I beg to move,
That this House
approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.
I welcome this opportunity to listen to Members’ views on the British Government’s submission to be made this year under section 5 of the European Communities (Amendment) Act 1993. It is nice to see Chris Leslie in his place. I think we have spent more time opposite each other than we have with our respective spouses in recent weeks.
As in previous years, the Government will provide information to the European Commission on the UK’s economic and budgetary position in line with our commitments under the EU stability and growth pact. This submission, known as the convergence programme, is a legal requirement under agreements this country has entered into, and of course the British Government take such commitments seriously. One must also say, however, that its very name represents something of a relic from a past age—a time when Britain was still ruled by a Government committed in principle to joining the single currency. I can assure the House that that era is well and truly dead and buried.
Members might well ask what purpose is served by this annual exercise and the associated debate in the House. [Interruption.] I thought that this might find an echo in the Chamber. Without wishing to anticipate Members’ contributions, which I look forward to, I would like to suggest three areas for this afternoon’s discussion. I wish first to debate British economic policy within the still relevant context of Europe; secondly, to consider the co-ordination of national economic policies across the EU; and thirdly to reflect on our great good fortune in not having joined the single currency, despite the siren voices heard in this place and elsewhere—thanks, in no small measure, to those who had the courage and foresight to speak against British involvement at a time when their warnings were subject to such derision.
I remember a time when all three major parties, the TUC and just about every good and great person across the land supported joining the exchange rate mechanism. I was one of those who from the beginning said that we should not do so. At the moment, we are all against the single currency, but I remember a time when even the Minister’s party was moving in that direction.
I do not think that that is entirely right, although I happily acknowledge that the hon. Gentleman was on the side of right throughout. I remember working for the Foreign Secretary when he was leader of our party. In November 1997, when, as the hon. Gentleman said, the received opinion was that our joining was inevitable, my right hon. Friend made the courageous decision to set out in a lecture to the conference of the
CBI, which then was in favour of joining, the forensic reasons why it would not be in our interests. He committed then, right at the beginning of the parliamentary process that resulted in these measures, to campaign for Britain to stay outside it. While I acknowledge the hon. Gentleman’s distinguished record, I think he would acknowledge that the Conservative party was the first party to commit itself to oppose these measures.
The Government plan to make their submission by
Is my right hon. Friend aware that the very document to which he refers states:
Of course, he will have read the comments made by Madame Lagarde only yesterday. Does he not find them a little incongruous, given that the IMF is now taking rather a different view?
The IMF is considering its view, and we will see what it has to say in the months ahead, when it issues its review. We have always been clear that, as we have advised all EU member states, keeping control of finances is an important precondition for growth. That is an important matter.
As I said, we have been parsimonious in not generating excess quantities of paper. Members will be aware—certainly my hon. Friend Mr Cash will be—that we did not follow the advice that other countries followed and align our financial year to fit in with the norm in Europe. We think it right to stick with our financial year and make use of the documents presented.
With the Budget announcement having taken place on
What was going on with the Order Paper before the debate? I think that the Leader of the House, or perhaps the Minister, tabled a motion not to have this debate, but to kick it up to a Delegated Legislation Committee. I understand that some hon. Members, including Mr Cash, objected, and now we are not debating whether to have the debate upstairs. What was going on? Why did the Government try to shove this out of the line of sight?
The hon. Gentleman is aware that I am always happy to debate with him, especially on the Floor of the House, which I very much prefer. He will know that at this time in the parliamentary Session, as we approach the end of the Parliament, the business managers—the Leader of the House is here—are particularly jealous of the Chamber’s time, including in respect of the sorts of debate we have had today. They had the foresight, however, to anticipate being fortunate enough to have some time today on the Floor of the House. It was right, therefore, that we agreed with the proposal, and here we are today.
As I said, we have economically re-versioned the Budget 2013 document to set out the Government’s assessment of the UK’s medium-term economic and budgetary position. As confirmed by the independent OBR, the UK economy is still recovering from the biggest financial crisis in generations, one of the deepest recessions suffered by any major economy and a decade of hollow growth built on unsustainable debt levels. In June 2010, the Government set out a comprehensive strategy to deal with the deficit, protect the economy and provide for the foundations of recovery. This economic plan combines monetary activism with fiscal responsibility and supply side reform.
The Government are making progress. We have restored fiscal credibility, thus enabling an activist monetarist policy and the automatic stabilisers to support the economy. The deficit has been cut by a third over three years and is projected to fall in every year of the forecast. The OBR has judged that the Government remain on track to meet the fiscal mandate one year early, while 1.25 million private sector jobs have been created. Employment is just below record levels and we have kept interest rates at near-record levels, helping families and businesses.
However, there is much more to do. It is important that we understand why the road to recovery has been more difficult than was first anticipated. Although Opposition Front Benchers profess an internationalist outlook, they sometimes debate economic policy as though Britain’s economy was closed off from the rest of the world and invulnerable to other countries.
Given that we have faithfully submitted convergence programme documents every year for a number of years, is the Minister as surprised as I am that some of our continental neighbours have not taken a bit more notice of the path that this Government have pursued or taken a bit more action to get their spending in line, as this Government have?
