deficits under control and stimulate economic growth”.

Those things are incompatible. If one wants simply to bring down budgets by cutting, that will not stimulate economic growth, but reduce it. The wording should be the other way around. If one wants to bring deficits under control, the best way to do so is to stimulate economic growth. Economic growth would bring down unemployment, increase tax revenues and reduce the burden of benefits.

If we encourage all the member states of the European Union to deflate collectively, that is the route to depression. There are lessons from the 1930s on that. I hope that we will quickly come to our senses and realise that we are in a pre-1930s situation. If we do not reverse it, we may head towards depression.

In questions to the Chancellor the other day, I talked about the Labour Government of 1945, who had a gross debt much larger than we have now. They chose not to cut spending, but to create the welfare state, bring in the national health service and run a full-employment economy. Full employment was sustained for two and a half to three decades. That is what brought the deficit under control, and that is what we should do again.

There are other bad examples from history, which I have mentioned before. After the first world war, there was the Geddes axe. There was a deficit after the war—there are always deficits after wars—so we thought that we should cut our way back to a lower budget. What happened, of course, was that for a decade we had low growth, high unemployment and the deficit got worse, not better. We are in danger of doing that again.

In the short term, we have to spend. We could reduce our contribution to the European Union budget and spend some of that money on areas of labour intensity with low import content. Those areas are obviously construction and the public services—precisely the areas that are being cut. Cutting is exactly the wrong thing to do and we should do the opposite if we are serious about bringing the deficit down. That would be beneficial for everybody because the people who do not have jobs would have jobs, the public services that are now suffering would not suffer, and the people who are dependent on public services would not be hurt.

I agree with the objective of reducing our contribution to the European budget and constraining it in the short term, but I do not believe that we should emphasise simply cutting deficits without recognising that that could make unemployment rise and the deficit get worse in the long term. That could lead us into a very serious economic situation.

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[Mr William Cash (Stone) (Con)]

First, I should like to demonstrate the extent of the documents that I will discuss in the next five minutes, just to give some indication of what is going on.

Secondly, as Chairman of the European Scrutiny Committee, I had the opportunity to go, on behalf of our national Parliament, to a conference on the multi-annual financial framework. It was a complete farce. Mr Barroso, our Minister for Europe, Ministers from other countries and their permanent secretaries and so on were all there. I was completely staggered by their inability to have the faintest idea of what was going on. I said to them, “You are living on another planet!” Somewhat unusually, I ended up being congratulated by our UKRep representatives on at least spelling that out. It is devastating how far removed those people are from the realities of life, as my hon. Friend the Member for Northampton South (Mr Binley) said.

On the structural questions, the proposals—the financial transactions tax and the change to greater own resources—are fundamental changes. The chairman of the European parliamentary committee, Mr Alain Lamassoure, who gave us the benefit of his many speeches, and who has written a huge pamphlet on the subject, is living on another planet. In the meantime, a meteor has hit planet Europe and huge chunks are falling off it, but it is still spinning, even when the whole thing is disintegrating in front of our eyes. These people are astonishing.

With respect to the Minister, I look to the future with some concern, if only because we could end up with another increase in spending despite the blandishments of the motion. Delighted as I am that right hon. and hon. Friends have signed the motion, I issue that cautionary note.

[Mrs Main]

I would like to test the resilience of the proposal about whether we have to pay more, and say, “No more will we pay,” and see what happens. We for ever capitulate when we are pressed to the point. I would like to say, “This is the will of this sovereign Parliament, and we will not pay any more”. We should test that

[Mr Cash]

I, too, take that view. My hon. Friend is completely right. I note that the motion states that the House

“supports the Government’s ongoing efforts to reduce the Commission’s proposed budget”.

I would hope to go further, but we shall see.

[Mr Peter Bone (Wellingborough) (Con)]

The Prime Minister said at the Dispatch Box that he wanted to gain more reductions, but seemed to imply that he was held back by qualified majority voting. Does my hon. Friend believe that the Prime Minister has a veto, or is it down to QMV?

[Mr Cash]

I have already quoted article 312. There is no doubt that the whole process can be blocked by unanimity, but once the European Council has made a decision to go ahead, the decision reverts to qualified majority vote. I think that is right, but the Minister will correct me if I am wrong.

I want to deal with one fundamental question that came up over and over again. That conference was regarded as important because it supposedly carried the national Parliaments with it. That was partly the case, although it did not apply to the United Kingdom Parliament—certainly not to me in my capacity there. Growth is the key question, but, over that too, they are living on another planet, because their idea of growth simply means more investment of public money. I had to ask them, “Where is the money coming from?” There were about 300 people there—I was a little bit in the lions’ den, but it was worth doing simply to see the unreality. As T. S. Elliot said:

“humankind cannot bear very much reality”.

When I asked, “Where’s it coming from?”, they said, “The taxpayers”, but it is not coming from the taxpayers; it is coming from small business men all over Europe, who, when running their businesses profitably, can then be taxed. But what if they cannot run them profitably? Here we have the problem with social employment laws, and I had the temerity to mention to them things such as paternity and maternity leave, the working time directive, the temporary agency directives and the rest. I told them about the scale of redundancy payments. We saw the Channel 4 programme the day before yesterday on pensions in Greece. Apparently, when people leave work, those pensions remain, for the rest of their lives, equivalent to what they had earned per year when working.

The growth must come from the small and medium-sized businesses. I have here another of these documents—none of them ever see the light of day, but I have the pleasure of being able to tell the House about it today. This one is entitled, “Towards a European Consensus on Growth”, but it, too, is completely and utterly unrealistic. There is no serious understanding of where the money comes from or of the fact that the result of having no growth in Europe is that there is no growth here either, because 40% of our economy is tied in to Europe. But these people will not change the structural system or the labour laws.

The EU representatives are talking and talking, but they are doing and doing nothing, and as a result, this black hole, whether Greece, Italy, Spain or wherever else in the EU, is condemned to getting deeper and blacker, simply because there is no realisation of where the money comes from in the first place. That is the problem at the root of this multi-annual financial framework. The whole project is based on a con trick of monumental proportions. They believe that they simply need to spend money on infrastructure and bridges—I would like to know where the contracts are going and how they are composed—but that does not solve the problem of the small businesses that simply cannot operate in the kind of environment that Europe now represents. That is all I need to say. This is a dead parrot.

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

As ever, it is a great pleasure to follow my hon. Friend the Member for Brigg and Goole (Andrew Percy), who speaks straightforward common sense. I also rise to support the motion. We have had a good debate, and I want to make some brief points.

First, we must not lose sight of the fact that, under the proposed new EU budget, there remain very few net contributors to the budget. Perhaps if more EU nations contributed to it, the EU might become a more prudent organisation. Secondly, I agree with the wording of the motion that states that the Commission’s proposal for an increase is

“unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK”.

Those words would be a good candidate for the winner of the understatement of the year competition.

The Government state, in paragraph 97 of their explanatory memorandum on the EU budget, that their provisional estimate of the UK contribution to the next EU financial framework is 11.5%, after the UK rebate has been taken into account. The Commission’s proposed ceiling for EU payments within the financial framework over the period from 2014 to 2020 is €972 billion, so a UK contribution of 11.5% on that level of EU payments would see this country paying in almost €112 billion, which is about £96 billion at an exchange rate of £1 to €1.6.

[Mr Cash]

Is my hon. Friend aware that, according to the European Commission’s proposal for the lump sums “adjusted for relative prosperity”—the annual lump sums relating to the period from 2014 to 2020—Germany’s would be adjusted to €2.5 billion and the United Kingdom’s to €3.6 billion, which is more than Germany’s?

[Mr Nuttall]

No, I was not aware of that, and I am grateful to my hon. Friend for bringing it to the attention of the House.

This country will need to contribute about £70 billion to the EU budget during the Parliament that will run from 2015 to 2020. Finally, the EU is proposing a substantial extension of its ability to collect its own revenues by introducing new, EU-wide taxes—the so-called own resources decision. It is also proposing a new, dedicated EU VAT and a new financial tax. And, just to rub it in, it is proposing to end the UK’s rebate.

EU officials should spend more of their time ensuring that eurozone nations start to live within their means and less time devising new ways to tax my constituents. The EU wants to spend more and wants the UK to pay more. The EU wants to scrap the UK rebate, and the UK wants to bring in new Euro-taxes. To each of these, and to echo the words of Baroness Thatcher, it is absolutely right that our Government should say no, no, no.

Credit Institutions and Investment Firms

William Cash Excerpts

Tuesday 8th November 2011 Commons Chamber

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

I beg to move,

That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.

I am pleased to have the opportunity to discuss the European Union’s proposals on prudential requirements for the financial sector, and I welcome the Scrutiny Committee’s thorough report on the issue. I find myself in a slightly odd position today, in that the motion before us today, which stands in my name, was tabled by the Committee. The Committee has done a fantastic job in identifying this issue around subsidiarity, and we shall be supporting the motion.

[Mr William Cash (Stone) (Con)]

Will my hon. Friend give way?

[Mr Hoban]

I am one minute in to my speech and my hon. Friend wishes to intervene. I am happy to give way.

[Mr Cash]

My hon. Friend would need to be only half a minute in for the point that I am about to make. There are some recommendations sculling around in the Procedure Committee and the Liaison Committee that the Minister would not necessarily have to reply to the questions put forward by the European Scrutiny Committee and by the Chairman. Is my hon. Friend aware of that?

[Mr Hoban]

I am indeed aware of that and I think it is a good thing. Although my hon. Friends and I see eye to eye on many of these issues, there may be an occasion when a reasoned opinion is put forward which the Government do not quite agree with. That would put the Government and the Committee in a strange position.