In fact, some countries are recognising that, but we want to set an example. It is important that we stick to our plans and continue to benefit from the confidence that the markets have shown through the level of interest rates. We also say in our deliberations in Brussels, as well as making the point in budget discussions, that when times are difficult, belts need to tightened.
I must say that I am astonished. It is almost as if no one in the Chamber has read the newspapers over the weekend and seen the IMF report that it got the premise for austerity completely wrong. Owing to a mistaken figure in a spreadsheet, we are all going for austerity, which is a terrible mistake. Is that not the reality?
I do not agree with that. The hon. Gentleman will be aware that the IMF recommends to many countries around the world, not least in Europe—this is the point my hon. Friend Mr Nuttall referred to—that they should get their public finances in order.
When the Office for Budget Responsibility revised its forecast for global economic growth—and eurozone growth in particular—and world trade downwards, that had an inevitable impact on UK growth, given that the euro area is the destination for 40% of UK exports. Over the past year, net trade was the key factor in the underperformance of the economy relative to earlier OBR forecasts, as well as in the downward revision of the forecasts this year and the year after. Fiscal consolidation, on the other hand, has not had a larger drag on the economy than the OBR expected in June 2010. Indeed, the UK’s fiscal situation argues strongly in favour of maintaining our commitment to deficit reduction.
Opposition Members sometimes accuse us of going too far, too fast, but there is further to go and we must get there as fast as we sensibly can, not least because so much rests on the market-tested credibility earned by this Government. The near historic low gilt yields that underpin the low interest rates that are so important to millions of households and businesses cannot be put at risk. As shown by global developments, the consequence of losing market confidence can be sudden and severe. A sharp rise in interest rates would be particularly damaging to an economy weighed down by the burden of so much public, corporate and personal debt, built up during a time when it should not have been.
The OBR’s executive summary states:
“Public sector net debt…is forecast to peak at 85.6 per cent of GDP in 2016-17, rather than 79.9 per cent a year earlier as in our December forecast.”
In reality, debt is simply out of control, although much of it is the responsibility of the previous Government.
Of course my hon. Friend is right that the inevitable consequence of running a deficit is that debt increases. It continues to be our purpose to reduce the deficit and return the economy to a balanced budget in order to start to pay down debt, and it is important that we should do that.
Budget 2013 also set out measures to equip the UK to compete in a global race. The Government will give every business and charity a £2,000 allowance towards their national insurance contributions from April 2014, benefiting more than 1 million businesses. We will achieve the ambition for the UK tax system to be one of the most competitive in the world, which includes a further cut in corporation tax to 20%—the joint lowest in the G20—from April 2015. We will increase capital investment plans by £3 billion a year from 2015-16. Public investment will be higher on average over this Parliament and the next than under the previous Government. We will devolve a greater proportion of growth-related spending to local areas from April 2015, in response to Lord Heseltine’s review.
As well as action in the UK to tackle the economic challenges that we face, progress needs to be made to tackle the crisis in the euro areas. However, the growth challenges in Europe continue to be serious, as every Member is aware. We have seen a welcome fall in borrowing rates, particularly for Spain and Italy, from the high levels that they reached last summer, but recent events in Cyprus remind us—and leave us in no doubt—that the euro area continues to be a fragile environment. Only a sustained period of successful reforms and improvements in financial markets can lay the foundations for growth. Economic activity in the European Union remains subdued. In the euro area, most of the so-called peripheral economies are in pronounced recessions, with weak labour markets, adverse credit conditions and an ongoing process of deleveraging all weighing on growth.
Structural reforms at the national level should be supported by the co-ordination of progress towards freer markets at the EU level. The improvement of the single market, regulatory reform and free trade agreements can all help to improve the growth prospects of every country in the EU at a minimal cost. This is a critical agenda that the UK and other like-minded states have advanced at successive European Councils, including in March, and we will continue to push.
My right hon. Friend says that it is critical that we enter into EU free trade agreements. I hope he appreciates that under the majority voting system, the power of the European Commission under the Lisbon treaty means that at present our influence is only 8% at maximum—although it will shortly rise, albeit to only 12%. The whole policy will effectively be driven by the European Union and its objectives, which are largely dominated by Germany. It will not be in British interests.
It is possible for our influence to go beyond our voting weight, just as there are Members of this House—I might include my hon. Friend in this—whose influence goes beyond their proportional representation in this place. I hope he agrees with that.
It is important to maintain momentum on bilateral EU free trade agreements. Ninety per cent of global growth will come from outside Europe after 2015, so the EU needs an outward-looking trade agenda. A free trade agreement with the United States of America is, and must be, a major opportunity that should be pursued with all vigour. It is estimated that EU free trade agreements that are currently under way or in the pipeline could add £200 billion to EU GDP and create 2 million jobs across the EU. We welcome the European Commission’s stated commitment to bringing forward concrete proposals to reduce regulatory barriers for small and medium-sized enterprises. That is long overdue and we look forward to seeing those proposals in June.