I agree with the Committee that the Commission’s co-proposals on prudential requirements raise serious concerns over subsidiarity and, as drafted, the proposals seriously undermine the efficacy of the Basel reforms in the EU. As argued in the Committee’s report, the proposals for maximum harmonisation will severely restrict the ability of member states to conduct macro-prudential policy. They limit the ability of member states to respond to the unique characteristics and risks of their market, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdiction.

We cannot risk being straitjacketed into a one-size-fits-all approach in setting prudential levels. Across Europe, no two financial systems are the same, and in a system where euro area banks face the same centrally set interest rate, it is even more important that member states retain the flexibility to use other tools for financial stability. Let me deal with these issues in a little more detail.

As hon. Members are aware, the Commission’s proposal on prudential requirements is the mechanism by which the EU will implement the Basel III agreement to strengthen capital requirements and introduce minimum liquidity and leverage standards, changes that are absolutely necessary to correct the failures that preceded the latest crisis. Basel III is an ambitious agreement, a strong demonstration of collective endeavour and ambition, and an agreement that will fundamentally reform the global financial system. As we agreed with our international counterparts at the G20:

“We are committed to adopt and implement fully these standards”.

There are those who would seek to use current economic circumstances to row back from full implementation of Basel III—those who argue that full implementation would undermine growth at a time when we need to do everything we can to support a global recovery. We disagree. At a time of instability and at a time when bank balance sheets are under intense scrutiny and pressure, now is not the time to row back from strengthening those balance sheets. Stability is in itself a vital precondition for growth, and Basel III sets out the vital reforms that we need to increase stability in the banking sector.

Earlier this year the Commission published its draft regulation on prudential requirements for the financial sector. Despite the G20 commitment to implementing Basel III in full, the draft regulation deviates from that agreement in crucial areas. In doing so, the proposals significantly dilute the minimum standards agreed internationally for global banks and increase the taxpayer’s potential exposure to future losses. As the Scrutiny Committee highlights, the draft regulation also seeks to embed maximum harmonisation of prudential requirements.

I share the Committee’s concern that the draft regulation will severely limit the ability of member states to conduct macro-prudential policy, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdictions. We believe that it remains the case that member states are best placed to identify risks to financial stability in their jurisdiction. This is particularly the case when it comes to taking action concerning their own financial stability. Given the considerable experience, expertise, information and knowledge available to member states, it is difficult to see how the Commission can be considered to be better placed to assess macro-prudential conditions, systemic risks and appropriate policies for each member state than the member states themselves.

Furthermore, it is not clear that the Commission would be able to respond faster than the competent authorities of member states to risks as they arise. Therefore, I share the Scrutiny Committee’s concern that the inclusion of article 443, which contains a delegated power for the Commission to adopt delegated acts to impose stricter prudential requirements on member states, is entirely inappropriate. Not only is subsidiarity a matter of economic principle, but it is a matter of past experience. The financial crisis taught us that it is vital that national authorities retain discretion to react decisively and speedily to economic developments. It is vital that member states retain their flexibility to adjust prudential requirements to respond to emerging systemic risks and cyclical variations in economic activity, which, as we have seen in the build-up to the eurozone crisis, can be very large.

The crisis also taught us that we were not alert to those systemic risks, and not just at the firm level. It is vital that we are not caught out again. National authorities must retain the tools and flexibility to tackle those risks. Therefore, although Basel III provides an historic and coherent set of minimum standards, the ability to go beyond them if necessary and deploy macro-prudential policy to tailor our response to idiosyncratic macro-financial risks is in our vital economic interest.

We are not alone in making that judgment. The previous head of the European Central Bank, Jean-Claude Trichet, has said that

“the Basel requirements are minimum, and they have to be considered as minimum.”

Likewise, the IMF argued in its UK spillover report:

“UK financial stability will be weakened (with adverse spillovers) if EU rules constrain UK financial regulations at insufficiently ambitious levels or if they limit the ability to use macro-prudential instruments to address emerging risks.”

Retaining that flexibility will not, as the Commission has suggested, undermine our commitment to the single rule book. Of course, a single rule book helps to reduce the burdens on cross-border firms, but that cannot come at the expense of a member state’s ability to implement higher prudential regulations. Instead, a single rule book that establishes harmonised definitions and minimum requirements would protect the flexibility to allow member states to adjust their prudential requirements as necessary, while at the same time helping to reduce burdens on cross-border firms.

Indeed, recommendation No. 10 of the Larosière report on financial supervision states that

“a Member State should be able to adopt more stringent national regulatory measures considered to be domestically appropriate for safeguarding financial stability as long as the principles of the internal market and agreed minimum core standards are respected.”

It is interesting that we have an agreement here. My hon. Friend the Member for Stone (Mr Cash), Jacques de Larosière, who is the architect of the financial regulation, and the Government all agree with that we must have the flexibility to go further if that is appropriate.

I believe that we have a once-in-a-lifetime opportunity to reform financial services and ensure that we embed a system that works in the interests of consumers and underpins stable and sustainable economies. The Government have neither dithered, nor delayed in implementing fundamental reform of our financial sector and our system of regulation. We are reforming the failed tripartite system, leading the debate on the future of the financial sector through the Independent Commission on Banking and leading the international agenda for full and fundamental reform across the global financial system.

At a time of instability, the European Commission will inevitably come under pressure to delay, obfuscate and pander to vested interests across the EU that want to soften standards. It is critical that the Commission stands firm against those pressures and, with respect to the prudential requirements legislation, implements the Basel agreement in full. We must ensure that the Basel requirements are implemented as harmonised definitions and minimum requirements, not a maximum, that member states have the flexibility to respond to the unique risks and characteristics of their own markets, and that we implement regulations that are effective, credible and consistent. I commend the motion to the House.

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

The capital requirements directives have sought to translate the proposals of the Basel Committee on Banking Supervision and apply them across the EU. Today’s proposal, CRD IV—another acronym that is familiar to many of our constituents—attempts to update those arrangements so that they fit the circumstances of today’s banking system and learn the lessons of the global financial crisis. As the Minister said, no one disagrees that the quality and quantity of capital that banks hold in order to absorb losses should be increased, and there is broad consensus on that.

CRD IV will make four changes. It will, first, introduce sanctions to ensure that all EU banks comply; secondly, prevent over-reliance on credit rating agencies, which should not substitute for proper internal due diligence; thirdly, improve corporate governance in the banking sector; and fourthly, address the pro-cyclicality of lending, which can accelerate the expansionary tendencies of an economic cycle. The difficulty comes when the Commission proposes “maximum harmonisation” in order to achieve a single EU rule book for banking, preventing member states from setting higher standards beyond the levels proposed in the directive.

I am aware that many City institutions also favour a harmonised international approach to regulation, but such an approach could render many of the recommendations of the Vickers commission, for example, redundant as we would simply be unable to introduce tougher standards here in the UK. The EU says that the directive is to prevent a race to the top, but we need to ensure that our financial services industry—by far the largest and most systemically important of any EU country—has a regulatory system that can protect UK taxpayers and UK consumers. After all, when domestic banks fail, domestic taxpayers have to come to the rescue, so we need domestic regulation that has the room and flexibility to go beyond any internationally agreed minimum standards.

[Mr Cash]

The hon. Gentleman acknowledges, I am sure, that the real reason why we are in the situation we are in—I shall make a short statement about it later on behalf of the European Scrutiny Committee—is that we have transferred such jurisdiction to the European Union. As I said in a letter to the Financial Times the other day, we are fighting back against the background not only of the City having moved against the proposals, but of our having opened the sluice gates and allowed it to happen.

[Chris Leslie]

The hon. Gentleman’s work on the European Scrutiny Committee has been useful in respect of the proposals before us, and it would have been helpful if the Minister had clarified where we stand in terms of qualified majority voting versus any veto options that we might have. I would be grateful if the Minister could set them out.

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[Chris Leslie]

My hon. Friend may well be correct. “Who knows?” is the ultimate question, but his cynicism has been proved right in the past and may well be right today.

The motion is a sensible assessment, and asking the Clerk to send a reasoned opinion to the presidents of the European institutions is absolutely right, but what happens next? Will the Minister set out in a little more detail the consequences of today’s motion, and whether we would have any prospect of shaping our own financial regulatory agenda if, indeed, many of the changes in the directive went through regardless of the opinion that we sent? The mismatch between the Commission’s view and the UK’s position is only the tip of the iceberg or, to use a better metaphor, only the beginning of the story.

I am afraid to say that the Government’s proposals for financial regulation have not been properly thought through and clash so much with European regulatory arrangements that they just will not be able to stand up adequately to their strength and power. Ministers knew very well that the EU supervisory institutions would be split across thematic groups around banking, pensions and insurance, and markets. Yet according to the Minister’s legislation, we are choosing to split our arrangements between prudential and conduct regulation.

I agree completely that we need a greater focus on prudential regulation, but there is a growing risk and increasing evidence that our UK institutions may leave us in a tangled mess unable to engage effectively with those very powerful EU structures. That concern is shared not only by Opposition Members, but across the City and other financial service sectors. If our voice is not adequately heard, we may be unable to be represented properly in the right meetings at the right time.

It is not just the Opposition who are saying that. Last year, the Financial Services Consumer Panel said that

“the current European structure under the ESMA would be a poor fit with the proposed new UK arrangements and that this could potentially weaken the UK’s voice in the European Union.”

In September, the British Bankers Association said that

“little has been related on how the regulators will go about ensuring…that UK representation around the European table is second to none. There has not, for example, been acceptance of the suggestion made by the industry that consideration be given to maintaining a single international secretariat across the relevant authorities as a common shared service and the establishment of cross-authority teams to ensure that UK representatives at the three European Supervisory Authorities and other European and international committees are in a position to draw upon all relevant expertise and knowledge.”