It is estimated that removing all barriers in the single market would increase UK GDP by about 7%, while prices could fall by 5% due to increased competition. The single market already adds €600 billion a year to the EU’s economy. Further progress is possible. Ambitious implementation of the services directive by all member states could result in increased national incomes. Service liberalisation would be particularly beneficial to the UK, as services are an area of enormous comparative advantage, as we know, and the UK has had a trade surplus with the EU in services since 2005.
The Financial Secretary cites a number of reports that credit apparently enormously large gains to the single market and, potentially, other trade arrangements. May I ask him to look at the original reports with a certain scepticism?
When I used to work with him, I think he would have been disappointed if I had done my analyses in the same slapdash way.
One of the reasons why I was pleased to employ my hon. Friend was his forensic and questioning eye. He is absolutely right that when we look closely at the measures and their estimated impact, we should make our own assessment. However, I think that all of us, including my hon. Friend, would agree that a genuine single market in, for example, energy—an area in which he and I have an interest—could help to increase competition in the EU. As we know, competition is one way we can drive efficiency, which is very much in the interests of all citizens in this country and across the EU.
In addition to structural reforms involving each EU member state and the co-ordination of free trade policies at the EU level, we need reforms in the way the EU works. In his speech of
Those objectives are complicated by the presence in the EU of the eurozone. Britain has an immediate interest in the stability of the single currency, and we need to be aware of the changes that a more tightly integrated euro area will bring to the EU’s present structure. It is important that we ensure that the EU continues to work for all its members, and that the interests of those outside the single currency should be acknowledged and, more specifically, protected. In particular, it should be understood that whatever binding surveillance eurozone members might agree on, Britain will not be bound by it.
As I said earlier, the convergence programme is, by its very nature, something that harks back to the days when it was simply assumed that Britain was on a one-way route to monetary union across the EU. As Kelvin Hopkins has suggested, hindsight is a wonderful thing, but let us not forget that, at that time, he and many Conservative Members had the foresight to see any such convergence as the wishful thinking that it was—and, to a certain extent, still is. Those Members included my right hon. Friend
“What are the chances that we will converge in the near future? What are the chances we will converge for ever, without ever diverging again? And would it be wise to run our economy so as to make it converge rather than prosper in its own right?”
Those were wise words, and I look forward to hearing many more in this debate.
That was a paean of praise for
In my case, it is not 20 times. I have responded to these debates only since the general election.
The key to the debate is the Budget Red Book. I suspect that many Members are not in the Chamber this evening because they have looked at the screens advertising the debate and seen a reference to some obscure European legislation, but I draw all Members attention to page minus 2 at the very beginning of the Red Book. In tiny 9-point font, beneath the statement that the Red Book is printed on paper containing 75% recycled fibre content minimum, it states:
“The Budget Report is presented pursuant to section 2 of the Budget Responsibility and National Audit Act 2011 and…constitutes the Government’s assessment under section 5 of the European Communities (Amendment) Act 1993 that will form the basis of the Government’s submissions to the European Commission”.
If Members knew that we were debating whether the Chancellor’s assessment of the economy was a true and accurate reflection of what is going on in the UK economy, for the purposes of that Act of Parliament, they would be absolutely astonished.
We have obligations under the Maastricht treaty articles; that is essentially what we are talking about when we refer to the European Communities (Amendment) Act 1993. Article 103 states:
“For the purpose of this multilateral surveillance”—
I know that those words stick in the throats of some hon. Members—
“Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy”.
These Benches are not massively more empty than those on the hon. Lady’s own side of the House. She will have to accept that this can, at face value, appear to be quite an obscure issue. [Interruption.] There are not many people on her side of the House, but I do not want to get into a contest on that matter.
That is one way of looking at it.
The point that concerns me is that the Government have in recent days tried to shove this issue off the Floor of the House and sweep it upstairs to a Delegated Legislation Committee. The Minister has said that this is a busy time of year and that the Government do not want to waste the House’s time with these questions, but we are already faced with an opaque description of the legislation, so it is no wonder that they are trying to push it out of parliamentary time. It is, in fact, the kind of legislation that ought to be advertised more to hon. Members.
I would no doubt have a lot in common with some of the remarks made by those who were critical of the Maastricht treaty. Will the hon. Gentleman be good enough to tell me whether he would like to leave the existing treaties, and to describe the basis on which this nonsense, this farrago, is now being conducted?
Well, this does feel like rather an anachronism, but we have legal obligations under those treaties. No doubt there will be revisions, and some of the reporting requirements ought to be considered afresh, but my principal concern is whether it is right for the House to endorse the Red Book as a true and accurate reflection of what is happening in the UK economy. In my view, the Government must be kidding if they are saying that the Red Book reflects the facts. It is more like a work of fiction. They have been spinning furiously as the key indicators have taken a turn for the worse, as my hon. Friend Kelvin Hopkins said. In fact, the Red Book is little more than a vanity exercise cloaked in an official publication. It revolves entirely around the Chancellor’s need to retro-justify his failing economic ideology.