The Association of Independent Financial Advisers—incidentally, I am attending its annual dinner this evening—said in September:

“The AIFA is concerned that the twin peak approach to UK regulation is not consistent with the developing European sectoral approach. We must ensure that the UK system is able to efficiently interact with the European system and does not lead to significant confusion for regulated firms and cost inefficiencies, or damage the competitiveness of the UK.”

Indeed, two weeks ago, the Chairman of the Treasury Committee, the hon. Member for Chichester (Mr Tyrie), said in a letter to the right hon. Member for Hitchin and Harpenden (Mr Lilley):

“How will the PRA and the FCA co-ordinate their interaction with the new European Supervisory Authorities which do not neatly match the twin-peaks model—particularly where both financial stability and consumer protection outcomes may be considered together at an EU level? With an enormous amount of EU legislation under way, how will the EU regulatory authorities ensure that UK interests are represented with one voice?”

So there has been a barrage of anxiety about the Government’s proposals and how the design of their domestic regulatory arrangements will fit with those European supervisory structures. The Minister has time to think about those matters before introducing the Bill. If we try to persuade EU regulators to comply with our approach to financial regulation retrospectively, it will genuinely be like shutting the stable door after the horse has bolted.

[Mr Cash]

The shadow Minister is perhaps being rather disingenuous when he says that the Minister may have time to think before the Bill comes through. I am sure the hon. Gentleman understands that, under the arrangements for the European Union, where a qualified majority vote is being applied and the measure becomes part of our law, we implement it under section 2 of the European Communities Act 1972. There is absolutely nothing we can do on the Floor of the House to reverse that unless we apply the provisions of my sovereignty arrangements notwithstanding the 1972 Act. It is about time we started to do so.

[Chris Leslie]

I am simply highlighting the anxieties felt across the City, the financial service sector and by many hon. Members, who are worried that we are stepping into a new set of financial service regulation structures domestically within the UK that are far away from those bodies we need to be influencing, steering and having our voices heard by. It may well be that we are stepping in the wrong direction. That is the anxiety I am voicing today.

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[Mr William Cash (Stone) (Con)]

Before I go into the question of subsidiarity, I want to raise some matters that relate to what the shadow Minister said. He made some extremely important remarks. I am sorry that our own Front Benchers did not address those questions, because they know that they are very much on my mind and have been for a very long time.

The Minister said I would be glad to know that he and Commissioner de Larosière were ad idem as regards the de Larosière report. I have to say that I have been anything but ad idem with Mr de Larosière and his report for three or four years. The moment I saw the report, I wrote a letter to the Financial Times in which I pointed out that it was a very dangerous move and that its consequences would lead to jurisdiction over the City of London being transferred to the European Union. With all due respect to the shadow Minister, his Government were in power at the time this was under discussion. He has been issuing strictures about negotiations, but I am not interested in negotiations when 20% of our GDP is at risk in relation to a legislative system that will completely and totally undermine and annihilate our ability to maintain that strength in the financial services sector. I directly blame the previous Government for their total failure to do anything about this.

I will go further. I also blame those on our side of the equation who allowed this to happen, because it is, at the very least, acquiescence in a system. Before the general election, my hon. Friend the Member for Ludlow (Mr Dunne)—my own Member of Parliament—convened a meeting in the Grand Committee Room relating to these matters. Some very distinguished people were present. There were people from the City of London, the City institutions and the City of London Corporation, as well as the rapporteur, or lady in charge, of the financial services arrangements for the European Commission. It was a very high-powered conference. Despite the fact that I put up a very strong case for ensuring that this nonsense, from our point of view, did not continue, I found—not unusually, I have to say—that I was completely and utterly outvoted. At least, I was out-manoeuvred by a number of people, not on the quality of their arguments but on the sheer force of their attitudes, which amounted to saying, “This is a global marketplace, this is what we have to do, we must engage in a situation where the rest of the world works together.” We now hear the same talk about the dreadful proposal for a financial transactions tax.

The reality is that the City has woken up. The hon. Member for Nottingham East (Chris Leslie) mentioned the British Bankers Association. I have not examined every document that has come from these great and august bodies, but I fear that they did not do the right thing at the right time and that they allowed this situation to happen. The Government and the Opposition of the time went along with the idea that it would somehow be beneficial to the United Kingdom for it to be put in this peril—and peril this is. The House is fairly thinly attended this afternoon, but I venture to suggest that these documents, which are six inches high on just the one issue of European Union prudential requirements, are a dagger pointing at the heart of the City of London.

The Minister rightly said that the proposal severely undermines Basel. He said that we will negotiate firmly. However, as I asked the Prime Minister yesterday, how will the Government be able to do anything about it in the context of the fiscal union that they propose, which must include voting solidarity among the members of the eurozone, who have long wanted to take the City of London away from us, when this issue is governed by a qualified majority vote? I have taken the trouble to look this up and my best recollection is that there are 231 votes for the 17 members of the eurozone compared with 130 votes for the rest. We are in a permanent massive minority. That is what is going on. It is a kind of economic warfare. This is not just about Euroscepticism; this is an issue that goes to the heart of our capacity to deliver revenues and prosperity in this country.

There may well be cases for reform. I have great sympathy for those who think that the City has gone off beam recently in many respects, including on salaries, pay and remuneration. Some of those points are exaggerated, but some are justified. I think that we should go back to a system of regulation that is more along the old Quaker lines, whereby one knew what one’s capital was and how to use it properly, and through self-regulation people who were out of line were put back into line by common consent. That is for another day, but I am deeply worried.

My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) raised the question of repatriation. Why is it that I have argued consistently for the repatriation of powers, not just in social and employment legislation, which again is for another day, but in the kind of powers we are discussing? If the City of London goes down or is severely diminished, it will do nobody any good. Those who vote for the Labour party would also be affected because we need that money. For three and a half centuries, the City of London has been at the heart of our financial system and our revenue base. We cannot afford to have that money redistributed, like so much chaff, among the other member states.

[Graham Stringer]

The hon. Gentleman is making the powerful case, with which I agree, that this is malevolent legislation that is directed at undermining the City of London. I suspect he will agree with me that the Government should use the fundamental crisis at the heart of the European Union to be as brutal and as determined as possible in bringing back as many powers as they can, because the European Union is not a benevolent body when it comes to the UK’s interests.

[Mr Cash]

I very much agree with the hon. Gentleman. The more I have heard from him over the past few years, the more I have admired his determination to speak the truth. That is the position. This is not a party game; this is serious and it is deadly. This move is determined and deliberate. That is what people need to know.

Roland Vaubel, the famous economist from Mannheim university, talks about the use of the qualified majority voting system in the Council of Ministers as a form of “regulatory collusion”, and mentions the strategy of deliberately raising rivals’ costs. Particular groups of countries—there are no prizes for guessing which—enter into arrangements behind the scenes, and vote accordingly. Both France and Germany use that system to their advantage, and as I said in the Financial Times the other day, we are being outmanoeuvred.

Despite all the time, money and effort being put into the Vickers report, there are, as the shadow Minister made clear, serious worries that Vickers may yet be undermined by the very proposals that we are discussing. The problem goes much further, but I do not need to enlarge upon all that any more.

Some people tend to sneer at the idea, which I occasionally put forward, that our sovereignty is the most important issue of all. I say that for one reason and one reason alone—it is only by exercising the sovereignty of this House on behalf of the British people that we have any chance of being able to return and repatriate powers if the other member states are not prepared to negotiate.

I am prepared to listen to the Prime Minister telling me that he will fight hard, or whatever answer he gave me yesterday, but I remain totally unconvinced. We are at risk as a result of proposals such as these, so it is absolutely essential that we get things right. When I wrote a pamphlet for him—in fact, for the general public—called “It’s the EU, Stupid”, I set all that out, so I do not need to enlarge on it any further.

I have got out of the way the general points that I believe are necessary to put the whole matter in context. I see the Foreign Secretary laughing a little. I do not hold that against him, but I have to say that this is no laughing matter; it is a very serious question. We are reduced to having to argue about reasoned opinions and subsidiarity. Important though those are, as I have said, there is a dagger pointing at the City of London. Not just this particular draft regulation but an accumulated vast array of weaponry is being aimed at the heart of our economic system.

[Mr Andrew Turner (Isle of Wight) (Con)]

Could my hon. Friend help by reminding me how much is owed to the City of London as a proportion of national income?

[Mr Cash]

It has been declining, and that is another reason for concern, but the latest figure is something of the order of 15% to 20% of our gross domestic product. Take that away, and where would we be? The draft regulation is a deliberate attempt to do that, and it is only one document of many.

The aim of the Basel Committee on Banking Supervision is to

“enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.”

I hope that it succeeds. However, the various directives in question relate to the taking up and pursuit of the business of credit institutions and to capital adequacy, and they are collectively known as the capital requirement directive or CRD. They introduce a supervisory framework within the EU, designed, it is stated, to

“ensure the financial soundness of credit institutions (banks and building societies) and certain investment firms.”

I take a slight interest in that, because my family founded the Abbey National building society back in the 19th century and the National Provident Institution in 1835. Those institutions were run on sound grounds and lasted until very recently, but have unfortunately now been mopped up as a result of some of the international goings-on in the financial sphere.

In 2011, the European Commission proposed a draft regulation—the document referred to in the motion—and a draft directive, known together as CRD IV. They would incorporate the Basel III agreement on prudential requirements for credit institutions and investment firms into EU law. How often have I said that the danger is that when a matter is transferred to EU jurisdiction, we lose control? Because of section 2 of the European Communities Act 1972, we cease to be able to control it. We hand over control of the drafting, method and interpretation of the law, and its effect on our own institutions, our own initiative and our own ability to be innovative and succeed.

The proposals are still before the European Scrutiny Committee, pending the receipt of further information from the Government. Meanwhile, the Committee has recommended that the House submit a reasoned opinion on the draft regulation to the European Commission, the Council of Ministers and the European Parliament. A draft is annexed to the Committee’s report. I mention that because if enough member states issue a reasoned opinion, we will be able to stop the proposals. I strongly urge the Government to get as many member states as possible together, and I am sure they are doing that, if only to retrieve the situation as best they can.

Of course, as we all know, other member states will know what we are up to, and they will not enter into an arrangement to submit a reasoned opinion. We have seen that in the past—we do not get the requisite number of member states, and the proposal goes through. This is a test not just of the Government but of the integrity of the system. If a reasoned opinion is required because the Commission has exceeded its powers in relation to subsidiarity, nothing should prevent that from going ahead on an objective basis. I am not trying to pre-empt the decision, but I am anxious, on the grounds that I am about to mention, for other member states to understand that a reasoned opinion is necessary. It is in their hands to prevent the proposals from going through.

I turn now to the argument about the objectivity of a reasoned opinion. When the Commission makes a proposal for legislation, it is now required under the European treaties to produce a “detailed statement” that makes it possible to appraise the proposal’s compliance with the principles of subsidiarity. I do not for a minute demur from what I said during the Maastricht debates—that subsidiarity was a con trick intended to establish hierarchies, not true subsidiarity. We shall see.

That detailed statement is not just a bureaucratic procedure for its own sake, although one might be forgiven for thinking that some in Brussels think it is. It is the principal means left whereby national Parliaments and electorates can assess the basis on which the Commission considers legislation to be necessary at supranational rather than national level. The presumption underpinning subsidiarity is that decisions are best taken as close to the citizen as possible. Amen to that, providing that it happens.

It is not sufficient to underline the importance of those detailed statements. I remind, or inform, the House that no piece of European legislation has ever successfully been challenged in the Court of Justice of the EU on the grounds that it breached subsidiarity. Not one. That sends a very powerful message. There is not a little suspicion, therefore, that subsidiarity is just something to which lip service is paid. It strikes the democratic gong, but is not followed by any lunch. One of the jobs of national Parliaments—that is us here in the Chamber—is to try to change that position.

[Kelvin Hopkins]

I suggested yesterday in European Committee A that, as the hon. Gentleman suggests, subsidiarity has not functioned well. In fact, I do not really understand it myself. I suggested that it was a political decoration, to overcome a difficulty. The reality that I would understand is opt-outs and opt-ins, with member states having the independence to do what they thought was right for their interests.

[Mr Cash]

I very much agree. All that I can say is that on this occasion, there will be a very good test of whether subsidiarity can win the day. Let us see.

Given the importance of the detailed statement, the treaty makes several stipulations about what it should contain, which include an

“assessment of the proposal’s financial impact…in the case of a Directive, some assessment of the proposal’s implications for national and, where necessary, regional legislation; and…qualitative and, wherever possible, quantitative substantiation of the reasons for concluding that an EU objective can be better achieved at EU level.”

When the European Scrutiny Committee looked at the draft regulation, it found—not by any means for the first time—that neither the Commission’s explanatory memorandum nor its impact assessment contained a detailed statement to make possible an assessment of its compliance with subsidiarity. Hon. Members should bear it in mind that the draft regulation, which is of immense importance, amends the capital requirements directive by removing the discretion previously given to member states to impose stricter prudential requirements where national circumstances require that. That is a significant change. Indeed, the Government argue that it could lead to greater financial instability and, as the Minister said, could severely undermine Basel. It will be seen from the draft reasoned opinion that the Committee concluded that the Commission failed to discharge the treaty obligation placed upon it to provide quantitative and qualitative reasons for that change in the form of a detailed statement.

Putting the procedural failures to one side, the House will gather from the draft reasoned opinion that, on the substance, the Committee agrees with the Government that the objectives of the regulation were not better achieved by precluding member states from imposing stricter prudential requirements when they considered that necessary. The Committee came to that conclusion because it was clear from the Government’s explanatory memorandum that there continued to be a need for a flexible approach to address prudential concerns at a national level. That reality was reflected in the fact that the Commission proposes in article 443 of the draft regulation that it should be able to adopt delegated Acts to impose stricter prudential requirements for member states where necessary. The Committee could not find sufficient evidence to demonstrate that the Commission was better placed than member states to address national prudential risks that suddenly arise. Indeed, there was a strong argument for saying that national authorities were not only better placed, but could react more quickly than the Commission by means of delegated legislation, thereby enhancing financial stability.

I also have grave misgivings about the Commission having such powers delegated to it—ever. EU delegated legislation is not unlike our own: it affords considerable Executive power with far less oversight.

Finally, the Commission’s approach to the consideration of subsidiarity is a matter of concern not only to the European Scrutiny Committee, but to every national Parliament of every member state. I hope that they take note and do something about it, because a great deal is at risk. At its last meeting, COSAC—the bi-annual conference of the EU Committees of national Parliaments, which I attended—concluded that the Commission was not complying with the treaty obligations placed upon it to provide sufficiently detailed statements. That was on the motion that I proposed, which was accepted by COSAC. This was good news, because the Committee had been pushing for it. We await a response from the Commission, but we need support from other member states.

I repeat: I urge the Government to use all their diplomatic and persuasive powers, because we are put at a significant disadvantage as a result of the transfer of functions to the European Union. If there is sufficient opposition from enough member states, we can defeat this proposal.

[Harriett Baldwin (West Worcestershire) (Con)]

I shall be brief in following my hon. Friend the Member for Stone (Mr Cash) and in supporting the reasoned opinion. I also hope to strengthen and add to some of the arguments made by the Minister and the Opposition spokesman from the Dispatch Box in favour of subsidiarity in banking regulation.

If there is one over-arching lesson that we learned from the financial crisis of the past few years, it is the importance of having the primary banking regulator close to the financial market. I welcome the direction of travel on financial regulation in our national life, which will place much more importance on the role of the Bank of England, because the Bank follows what is happening in this country’s financial markets on a day-to-day basis.

It is instructive that the United States—a country that has had monetary union for the past century—is also caught up in the financial crisis. That subsidiarity in banking regulation continues to apply in the US in that each state is responsible for banking licences and supervision in its jurisdiction.

[Mr Cash]

I am fascinated by my hon. Friend’s line of argument, because she has raised the question of commercial states’ rights, which are embedded in the American constitution—they are inviolable. Countries in the EU have no such rights. When legislation at EU level goes through—this is why I so strongly attack and resist the idea of transfer of jurisdiction to that level—we are required under the 1972 Act to implement the law. We do not have commercial states’ rights.

[Harriett Baldwin]

Indeed, and to continue with my example, the US Federal Reserve is very much a system of individual reserve banks—the Federal Reserve Bank of New York and the Federal Reserve Bank of San Francisco all play important and distinct roles, recognising that different banking markets have different characteristics, and recognising how vital subsidiarity is in banking regulation.

My heart sank when I asked at the Vote Office for papers relevant to today’s motion and was handed this 1,200-page document. We discussed earlier how the EU could save money on its budget, but the document is a prime example of where money could be saved. It is completely unnecessary.

I opened the document at random and found that one proposal is to start dictating quotas for women on the boards of financial institutions in the EU. Page 1,132, which I am sure my hon. Friend the Member for Stone will want to read in detail, is on quota laws for the number of women who sit on the boards of financial institutions in different countries. I noted that in the table of a survey of governance arrangements, Iceland and Norway are included, but the last time I checked, they were not even member states. I put myself firmly in the camp of people who think that the more diverse range of views one has on boards, the better, but I certainly do not think that that should be laid down in 1,200 pages of EU guidance.

[Mr Cash]

To give another example, article 218 refers—incomprehensibly—to the so-called financial collateral comprehensive method. To illustrate how far away we have moved from the notion of running a capitalist and financial system sensibly, we are now down to formulas. I shall try to quote it. The document states:

“Institutions shall calculate the volatility-adjusted value of the collateral (C_VA) they need to take into account as follows …C_VA = C (1 - H_C - H_fx)…where…C = the value of the collateral”.

That is absolute gobbledegook, but that is the manner in which our system is run. It is completely mad.

[Harriett Baldwin]

I can see that if I carry on giving examples, I will only encourage my hon. Friend to find more passages of gobbledegook to read into the record, but it is indeed the most appalling document.

Eurozone Crisis

William Cash Excerpts

Thursday 3rd November 2011 Commons Chamber

[Mr Hoban]

The right hon. Gentleman makes an important point. This is a matter for the Greek people and the Greek Government to decide. That is a principle to which I am sure everyone in the House would wish to adhere.

[Mr William Cash (Stone) (Con)]

The Minister will know that the presidency conclusions last week set out 10 new areas of European economic governance. What is the legal basis in the existing treaties for the creation of these new areas of governance and for the creation of a euro summit? Was the Prime Minister asked to give UK consent? Did he give his consent or were the Government bypassed? As Chairman of the European Scrutiny Committee, I would be grateful for specific answers to those questions.

[Mr Hoban]

My hon. Friend will be aware that a number of actions have been taken throughout this crisis intergovernmentally rather than through the institutions of the European Union. That applied to the creation, for example, of the European financial stability facility. There are ways in which actions can be taken that do not depend on the treaty because they are done between Governments rather than between Governments and the European Commission.

Oral Answers to Questions

William Cash Excerpts

Tuesday 1st November 2011 Commons Chamber

[Mr Osborne]

We inherited the highest—[Interruption.] The Opposition do not want to hear this. We inherited the highest budget deficit in Britain’s peacetime history. That budget deficit is now coming down, and that has contributed to financial stability in this country, in marked contrast with what we see on our television screens around Europe.

[Mr William Cash (Stone) (Con)]

Will my right hon. Friend pass on the message to the Deputy Prime Minister, with his accusations that Conservatives who advocate repatriation and renegotiation are committing economic suicide, that we are facing not only a disastrous two-tier Europe, but now also a two-tier Government?