I invite hon. Members to look seriously—and without cracking up—at page 1 of the Red Book, and to ask themselves genuinely and dispassionately whether it is a true reflection of what is happening in the UK economy. The first line states:
“The Government’s objective is to…build…a fairer society”.
Well, tell that to those who are struggling with the new bedroom tax while they watch the great and good millionaires of this country rake in a typical £100,000 tax cut, thanks to the reduction in the 50p rate of income tax for those earning more than £150,000. So much for a fairer society!
Here is another one:
“The Government’s plan…is based on…fiscal responsibility to deal with our debts with a credible debt reduction plan”.
That is in total contradiction with the first page of the Office for Budget Responsibility report, which states plainly that the deficit reduction plan has “stalled”. That is the word that the OBR uses. No one would think from reading the Budget Red Book that the Government had presided over an increase in the national debt of 38% during their three years in office.
I am sorry to have to tell the hon. Gentleman that the Government are already borrowing more. We shall see the borrowing figures tomorrow, and we shall see what happens to their strategy. The deficit reduction plan has gone. It has vanished. It has totally disappeared. It is a dead plan. It is no more. It is deceased. It is incumbent on Government Members to realise that they need a different strategy for deficit reduction; they need one that will succeed.
I want to return to the first page of the Red Book, which we are asked to approve as a true reflection of the state of our economy. It states that
“the Government is committed to keeping costs down for families to help with the cost of living”.
Tell that to the typical household now being asked to pay an extra £891. People are worse off because of the measures taken since 2010—not to mention the shrinking real wages relative to rapid price rises. How about the following quote for masterly understatement? It states at the foot of the page that we are experiencing
“a more subdued and uneven recovery than expected”.
Our economy shrank in the last three months of 2012, and we will see whether we are recovering when we see the growth figures for the current quarter on Thursday. How on earth could that be viewed as a recovery? This is an exceptionally disingenuous document. Reading page 1 of the Red Book is enough to make any dispassionate observer double-take their grip on the tough realities of the world around them.
We should therefore dwell for a moment on the real-world evidence. A week is certainly a long time in the Chancellor’s political lifetime—what a week has just passed. The unemployment figures were exceptionally grim. The Bank of England’s latest release on trends in lending showed that, measured annually, the amount of lending to UK businesses from banks and building societies fell in the three months to February. The Bank of England said that lending to businesses fell by £5 billion during those three months and that the decline was broad based across all sectors. So much for funding for lending.
Way before we got to the Budget, we suggested that the Chancellor should take steps to reform the funding for lending programme, but he did not do so in the Budget. It should not take an intervention from the International Monetary Fund to prick up the Chancellor’s ears and make him realise that he needs to do something about funding for lending. Ministers will have to be far more adept and fleet of foot than that.
The Treasury Select Committee said last week that it was by no means clear that the cornerstone of the Budget—the Help to Buy housing scheme—would benefit first-time buyers and, as my hon. Friend the Member for Luton North alluded to earlier, the academic methodology underpinning the key paper written by the Chancellor’s favourite economic theorists—Carmen Reinhart and Kenneth Rogoff—was discredited when a graduate student found a fatal flaw in their excel spreadsheets that supposedly underpinned the whole extreme austerity course advocated by the Treasury.
Despite the usual diplomatic finesse employed by the IMF towards its affiliating member states, its chief economist Olivier Blanchard said that the Chancellor was “playing with fire”. A year ago, the IMF was forecasting growth of 2% this year, but it is now expecting growth of just 0.7%. It was a serious mistake for the Chancellor to ignore the IMF’s calls for a reassessment of fiscal policy in the Budget, and it is right to repeat its warnings. Even Christine Lagarde, not known for departing from the Chancellor’s opinions on these matters, said that the pace of fiscal consolidation
“has to be adjusted depending on the circumstances and given the weak growth that we have observed lately because of reduced demand addressed to the economy” and that
“now might be the time to consider” doing so.
We are not talking about whether this document should be submitted to the IMF; we are talking about submitting it to the EU. If we compare our growth with that of the eurozone, the EU’s own body, EUROSTAT, is forecasting that growth in the eurozone will go down by 0.3% and that ours will go up by 0.9%.
To whomever we are asked to submit this document—to the IMF, the EU, the hon. Gentleman’s constituents or his mother-in-law—I would be embarrassed, if I were the hon. Gentleman, to stand behind it as a true reflection of the state of the UK economy. To cap it all, last week, we saw another humiliating blow to a Prime Minister and Chancellor who kept saying that our triple A credit rating was the No. 1 test of their economic and political credibility.
Given that the latest Government plans envisage borrowing £60 billion more in 2014-15 than in the original summer 2010 plan, how much more than that extra £60 billion borrowing would the hon. Gentleman recommend?
Unfortunately, we are not likely to have a general election until 2015. I would be grateful if hon. Members did whatever they could to bring that forward a little, but heaven knows what state the economy will be in—even by the time we get to
Long-term interest rates reflect a number of factors. Government Members would like to think that low bond yields were a reflection of fiscal policy measures alone—[Interruption.] The Minister should hear me out. He likes to think that that is the one test. As I say, it used to be retention of the triple A credit rating, but that has gone, so something else has had to be found. Long-term bond yields, however, are also a reflection of who is purchasing them. I do not know whether the Minister can help us out by elaborating on who exactly is purchasing the Government bond yields, because the Bank of England seems to be doing an awful lot. One branch of the UK Government institutions is helping out the other branch of Government institutions—depressing, of course, that yield. The Minister should not be too proud of market expectations that things are going to be so bad for so long that our interest rates are at the ultra-low level. It is not a reflection of fiscal policy; it is a reflection of expectations of future economic performance and of the interventions in monetary policy by the Bank of England.
Is it not simply the case that bond markets can get things terribly wrong as well? We know of the 1929 crash and the 2008 crash, for example. I have no doubt that some have great optimism about the future of the world and national economies, but they can get it wrong, too.
That is why some in the bond markets in the City and even the IMF and other economic commentators and business leaders are increasingly saying—as PIMCO did today in its intervention on these issues—that we have to do something about this. Demand in the economy is cripplingly bad; we have to do something to take a different course. The Chancellor’s plan is not just failing; it is adding to our problems with the public finances. We will see the state of the deficit reduction plan and what is happening with this trajectory when we see the figures tomorrow. We hear of blaming the snow, blaming the royal wedding, blaming all sorts of other players including the European Union; it is amazing how we never hear that it is the fault of those who currently occupy the Treasury.
The Minister can ask me the same question as many times as he likes, but I will give him exactly the same answer. There are a number of reflections and metrics for judging economic performance, but in these particularly stagnant economic circumstances, I do not think that he should wear as a badge of honour those ultra-low bond yields because they actually reflect low and depressed expectations about the future performance of the economy. He knows that that is true. It is also a reason why not just Moody’s but Fitch have taken out the legs from beneath the UK’s triple A credit rating after three years of stagnation, rising unemployment and billions more borrowing to pay for economic failure. It is time that the Treasury woke up and realised that its plan is causing long-term damage not just to the public finances, but to British families and businesses as they pay the price. When even their biggest allies—the IMF and the credit rating agencies—abandon the Government, it is time to put political pride aside and finally act to kick-start the economy.
Most independent forecasts suggest that on Thursday the GDP figures will show small positive growth, but growth of just 0.3% would simply mean that the economy was back to where it was six months ago. After three years of stagnation, we need to see decisive evidence this week that a strong and sustained recovery is finally under way—otherwise the Chancellor will definitely be in real trouble. We cannot seriously be expected to ratify this Budget Red Book as our representation to the European Union, or anyone else, of how our economy is performing.
Are we supposed to ignore the double downgrading of the UK’s credit rating, first by Moody’s and then by Fitch? Are we supposed to skim over the new figures from the Office for National Statistics, which show that the average weekly pay packet was £464 in February and £480 in the same month last year? That is the worst set of data since the ONS started recording such facts. Are we supposed to turn a blind eye to the fact that youth unemployment rose by more than 20,000 last month? The total figure is now just under 1 million. Should we just forget about the risks of that lost generation?
The Red Book is a staggering work of deception wrapped in the heroic conceit of a Government who are trying to fool people into thinking that they are on track. They are losing control of the public finances because they have lost the plot when it comes to the relationship between economic growth, jobs, the economy, and the revenues that we need in order to get the deficit down. It would be far simpler for the House to reject the motion and return the Government to the drawing board to get their act together and work on an alternative plan that might actually give us the bold action that we need, rather than the stagnation that we are suffering.
This is an extremely important debate, but I am sorry to have to say that the Government did their best to prevent it from being held on the Floor of the House. Speaking as the Chairman of the European Scrutiny Committee, I feel that that must be put on the record. It was very unfortunate, to say the least, and no doubt the Committee will consider it when we meet next Wednesday.
Having said that, I must add that this is an opportunity to put in context the tributes that should be, and indeed have been, paid not just to Margaret Thatcher but to Alan Walters and all who took part in the Maastricht rebellion, and also to those who have fought so tenaciously throughout the accretion of these treaties, from the early days until the present time. I use that collective term because many new Members who are in the Chamber now—notably my hon. Friends the Members for Rochester and Strood (Mark Reckless), for Bury North (Mr Nuttall), for St Albans (Mrs Main), for North East Somerset (Jacob Rees-Mogg) and for Bedford (Richard Fuller)—are apprised of the seriousness of the situation, as indeed we were at that time.
Section 5 of the European Communities (Amendment) Act 1993 was passed 20 years ago as a result of a very tense debate about these questions. In the last 20 months, there have been at least 20 economic summits in an attempt to unravel the dysfunctional nature of the economic requirements with which we are having to comply, in the context of the convergence criteria and as set out in papers that have been placed before the House. I imagine that many Members have not had an opportunity to read those papers, but they have been placed in the Vote Office for the benefit of those who wish to do so.
While we are dealing with the consequences of the Maastricht treaty, I want to take the opportunity to put on record a correction to a book by the former Chief Whip in the House of Commons, Lord Renton. After making some fairly disobliging remarks about certain Members—I need not ignore the fact that I was one of those of whom he did not particularly approve—he wrote that
“the vehicle for their resistance was the parliamentary approval for the Treaty of Maastricht.”