[Mr Osborne]

Of course I do not agree with my hon. Friend on this occasion. The coalition Government have been able to get Britain out of the European Union bail-out that we found ourselves in when we came to office. We have been able to keep the budget increases down—again, in marked contrast with what we found on coming into office. We must now have some serious negotiations to make sure that Britain’s interests are protected in Europe, as the remorseless logic of monetary union—I am sure that he accepts this—leads to greater fiscal integration among eurozone countries. That is the reality of the situation facing us, and I think Britain under this Government will be able to negotiate well in our national interest.

Eurozone Crisis

William Cash Excerpts

Thursday 27th October 2011 Commons Chamber

[Mr Osborne]

I fear that we are looking at a sophisticated financial instrument here. However, it is clear that Germany and the Bundestag were not prepared to provide further resources. The European Central Bank was not prepared to provide those resources either, for all sorts of reasons to do with its history and those of other central banks in Europe. They have therefore turned to those options to try to leverage up the money they have already committed. That is the sensible choice for them, given those other constraints. They are trying to get other private investors from around the world, potentially including the involvement of sovereign wealth funds, to leverage up the fund.

Of course, I completely agree with the right hon. Gentleman that the sooner we get the agreement in detail, the better. That applies equally to what he said about private sector involvement in the Greek write-down. A mistake made earlier this year, on 21 July, was that eurozone members put together a deal and then took months to implement it and get the detail. He is completely right to say that yes, we made some good progress overnight, but the job is not finished yet. The eurozone now has to get the detail and reassure the markets that it has got a grip of the situation. That is where we will continue to exert British pressure.

[Mr William Cash (Stone) (Con)]

In what respects does the Chancellor believe, and can he demonstrate, that the proposals for a two-tier Europe and a fiscal union do not represent a constitutional, economic and political fundamental change in the relationship between the EU and ourselves?

[Mr Osborne]

If my hon. Friend is referring, as I suspect he is, to the European Union Act 2011, there are clear procedures in place for establishing whether powers or competences are being transferred from the UK and this Parliament to Brussels. Those procedures are clearly set out, but I would say that it is in our interests that the euro works. That requires greater fiscal integration within the eurozone, which works to the benefit of Britain, provided that—this is an important proviso—we can continue to ensure that our voice is heard on issues that are for the 27 members, such as the single market, competition policy and financial services. That is what we will be fighting hard for in the coming months.

Jobs and Growth

William Cash Excerpts

Wednesday 12th October 2011 Commons Chamber

[Ed Balls]

In a minute.

Yes, the deepening euro crisis and the weaker US recovery have made things harder for British exporters in the past three months, but one cannot blame the eurozone or the world economy for the collapse of economic recovery here in Britain when, since last autumn, our economy has grown more slowly than that of any EU country except Greece and Portugal, when we have the highest level of inflation of any EU country except Estonia and Latvia, and when, over the past year, we have seen a bigger rise in unemployment than the EU average, when most EU countries have seen unemployment not rising, but falling. I know the Chancellor does not like it, but those are the facts. The Prime Minister said today, “I accept responsibility for everything that happens in our economy”. I hope the Chancellor will do the same today.

[Mr William Cash (Stone) (Con)]

Does the right hon. Gentleman accept that the trade deficit between ourselves and the 17 countries in the eurozone has gone up from minus £4 billion to minus £38 billion in the past year alone, and that one of the main reasons, both as respects the whole of Europe and as respects the United Kingdom, is that employment and social regulations are strangling small businesses, for which the Labour party was also responsible in Government? I am critical of the present Government, but am I not also critical of the right hon. Gentleman’s party’s performance in the past 10 years?

[Ed Balls]

The Chancellor’s big boast over the past six months, which we were told regularly, was that between 400,000 and 500,000 more jobs had been created in the British economy, but today’s figures months show that employment has not gone up at all in the past 12 months; it has actually gone down. We were also told that public sector job cuts would be more than outweighed by the rise in private sector jobs, but I am afraid that employment is falling because the private sector has been unable to deliver the recovery we were promised. It has been a complete fantasy.

Eurozone

William Cash Excerpts

Monday 10th October 2011 Commons Chamber

[Mr Osborne]

The debate on how that fiscal union should take shape is just starting in the eurozone, and we can contribute to that debate while ensuring that Britain is not part of it and that Britain’s important national interests are protected in regard to the single market, competition policy and financial services. Key components of the measures will include some transfer of resources: in effect, the European financial stability fund is becoming a sort of central resourcing fund. The measures will also mean greater surveillance and mutual vetoes and the like over each other’s budget policies. I have raised the issue of eurobonds, as have the Italian Finance Minister and the chair of ECOFIN. I think there will be a number of components. In the end, it has to be, in part, a decision for the eurozone itself to take the lead, provided that our interests are protected.

I cannot help but make the observation that one of the things we are learning about the eurozone is that if we have a single currency, we need much greater co-ordination of economic policy. That is rather contrary to the Scottish National party’s approach, which is to maintain a single currency but to have a dis-integration of fiscal co-ordination.

[Mr William Cash (Stone) (Con)]

On the issue of growth, will the Chancellor accept that, last year, our trade deficit with the eurozone went up from minus £4 billion to minus £38 billion in one year alone? Does he recognise that this has a great deal to do with the problem of over-regulation and that we need to repatriate social and employment legislation so as to create growth in small and medium-sized businesses? Will he also face down the Deputy Prime Minister, as the Home Secretary did the other day?

[Mr Osborne]

Speaking as a member of the Conservative party, I would make it clear, as the Prime Minister has done, that if a future treaty should arise, as it may well do, we will argue the case for bringing back certain powers to this country. I am sure that we will have a very active debate about what those powers should be—

European Union Fiscal Union

William Cash Excerpts

Wednesday 14th September 2011 Westminster Hall

[Mr William Cash (Stone) (Con)]

In the light of developments not only today but over the past several decades, not to mention more immediate events since the Lisbon treaty and the general election, I am glad to have the opportunity to deal with the question that has been embedded in the history of the European Community and the European Union over a long period. It relates to the creation of a two-tier Europe, which the fiscal union appears to represent. I cross-examined the Prime Minister on the issue in the Liaison Committee about a week ago, and I cannot say that his answers were satisfactory. I therefore take this opportunity to reply, vicariously through the Minister, to the Prime Minister on a number of the matters that remain outstanding.

Mr Barroso, the unelected President of the European Commission, gave a speech this morning, lecturing the whole European Union, and the world for that matter—not to mention the United Kingdom—on what is to be done about the mess that has been created over the past 20-odd years. In fact, it is much more than that, but I shall draw a line at the Maastricht treaty for present purposes; otherwise, we will be here all night.

Curiously, Mr Barroso takes the view that, in the short term, there has to be—surprise, surprise—reinforced economic governance. He also argues that all this can be done only by way of the Community method; in other words, nothing changes. In his speech, he had the temerity, despite the failure of the Lisbon agenda and the 2020 agenda, to say:

“Growth is key and we must use all instruments available to promote growth”.

He went on to talk about using the Single Market Act to promote sustainable growth. Then, somewhat ominously, he referred to his promise—this is not just a floated idea—that

“the European Commission will very soon propose a Financial Transaction Tax.”

The clear implication is that that will apply to the European Union as a whole. It would be interesting to hear what the Minister has to say about that.

Mr Barroso went on to talk about the governance of the euro area, saying:

“A system based purely on intergovernmental cooperation has not worked in the past and will not work in the future. After all, this is why the Community method and the European Union institutions were created by the member states in the first place.”

He continued:

“The Economic and Monetary Union cannot function properly only on the basis of decisions taken by unanimity,”

So there goes that veto. He went on:

“Because if a eurosceptic fringe”—

I suspect that that refers to the likes of me and, I hope, other Members of the Government, and certainly to the majority of hon. Members who have turned up to this debate—

“can determine the position of one Member State and one Member State can block decisions, the result is that we are not credible.”

That raises the question, of course, of whether the policies are credible in the first place.

[Kelvin Hopkins (Luton North) (Lab)]

On the Eurosceptic fringe, the fact is that, on many occasions when referendums have been held, the majority have voted in a Eurosceptic way, so it is possible that there is a Eurosceptic majority in the European Union.

[Mr Cash]

Opinion polls in this country have regularly indicated that 70% want a referendum and, moreover, would vote yes against the idea of the continuation of our present relationship with the European Union. People want renegotiation and if they do not get it, they want to leave. That is the position.

We are confronted with an incredibly serious situation that is getting worse. There will be a telephone conference this afternoon—it might already be in progress, at the very moment when we are debating this question—between Monsieur Sarkozy, Angela Merkel and Papandreou, because the system has failed. If, however, we raise the question of its failure, the response is, “We don’t want less Europe; we want more,” so they want more integration, not less.

[Jake Berry (Rossendale and Darwen) (Con)]

Will my hon. Friend concede that the system was set up to fail by the fiddling of figures when it was established?

[Mr Cash]

Yes, I certainly will. In the case of Greece, it is perfectly clear that, to put it bluntly, misrepresentations —and even lies—were contained in the statistical base on which it was brought in. Indeed, even the present German Chancellor has criticised the way in which it was allowed to come in when it did.

In his speech, Mr Barroso said:

“The conclusion I draw is crystal clear—The only right way to stop the negative cycle and to strengthen the euro is to deepen integration, namely within the Euro area, based on the Community method.”

He went on to say:

“What we need now is a new, unifying impulse—‘un nouveau moment fédérateur’”.

Let us get this clear—he means a new moment of federal fervour, although that is my translation. He continued by saying,

“let’s not be afraid of the word, moment fédérateur is indispensable.”

He went on:

“It has become clear that we need an even greater integration of our economic and budgetary policies.”

Do not get the impression that he is referring exclusively to the proposed fiscal union. His ambitions extend to the whole European Union. This is a call to arms by the Eurofanatics—let us be in no doubt about that.