He went on to observe, astonishingly,
“Although this had been signed by their heroine, Margaret Thatcher, they revelled in defying three-line whips in order to vote against its enactment into British law”.
That is complete and total arrant nonsense. Margaret Thatcher did not sign the Maastricht treaty, although she certainly became a patron of the Maastricht referendum campaign, which I organised along with Bryan Gould and a Liberal Democrat Member who represents one of the Devon seats. However, the present Prime Minister himself has now said that there should have been a referendum on that treaty, and I believe that, had there been one, we would have won. The father of my hon. Friend Jacob Rees-Mogg was one of the leading campaigners in the House of Lords for the referral of the treaty to a referendum, but his campaign was defeated by a monstrous whipping operation, with the result that we are where we are.
There was a complete refusal to listen to what was said at the time, and there has been a complete refusal to listen to what has been said ever since. I fear that the coalition is still not listening, although it is now clear as crystal that our predictions were right and that riots, massive unemployment, the rise of the far right and the failure of the system are destroying not only the European economy but Britain’s prospects for growth. I shall say more about growth in a moment, because it is fundamental to the issue that we are discussing.
As my hon. Friend pointed out, the Prime Minister now says that there should have been a referendum on the Maastricht treaty. Does he recall that the Prime Minister was at the time a special adviser to the then Chancellor of the Exchequer, who had been Chief Secretary to the Treasury under Margaret Thatcher and who refused to sign the treaty? A junior Minister, my right hon. Friend Mr Maude, had to go and do it instead.
Order. That really is not part of the subject of the debate. We are not having a history lesson on how we came to approve section 5, or on the players in that event; we are considering the documentation that the Government have asked us to approve this evening in connection with section 5, and I should be grateful if all Members would remain in order. I feel sure that Mr Cash is going to come to the point now, in the context of that documentation.
The hon. Member for Stone—who is also Chairman of the European Scrutiny Committee—will of course do just that. I am grateful to you, Madam Deputy Speaker, for drawing my attention to these interesting documents. Among the interesting statements in the documents is this in paragraph 2.17:
“The euro area is the key market for UK exporters, accounting for 42 per cent of UK exports in 2011. As a consequence, the euro area sovereign debt crisis and subsequent recession have weighed heavily on the UK recovery. Action by European policy makers in 2012”—
I must say that I am astonished by the phrase that follows—
“helped ease the crisis and there are signs of investor confidence improving, but as the situation in Cyprus demonstrates the challenges facing the euro area are not fully resolved.”
Well, we can tell that to the people of Cyprus, but we can also say it to the people of Britain. This is not just a eurozone problem; it is a European Union problem, but above all else it is a British problem, and that is why we must take the necessary action.
The document is completely wrong to describe the euro area as “the key market”. In fact, as I pointed out in a paper that I wrote with my hon. Friend Mr Jenkin, the UK runs a trade deficit with the other 26 member states of £47 billion a year, yet we have a surplus of about £20 billion in our trade with the rest of the world. Furthermore, the Germans—about whom I shall say more in a moment, because of what was said by Angela Merkel at 3 pm today—run a surplus of no less than £29 billion a year with the other 26 member states.
That is why the debate is so important.
On paragraph 2.17, does my hon. Friend share my view that it is a mistake to look at the euro area as one export market, as the individual countries that make up the eurozone have their own characteristics, and we naturally have a huge trade with Ireland, as all countries do with their nearest nation, irrespective of which currency bloc they belong to?
Absolutely, and one of the greatest pleasures I have had in the past couple of years has been to have my hon. Friend serving on the European Scrutiny Committee, with the diligence, knowledge and judgment he brings to all these matters.
It is also stated, at paragraph 2.19, that
“Brazil, Russia, India and China taken together were the destination for 6.5 per cent of UK exports in 2011.”
The real problem here is that our exports certainly have to go to the BRIC countries and also to the rest of the Commonwealth, which is where the emerging markets are, as well as to the United States.
I strongly recommend that this House of Commons and this Government start waking up a bit. I really mean that, as I am very concerned indeed, as any right-minded person in this country should be.
It is also argued in this paper that:
“Between 2009 and 2012 UK goods exports to Brazil increased by 49 per cent, to Russia by 133 pre cent, to India by 59 per cent and to China by 96 per cent.”
I have heard those figures before, but I asked what our actual import penetration into China was in relation to that of the rest of the world. It is 2%. The 96% increase is entirely relative, therefore. The real question is how much we are managing to export into China. Germany exports into China 45% of all the EU exports into China. I do not cite that figure in order to denigrate the expert efficiency, determination and political will of those who run Germany, but I do say that we had better get our act together. Continuing to be locked into these absolutely penalising treaties is causing us enormous damage, when we could gain so much by trading not only with Europe, but with the rest of the world on a much more enhanced basis.
There is far too much discussion and not enough action, and I was glad to note the campaign launched today by 500 businessmen and run by Matthew Elliott, and I also commend the book about the euro by the Institute of Economic Affairs, which puts its finger on many of the problems in the euro area.