On eurobonds, Mr Barroso, having said that we need even greater integration of our economic and budgetary policies, confirms that the Commission, again, on behalf of the European Union,

“will soon present options for the introduction of Eurobonds”,

on which, as it happens, the German constitutional court has cast grave aspersions. Indeed, I understand that the President of the German Republic has also said that he regards them as illegal. I could spend a lot of time going into that, but I do not need to for the moment. Mr Barroso said:

“Some of these options could be implemented within the terms of the current Treaty”—

that is the abominable Lisbon treaty, which we accepted after we had opposed it as a party, united together, and called for a referendum that we never got—

“and others would require Treaty change.”

I wanted to draw all those matters to the attention of my colleagues, because they are the latest emanations from the European Commission. This is what it is about and, as we speak, none of it is being reported.

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

The hon. Gentleman is describing something that is not surprising; we are getting milk from the milkman in terms of the statements that he has read. Does he, like me, find it depressing that the Front-Bench representatives of both main parties argue for less democracy, rather than more, in the eurozone?

[Mr Cash]

That is absolutely the case, and it is very depressing. The whole objective of the treaty arrangement, from its inception and the days of Jean Monnet onwards—and as evidenced by recent treaties, including the Lisbon treaty—is essentially undemocratic.

Implementing the measure would create a situation in which people in this country, who in general elections have voted through their own free choice at the ballot box for policies, were denied those policies because the proposals brought forward by majority voting in the European Union are inimical to growth and deficit reduction.

I shall explain why it is so fundamentally wrong for the Prime Minister, the Chancellor of the Exchequer and the coalition Government as a whole—under the baleful influence of the Liberal Democrats—to advocate the idea of a fiscal union. For reasons that I will explain, fiscal union is immensely damaging to the national interest and our economy.

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

Does my hon. Friend share my concern that it is the language surrounding these new moves that is deeply worrying? I believe that those people who had a chance to vote on whether they wanted to join what they thought was the common market would never have done so at any time if the rhetoric that we are now hearing had been used then. The language being used relates to deeper fiscal integration, eurobonds and basically subsuming what the British people want. That is why we need to ask the people again whether they wish to embark on this experimental project.

[Mr Cash]

I am grateful for that intervention. Indeed, when the Chancellor of the Exchequer made his statement—which he slipped in, as it were, in the middle of the emergency debate on the riots—he said that he was going to promote the idea, and that the Prime Minister had already spoken to Mrs Angela Merkel and Mr Sarkozy and had encouraged them to go ahead with fiscal union.

In addition, he said that he, as Chancellor, had already made overtures to other Chancellors in other member states advocating the idea of fiscal union. When he said that, he was ignoring the fact that the consequences of going down that route would, as I said at the time, have been such that even Edward Heath would not have proposed it back in 1971-2. Indeed, if hon. Members look at the White Paper produced at that time, they will see that it says that we would retain the veto in our national interest and that to fail to do so would not only be immensely damaging to the United Kingdom, but would even endanger

“the fabric of the European community itself.”

Since then, we have had an accumulation and aggregation of policies in defiance of the democratic issues and principles to which the hon. Member for Blackley and Broughton (Graham Stringer) referred—and, indeed, in defiance of the wishes of the people of this country and, as the hon. Member for Luton North (Kelvin Hopkins) said, of other member states such as Ireland, Denmark, Holland and France. Every single time a referendum, which shows the democratic wishes of the people in question, has been overriden, we are being taken down a route that, above all else, does not work. That is the problem.

Apart from the matters of principle, the real problem is that such an approach does not work and is now causing immense damage. For example, there are incredibly high levels of youth unemployment in places such as Spain, where 47% of young people are unemployed. There are similar levels of unemployment in Greece and Italy, although the figures are not quite as high as 47%.

I do not need to read all the figures out, but the official statistics for unemployment among youths under 25 are 46.2% for Spain, over 23% for eight countries and 32% for one country. This is not a working system; this is a system that is destroying people’s aspirations and prosperity.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I commend the hon. Gentleman for securing the debate. I agree with what he is saying, particularly his comments about the system simply not working. However, does he agree that part of the problem that the United Kingdom is faced with is that we need to have a cohesive alternative to the total integration policy that he is outlining, which I am sure is completely different from the approach that he will discuss shortly? A practical coherent alternative needs to be laid out by our Government to try to lead ourselves out of the mess into which we have got over the past 20 years.

[Mr Cash]

I am extremely grateful to the hon. Gentleman. He may recall that I raised the matter in Prime Minister’s questions, when I asked when the Prime Minister would lead us out of the mess that had been created by the existing treaties. This morning on the “Today” programme, we heard Lord Lawson of Blaby echoing that call and saying that he had always had grave reservations about the political union. I can only say that when the Maastricht treaty came and went, a lot of those arguments developed at the same time. The hon. Gentleman is completely right in saying that we must have a constructive alternative.

I have always advocated the idea of our working effectively with a European system capable of producing the right results. In fact, I hope that no one will mind my holding up a copy of a book that I wrote in 1990 called “Against a Federal Europe: the Battle for Britain.” I think I can confidently say that there is not very much in there that I would change and that most of it appears to have come true. To answer the question asked by the hon. Member for East Londonderry (Mr Campbell), I should say that it is very alarming to note that the first chapter is entitled “Britain for Europe”; it is not only a case of “Britain for Britain” but of “Britain for Europe,” because it is certainly true that we are affected by what goes on in the other member states.

As I have said many times before, the answer to the question is to go down the route of having an association of nation states, whereby we would return the right and proper power to this Parliament to make judgments on behalf of the people who have chosen us in a ballot box, to follow through policies, and to try to work in a form of understanding made on the basis of trade and political co-operation.

That was the situation anticipated by the 1975 debate when we had the referendum, which people understood. However since then, there has been onward and continuous progress towards ever further integration in an ever more undemocratic and ever more dictatorial manner. The time has come when we have to draw a line. It should have been drawn a long time ago. We drew it as a party over Lisbon. We said that we would not accept that treaty, but now here we are implementing it like there was no tomorrow.

A rather intriguing article by Camilla Cavendish was published on 8 September—only a few days ago—in The Times, which also had rather a good leader, either on the same day or the day before. It is rather amusing that she says:

“It’s no longer cuckoo to take the Swiss road; Britain and the EU are no longer going in the same direction. We should grab the chance for an amicable divorce”.

She then explains how that would be done. Essentially, she is arguing for an association of nation states, as many of us have. We are at a dangerous crossroads. A particular reason for this debate is the fact that the idea of fiscal union is being promoted. In our opinion—or in my opinion, anyway—that is entirely the wrong direction to take in the context of the broad landscape that I have been seeking to identify.

[Henry Smith (Crawley) (Con)]

My hon. Friend is making a persuasive argument. On the point of European nations not being members of the EU but being very successful, the article that he mentions refers to Switzerland, but there have recently also been articles about how the Norwegian krone is attracting a lot of investment. That is another example of a successful European nation outside the EU, which reinforces the point that an association of nation states rather than a political union is the best way forward.

[Mr Cash]

I endorse entirely what my hon. Friend has said. We are at a crossroads and it is a very dangerous crossroads. We have to get it right. It simply is not good enough to appease the European institutions by going along with their ideas when we have our own national interest to stand by, support and protect. We are not just talking about institutional arguments; we are talking about real people, their real daily lives, the unemployed and the people who cannot increase the enterprise of their businesses.

I was deeply concerned in my exchanges with the Prime Minister. I put a question to him on the question of the single market. In reply, he made it clear that he was conscious of a fact, which I had put in a pamphlet that I had published the day before. The pamphlet, by the way, is called “It’s the EU stupid”, because we have got to a stage where it is obvious that the EU is at the root of so many of these problems.

On the question of the single market, I pointed out to the Prime Minister that if there is a fiscal union of certain member states it is inevitable, as a matter of solidarity, that they will use the treaties to transfer their own wishes, through majority voting and a block vote, in a way that will be contrary to our own domestic economic interests. What would be the point of a fiscal union if, when it came to questions of legislation relating to the economy, the member states were not prepared to vote together? They will. When they do, and they outvote us, that will gravely undermine our competitiveness and our ability to grow small and medium-sized businesses. It will affect our growth. It will damage and destroy our prospects of reducing the deficit, because it will lead to a reduction in growth, which is already stagnant.

[Mr John Redwood (Wokingham) (Con)]

Does my hon. Friend think that we should allow the fiscal union to go ahead, for those who wish to join it, if our Government negotiated for us independent democratic control over everything here that mattered to us as the price for making that sacrifice?

[Mr Cash]

The short answer is that it would depend on how the renegotiation went. If the renegotiation was entirely in line with protecting fully our own interests, if it were guaranteed that we were not tied to the existing arrangements by a treaty that drew us in to all the adverse consequences of being part of this overall European Union in the shape and form that it has at the moment and if we could manage to achieve the perfect answer, then that would be a good idea. However, I do not think that that is the way it is going to go. I think that we will put forward positions, if we ever get to the point of renegotiating the treaties. A meeting took place a couple of days ago in which it was clear that a very large number of MPs in the Conservative party want renegotiation. Some of us have been arguing for that for 20 years. However, the fact is that that is the position in the party as a whole. The question is not only whether we want to renegotiate, but how that would be done.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

My hon. Friend makes an important distinction. The Chancellor of the Exchequer seems to be suggesting that we would consent to a fiscal union provided that we were insulated in some way from the direct effects of that fiscal union. My right hon. Friend the Member for Wokingham (Mr Redwood) is saying something much more profound, which is that we should use this opportunity to recover control over a whole lot of policies that are already damaging the British economy, and continue to damage the British economy, whether there is a fiscal union or not. It is that latter position that has to be, ultimately, subject to a referendum, or the danger is that we will sell the pass on fiscal union and we will not recover very much.