I am very interested in what my hon. Friend is saying. Does he agree that this report has given us an opportunity to put an alternative argument against the strong argument about commonality? I know he will draw the House’s attention to the interesting comments about Europe by the Chancellor of Germany today. My hon. Friend talks about those other economies, and there is an argument against commonality and for the UK having an opportunity to be able to trade with the rest of the world, but that is being lost as a result of such statements. Is there an opportunity for us to make this case, because I am not sure we are making it strongly enough?
I agree with my hon. Friend. We must be realists. T. S. Eliot once said,
Cannot bear very much reality”,
but Britain has got to wake up. It is crucial at this stage that we understand—in a constructive, not a negative, sense—that we have both a problem and an opportunity, but that opportunity will not last much longer, and we must not simply repeat the recitations and mantras about section 5 while not tackling the intrinsic problems.
These papers were, no doubt, prepared by worthy civil servants, but they may well not reflect the real situation. Let us look at the question of the level of debt, for instance. I mentioned that in an intervention on my right hon. Friend the Financial Secretary, and I gave him the percentage figures. However, under the previous Government—I now turn my attention to those on the Opposition Benches—I repeatedly said, along with my right hon. Friend Mr Redwood and one or two other Members, that the debt that was accumulating under them was causing so much damage to our economy. Furthermore, as I said at the time of the last election in my manifesto—or, rather, in my personal message to my constituents—the stated debt levels, which is the key issue, were based on what could only be described as a lie.
What does the hon. Gentleman think about the fact that the national debt has risen by 38%—by over a third—in the past three years, while the current Front-Bench team has been in charge?
Not only am I appalled by that, but I also recognise that the genesis of much of this can be traced back to the time of the previous Government. Furthermore, we now understand from the official figures published by the UK Statistics Authority that the level of debt—which at one time was, astonishingly, described as being “merely” £1 trillion—will go up to £1.5 trillion. However, under the previous Government the real level of debt—taking into account public pensions, Network Rail, nuclear decommissioning and several other factors, which we cannot ignore—was actually up at about £3.25 trillion, as I argued at the time, and if we include those factors it is now likely to be about £4 trillion.
That is the inheritance of the young people of this country. They have got to be brought into work as a result of growth, but the prescription from the Opposition Benches is more debt, not less, and more Europe, not less.
Regardless of how I vote this evening, I pay tribute to the fact that at least the coalition Government have begun to look at these questions. My complaint is that they have not done enough and they are going too slowly. If they do not get on with it, there will be a catastrophe. In fact, we are already living through the beginnings of a catastrophe.
There is another question to be asked about growth. We can only grow our economy by growing from the other countries with whom we trade. In a nutshell, we must engage in cuts, but we need the taxation from the growth of small and medium-sized businesses in order to provide the public services those on the Opposition Benches say we need to provide. All they do is call for ever more cuts, but they talk about growth but do not actually do anything about it.
The European approach of large, and greater, Government spending tends both to increase the rate of Government debt and to lower the GDP growth rate. As a result, growth in most European countries, and the possibility of getting Government debt under control, recedes. The rigidities imposed by a single currency—the euro—and the burden of EU regulation on EU economies are continuing to cause frictions and difficulties and will destroy the countries in the European monetary union.
If only people would listen at the time, when it matters, rather than afterwards and then try to cover things up. Only a few weeks ago, Moody’s downgraded our economic performance, and Fitch did so in the last couple of days. Portugal, Ireland, Greece, Spain, France and Italy are now all countries of perpetual economic concern. There is a black hole, but the call is for more and more Europe.
I referred to the remarks of Angela Merkel today. It is regrettable and unfortunate that she was quoted as saying that countries in the eurozone must accept that Europe “has the last word,” and need to work more closely together if the continent is to avoid going into decline. I am sorry to have to say this so specifically, but that is precisely because there is a centralised approach, which is driven by German requirements and goes back to Chancellor Kohl.
In the 1990s, I wrote a pamphlet called “British and German National Interest”, and we are seeing a repetition of that time. Chancellor Merkel said:
“We need to be prepared to break with the past in order to leap forward. I’m ready to do this.”
In fact, she is going back to the past—not the dark past we all witnessed so vividly, but the kind of past that assumes it is not actually a European Union, but in practice, a German Europe. We should ask people in Cyprus and Greece what the position is. She said:
“Germany will only act together with the others—hegemony is totally foreign to me.”
It may be foreign to what she wants, but the practical reality is that it is happening.
“We violated all the rules because we wanted to close ranks and really rescue the euro zone.”
Those are the rules we are discussing. On top of the theft in Cyprus, everyone knows that those of us who argued the case have been proved right.
I am sorry to hear that Madame Lagarde appears to have criticised our Chancellor. It is some gratitude for all the work he did urging her to accept the presidency of the IMF, and leading the charge to make sure she got it.