[Mr Cash]

I agree with that entirely. My hon. Friend is very much in line with the views of many us on this side of the Chamber, which is that if this is going to be done, let it be done properly. Let us not nibble away at some of the minor matters. Let us get down to the real nub of the issue and say that this kind of Europe is not a Europe with which we are prepared to continue. The status quo is completely untenable, and so a referendum question that dealt with those matters—including the question of fiscal union, because it will be so damaging, and I will give further examples of where I think it would be damaging in a moment—should be: do we want to leave the European Union all together; or, given that the status quo is untenable, do we want to renegotiate the treaties?

We now know that the bulk of the Conservative party, which, after all, is the bulk of the Government, wants renegotiation. The next question is, are we just going to nibble away and pretend that it is renegotiation, or are we going to get down to the structural questions and really do it? I believe very strongly that the Prime Minister has an obligation to go the next summit and to put forward proposals for renegotiating those treaties in a way that would actually change the entire system. If the other member states say, “No, we are not prepared to put up with that,” then we will deal with that situation at that point in time. The case for a referendum in either event, to my mind, is completely unanswerable.

On the question of fiscal union itself and damage to the United Kingdom, I have already mentioned the problems that will arise in relation to the single market bloc voting arrangements. We are always being told that our trading relationship with the EU is vital to us, and that it represents approximately 50% of our trade. Some dispute that, but the reality is that it is a substantial proportion of our trade. However, if one actually looks at the net results of the so-called benefits of that trading relationship, I am bound to say that in the past year alone, between 2009 and 2010, our trade deficit with the European Union, the other 26 member states, has gone from minus £14 billion to minus £53 billion. The deficit has leapt up by £40 billion in one year.

Those figures are taken from the House of Commons Library and the Office for National Statistics, so I am not going to dispute them—others may wish to do so, but they are official figures. I have repeated them several times and no one has challenged me on them. That demonstrates that our trade with the rest of the European Union is not working. The reasons for that are over-regulation and a system of economic constraints that prevent us from allowing our small businesses to grow. After all, small businesses make up the greatest percentage, by a massive amount, of the prosperity of this country. The downside of our failure to grow is increasing unemployment. We heard the figures today. The truth is that we are not growing because we are trading with a Europe that is bankrupt, except for Germany.

There is also the question of the position vis-à-vis the City of London. The Minister and I have crossed swords on this from the very outset. When the de Larosière report came out—it was about four years ago, I think—I wrote letters to the Financial Times, several of which it published. I argued that we had to keep the City of London within the framework of our own legislation and not appease those in the European Union, such as those in France and elsewhere, who would like to take control over our City of London. The Government caved in, and now the whole City of London is within the jurisdiction of the European institutions and the rules and regulations that will be made there. Every single time there is a new problem in the City of London, we will have to ask ourselves to what extent it is the consequence of that fatal mistake.

[Mr Redwood]

Does my hon. Friend agree that the situation causes the electorate to believe that we have a dishonest political debate in this country? We are having a big argument over the Vickers report and how and when it should be implemented, whereas it will all be settled under the capital requirements directive, CRD IV. I do not see the point of the Vickers report.

[Mr Cash]

That is all part of the problem. I have been on the European Scrutiny Committee for 26 years now, and over and over again I have found that legislation brought to this House is based on European legislation, but that is never disclosed. People do not say, “Oh, by the way, we have got to do this, therefore we are going to,” so we go through a charade of passing legislation as if we have control over it. The Whips move in like the clappers, saying, “You can’t possibly vote against this, because it’s all based on European legislation that we have already agreed to under the European Communities Act.” In reality, we are being governed by Europe, and that is my greatest objection—plus the democratic question, which the hon. Member for Blackley and Broughton has mentioned—and why I got so exercised about the Maastricht treaty. We have gone beyond that now, and what we are faced with is much more critical, but we can remedy it if we renegotiate the treaties.

[Mr Jenkin]

Before my hon. Friend leaves those shocking trade figures too far behind him, do they not demonstrate another factor? Our European partners, notably Germany, have far more to lose by disrupting the trading relationships between us and the rest of the EU than us. I do not diminish the point that we want to maintain the free movement of goods within a customs union, if we can, but the idea that they simply will not talk to us or chuck us out is absolutely ludicrous.

[Mr Cash]

Given the growth the rates elsewhere in Europe and the complete mess that the eurocrats and other Governments—including our own—have created, allowing us to get into this parlous state, it is inconceivable that they would dare to argue that somehow or other they could operate without us. That suggestion is simply child’s play and a joke, although it has got beyond a joke because it is so serious. That seriousness might come out this afternoon, but it will certainly come out—as night follows day—over the next few months.

I have been looking into the £53 billion trade deficit. I made some further inquiries, because I wanted a breakdown, and I was given the figures yesterday. In the trade balance of £53 billion against us, £17 billion is in vehicles—cars and lorries. In other words, we have destroyed or have had destroyed our manufacturing base in car making—my hon. Friend the Member for Luton North knows that better than me—and yet our trade in commercial and other vehicles is now on a monumentally adverse basis.

Another point that I am bound to make, which is deeply concerning, concerns the consequences of the departure of one or more states from the European Union, which some advocate. Some will have read Hans-Olaf Henkel in the Financial Times the other day. He is the former head of German industry, the equivalent of the director-general of the CBI, and he said that the “biggest professional mistake” of his life was to have supported the euro process, which is an important statement from someone of his standing. He is completely against the idea of the European Union as it now is. Germany has some very important voices, because it is effectively the paymaster for the rest of Europe.

Our negative trade balance with Germany is devastating. I was in Poland the other day, and I looked at its trade figures. I suspect that a lot of people in Poland desperately want to remain within the framework of some protective system but are deeply worried about the imbalance between Germany and Poland. And so it goes on—if we look at the Greek or Spanish situations and at the bottom line, what is happening with fiscal union is also, to use an expression, the creation of a greater Germany. For practical purposes, if we examine what is said at the various meetings, no one can be in any doubt that the Germans call the shots. The Germans are benefiting enormously from the European Union for one reason, which is that they are benefiting from their investment in other countries.

In that context, I have the figures for unit labour costs, if anyone is interested. In the past 10 years, German unit labour costs have gone up by only 2%. The average of all the other member states put together has unit labour costs increasing by no less than 25%. That is worth thinking about. Not only do we have the most monumental trade balance against us with Germany, but its trade balance with the rest of Europe is monumentally in its favour, and the Germans have done that largely through what we might call their skill or commercial nous. None the less, they have managed to do it and so they make huge profits from other parts of the European Union. Let us not be taken in by the argument that, somehow or other, Germany will suddenly go walkabout. The Germans get so much out of the European Union, and Angela Merkel is making it clear that they will continue to do so, and that is one of the reasons why Germany is so committed to political union. That does not mean, however, that it is in our interest.

[George Eustice (Camborne and Redruth) (Con)]

My hon. Friend gets to the nub of the issue—whether it is realistic to expect the Germans to accept mutual liability with countries such as Greece, Spain and Portugal. It was different when they wanted to reunite Germany, and when West Germany was prepared to accept some of the liabilities of East Germany. Does he accept the difference, and that that is why going to full fiscal integration to prop up the euro is a very big decision for the Germans?

[Mr Cash]

I very much agree with that. I put that same point to the Prime Minister in the Liaison Committee last week. I asked him whether he seriously believed that Germany was going to be able to bail out the other member states. The money is simply not there. To imagine that Germany could carry the weight of the Spanish debt is, as Camilla Cavendish has said, complete cloud cuckoo land. We can see the Italian position getting increasingly out of control, while the Greek situation is beyond critical. Greece should exit the euro—that is perfectly clear—but there are desperate attempts to prevent it happening, although that is literally trying to do something impossible. One might as well believe, as Alice said in Wonderland,

“six impossible things before breakfast”,

and the truth is that one of them is the idea that Germany will be able to sustain the whole of the European Union or, indeed, that its own people will allow that. All the evidence is that there is a very serious concern that they simply cannot afford to do it and that they do not want to do it. I will not give all the instances, because they are so well reported in the newspapers and other media.

[Mr Richard Shepherd (Aldridge-Brownhills) (Con)]

One of the reasons that things have worked quite well for Germany is that, without the southern countries, the exchange rate of the euro would have been even higher. They therefore helped suppress the exchange rate in the free markets, to some extent, which has been of benefit to Germany.

[Mr Cash]

Absolutely right. Germany has gained much, but now the chickens are coming home to roost. The system is not working because the Germans have made investments in other countries. If we look at the Greek sovereign debt situation, an enormous amount of investment—by far the greatest amount—is from Germany, followed by France. So the sovereign debt question is now part of the overall problem of Europe as a whole, and the mess created, which many of us predicted, is now with us. Any sovereign debt default will become all the more serious the longer that the European Union attempts to sustain the euro. Economists such as Tim Congdon and others have made that case, but it is absolutely clear that the situation will get worse the longer that the European Union tries to put sticking plaster over what is a clear case for complete renegotiation of the treaties to get some sanity back into the situation.

The idea that those of us who are eurorealists and who have argued this case for so long would take any satisfaction from the fact that the situation might implode is complete rubbish. Of course we do not want it to implode; we want to get stability back, to reduce our deficit and to increase growth, but none of those things can happen if we have over-regulation, too much integration and too much governance from European institutions, which prevent oxygen reaching our small and medium-sized businesses. That is an issue not only for this country, but for other countries, which all face greater and greater unemployment. I therefore strongly urge the Prime Minister to sort this out at the next summit.

We cannot create growth unless the money to pay for the public sector comes from reasonable taxation on private enterprise. It must be reasonable taxation, because growth must come from the development of small and medium-sized businesses. There is no way we will reduce the deficit if we continue trading as we are with a Europe that is bankrupt, with the exception of Germany. Incidentally, while we had a £53 billion trade deficit with the EU in 2010—that went up by £40 billion in one year—we had a trade surplus with the rest of the world of £7 billion, and it could be much more if we made the big strategic change that I am proposing. That, too, underpins my resistance to the idea of fiscal union.

Fiscal union will lead to greater implosion, greater sovereign debt, more defaults and more trouble. It might also—I say this cautiously—lead to the rise of the far right, because that is the consequence of implosion in democracies and of their being forced into situations where their people start saying, “We’re not going to put up with this any more.” One has to be careful about what is done. That is the dangerous crossroads we are at, and the Prime Minister must make the right call.

[Mr Denis MacShane (Rotherham) (Lab)]

As I understand it, the Chancellor is rather keen on fiscal union. Does that mean that the hon. Gentleman opposes the Chancellor’s point of view?

[Mr Cash]

The answer is yes. I did not say it so emphatically, but I said so when the Chancellor made his announcement in the House. I said that even Edward Heath would not have done what we were seeing now, so that probably sums the situation up quite well.

In my exchanges with the Prime Minister about fiscal union—I understand that these things can come out of the blue, but I wonder about the extent to which that was the case—he said:

“Of course, it will have an effect on us, but the clear rule for a referendum…is whether we are transferring power from Britain to Brussels.”

I do not agree that that is the basis for a referendum. It would be under the European Union Act 2011, but where a European decision, treaty or other legal instrument —in this case, there will be a mixture of those—applied on the face of it only to the eurozone, there would, under section 4, be no referendum.

That is why I have introduced a Bill saying we should have a referendum, and that Bill is supported by no less than six Select Committee Chairs, plus some distinguished Members, such as my right hon. Friend the Member for Wokingham (Mr Redwood), and members of the new intake who have taken a great interest in these matters. As I have said, the Bill has been presented, and the good news is that there will be a ten-minute rule Bill debate in October—the Leader of the House is here, and he knows that already. The Bill is intended to advance the case for a referendum on fiscal union.

In the Liaison Committee, the Prime Minister seemed pretty confident that there would not be a treaty. When I said that

“you are implying that there might not be a treaty” ,

he said—this was on 6 September—

“There is an important point on the issue of the treaty…Let us be clear: no one in Europe at the moment is currently talking about a new major treaty to put in place deeper fiscal union or changes in the eurozone. That may well happen in future…and if it were to happen, there would be consequences for Britain. Britain should think carefully about how to maximise our national interest”.

My answer to that is, first, that we now know that there will be a treaty, because the Chancellor of the Exchequer announced it from Marseilles. Secondly, I do not see how Britain can maximise its national interests when the new treaty, by its very nature, will erode the heart of those vital national interests.

There will be consequences for Britain, which raises another issue. We know there will be a treaty. As Mr Barroso said this morning—the Prime Minister has said this, too—it will be dealt with through a mixed bag of measures. Part of the process will no doubt be dealt with through enhanced co-operation, although the legality of that is very questionable indeed, and the European Scrutiny Committee will certainly look at that. Part of the process may also be dealt with through European Council decisions and intergovernmentalism, if those involved can get away with it. However, the bottom line is that the policy and the judgment are wrong, and we should not promote them. The best thing that I can suggest, therefore, is that we go to the next summit, put down a clear marker and insist that we will refuse to accept the treaty for fiscal union.

[Henry Smith]

Would our position as a country not be further strengthened in the negotiations if other EU members knew that any decision would be subject to a referendum in this country? The worst time to make irreversible treaty changes is during a crisis.

[Mr Cash]

I could not agree more. That is why I am making the plea that we get ahead of the curve now, although it is almost too late. We should get ahead of the curve now, get things right now and make sure that the crisis that we are in is remedied in good time. We will then be able to make sure that we get things right. However, that will involve turning the current treaty arrangements into an association of nation states. It will mean abandoning the current concept of the institutions, directly in opposition to Mr Barroso’s proposals today. The crisis is very great, but our ability to grow our economy and reduce the deficit—the very raison d’être of the coalition agreement, which said that that was the way to proceed—will be totally undermined unless the proposals that I have set out are pursued with vigour now.

Mrs Brooke, I am glad to have been able to make some of the arguments, and I hope that you will listen to the rest of the debate with pleasure.

[Several hon. Members]

rose—

--- Later in debate ---

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

First, I congratulate my hon. Friend the Member for Stone (Mr Cash) on securing the debate. I do not think that anything he said came as a surprise to any of us who have taken part in discussions on this issue in this Chamber, in the main Chamber or in European Standing Committees—he has the merit of consistency.

There were helpful contributions from the hon. Member for Luton North (Kelvin Hopkins), from my hon. Friends the Members for Northampton South (Mr Binley), for Witham (Priti Patel) and for Harwich and North Essex (Mr Jenkin) and from the right hon. Member for Delyn (Mr Hanson). Let me deal with a couple of specific points that were raised. My hon. Friend the Member for Stone raised the question of a financial transactions tax. He is aware that President Sarkozy and Chancellor Merkel discussed that at their summit in August. Let me be clear about the UK Government’s view on a transactions tax. It would work only if applied globally. If it were applied any less completely than that, the transactions would simply move away. Business that was previously booked in, say, France would move to the UK, Singapore or New York.

[Mr Cash]

Will the Minister give way?

[Mr Hoban]

No. My hon. Friend—[Interruption.] May I continue? My hon. Friend spoke for nearly an hour; I have 10 minutes and want to cover a wide range of topics.

The UK would not agree to the introduction of any financial transaction tax that damaged competitiveness and growth and, in the absence of a global agreement, the UK sees no evidence that a transaction tax would maintain EU competitiveness. Of course, that does not prevent other countries from introducing a transaction tax if they wish to do so.

My hon. Friend is quite keen to ensure, given his legal background, that words are used carefully. I think that he said that my right hon. Friend the Chancellor of the Exchequer had said that there would be a new treaty. Let me give the quote, so that we do not set any hares running. The Chancellor said in Marseilles this weekend:

“I think it is on the cards that a treaty change may be proposed.”

That is a very conditional statement. It is not saying that there will be a treaty. Before we let the argument run away with itself, I point out that there is no proposal at the moment for a treaty.

My hon. Friend the Member for Northampton South asked whether the Treasury was monitoring the situation in the eurozone. Yes, it is. We are working closely with the Financial Services Authority and the Bank of England to monitor what is happening in the eurozone and to understand its potential impact on the UK economy and banking system. We take that particularly seriously because of the interconnection between financial markets and our economy.

Let me be clear: the responsibility for sorting out the problems of the euro area ultimately rests with the euro area Governments. We are not members of the euro and will not join it in the lifetime of this Parliament. Being outside the euro area has clearly given us the flexibility to adapt our fiscal and economic policy to manage the crisis. It is not our responsibility to deal with their problems.

However, no one should be under any misapprehension about the importance of the euro area to the UK economy—a point that my hon. Friend the Member for Northampton South made very powerfully. A strong euro area means a growing market for our goods and services; a weak euro area puts at risk jobs and businesses in our constituencies. We should not lose sight of that. A weak euro area is not in our interest: it puts jobs and businesses at risk. More than 40% of our exports go to the euro area. Hon. Members will know that we export more goods and services to Ireland than we do to Brazil, Russia, India and China combined. No one should be under any illusions about the importance of the euro area to our continued success. Britain wants a successful euro area that can deliver growth and stability, so we want the euro area to have the rules that it needs to prevent future crises.

Global Economy

William Cash Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

Both the hon. Gentleman and I represent constituencies in the north-west of England, and the striking fact about the RDAs is that during their period of existence regional disparities grew. They did not work in the way that they were supposed to work. Because local enterprise partnerships involve businesses and are on much more practical boundaries, they will help to deliver that local growth. However, if he thinks that all the world’s problems are caused by the fact that we got rid of the RDAs, he is exaggerating his case.

[Mr William Cash (Stone) (Con)]

The Chancellor will know that our trade balance between 2002 and 2009-10 with the other 26 member states has gone up from minus £14 billion to minus £53 billion in one year? Does he not agree that even Edward Heath would have repudiated and vetoed a fiscal union with a hard-core Europe with such an incredible trade deficit against us? The coalition agreement, according to the latest answer I got from the Prime Minister, determines our relationship with the European Union. Does the Chancellor disagree with the Deputy Prime Minister, because we must have radical renegotiation of the treaties and the repatriation of powers so that we can achieve growth for all our businesses?

[Mr Speaker]

I enjoy listening to the hon. Gentleman’s words so much that it is in my interest, Parliament’s interest and the national interest that they should be suitably rationed.

Summer Adjournment

William Cash Excerpts

Tuesday 19th July 2011 Commons Chamber

Motion lapsed (Standing Order No. 9(3).

[Mr William Cash (Stone) (Con)]

On a point of order, Mr Speaker. In the rather unusual circumstances of the debate tomorrow, we have not yet had notice of the motion or the terms of the debate. However, the 17 Select Committee Chairmen, plus the chairman of the parliamentary Labour party and the chairman of the 1922 committee, and representatives of the four leaders of the devolved Administrations, have all expressed their concerns about the terms of the inquiry. I simply ask you whether it will be possible for us to table a manuscript amendment tomorrow, in the event that the motion requires amendment to satisfy the terms of early-day motion 2088.

[Mr Speaker]

I thank the hon. Gentleman for his point of order. He is even further ahead of the game than usual. As he has acknowledged, there is, as yet, no formal recall tomorrow, as the Standing Order does not operate until this sitting is adjourned. I can assure him and the House, however, that shortly thereafter, I shall sign the necessary order. Only after that will we know the form of the motion for tomorrow. So his point is hypothetical at the moment, but I have noted his words, as I invariably do. I hope that that is helpful to the hon. Gentleman and to the House.