Everyone wrings their hands, but what are the Government doing? We are being locked into the question of whether the debt is being sufficiently reduced, but the debt is escalating and the deficit remains unacceptably high. Problems in the eurozone have a real effect on the UK economy. I repeat that it is not just about the eurozone, or just about the European Union; it is about Britain, which is why we have to get our act together. I notice that the Chief Whip has just come into the Chamber, so I hope he will listen with care, because these debates will unravel.
Real GDP fell in every quarter of 2012 in the eurozone, and by 0.6% over the year as a whole. The IMF forecasts a further fall of 0.3% this year. What is happening is completely unacceptable. No wonder the UK Independence party is making such headway; it will continue to do so until there is real growth.
We have the opportunity. We can deliver. No doubt the commentariat will fail to report this debate, as it fails to report other debates when we deal with facts and not mere speculation, but that will not prevent us from continuing the fight. We have the means to achieve the results. Some of them will come from a change of position by the Government, going for more and more growth based on real policies for growth and disentangling ourselves from the shackles of the regulatory arrangements of the European Union, making sure that the EU does not dominate the free trade agreements that are being determined. We have to be able to trade on our own terms, just as we in this Westminster Parliament have to decide the future of British policy.
As the Prime Minister said in his five Bloomberg principles, our national democracy depends on our national Parliaments. European democracy depends on their national Parliaments. He was right about that. Let us do something about it. Let us make sure that we run our own economy based on our own assessment and that we do not remain shackled to the existing treaties. It is time to put an end to them.
I rise to speak briefly in support of my hon. Friend Chris Leslie about the nonsense of presenting the fiction of the Red Book as though it represented the truth about our country. Another organisation—perhaps the Institute for Fiscal Studies—would do a better job.
Last week, in a speech in the Chamber, I reminded colleagues of an organisation that used to get forecasts right: the Cambridge Economic Policy group. But it was a left-leaning Keynesian group and the Conservative Government of the time withdrew its funding, because they did not like its answers and chose to follow the London Business School, which always got the forecasts wrong. TheSunday Times always gave it nought out of 10. Let us not pretend that all forecasts speak the truth. Officials will never present the Chancellor with a gloomy picture; they try to put as big a gloss on things as possible so that the Chancellor can say nice things to us in the Budget speech.
I only wish that the colour of the Red Book represented some of the policies inside, but I am afraid it does not. The antiquated language is nonsense. The Minister drew our attention to the fact that the reference to convergence was born of the past assumption that all countries would be in a single currency, we would all be growing nicely together, and poorer countries would become rich countries. That has all been washed away; it is all complete nonsense. It seems the only convergence we seek now is with an area that might be in terminal decline—the European Union. It is in serious economic difficulty, so do we want to converge with it? I suggest we want to diverge from it and make our economy work.
Although there are areas where we would have definite disagreements, Mr Cash often says things I agree with. He said we were talking about a German European Union. In 1989, the Institute for Public Policy Research published a document called “The German Surplus,” which was quickly suppressed because it was too explosive. The whole political establishment was moving towards a pro-euro, “Let’s join the single currency and the exchange rate mechanism at the wrong time” approach. I still have a copy of the document and I think it can still be found on the internet. It said that Germany had built an economy around itself, such that it could sustain low parity for its currency against all the others. Building that low parity for their currency into the euro meant that the Germans would always have a competitive edge over the other countries and could export to them freely. What they did not appreciate was that over time those countries would run out of money and Germany would have to lend them money to buy German products, which is what has been happening. Germany either has to dissolve the whole arrangement or carry on giving vast sums of money to other members of the eurozone to help them buy German goods.
I shall certainly look it up.
Ministers go on and on about the importance of exports to the rest of the European Union—our Ministers did too—but they rarely talk about imports. We have a gigantic trade deficit, which is getting worse and worse every year. Even between January and February, the goods deficit with the EU rose from £4.8 billion to £5.1 billion. It now looks as though the trade deficit this year may be £60 billion. That is enormous; it is more than £1 billion a week. We are buying £1 billion more goods from the EU every week than the EU buys from us. That is not a sensible way to run an economy.
Indeed. If we just maintained balance, we would gain a million jobs overnight. If we go back to the Bretton Woods arrangements following 1944, Keynes was concerned about trade imbalances and he wanted arrangements to be put in place across the world that would avoid big deficits and big surpluses. Also, he wanted to require those with big surpluses to appreciate their currencies, as Germany should have done a long time ago. We are just going through the motions of arrangements made years ago which no longer have any serious meaning.
Germany is now in trouble. It has faced a savage reduction of 17% in car production in the space of one month. It is in difficulty and will have to look to itself to solve that problem. George Soros has suggested that one of the ways out of all the present problems is for Germany to leave the euro and to recreate the deutschmark, which would naturally appreciate. All the countries now tied into the euro would then have difficulty. Denmark, for example, would want to devalue straight afterwards. Others are now talking about what George Soros said. There are people in Germany who want to leave the euro.
There was an extremely interesting article in The Guardian this morning, suggesting that the only way out of this is for all the countries of the European Union to recreate their own currencies and to find appropriate parities for those currencies. If a country has its own currency, it can borrow and it can print money. It may be forced into a devaluation but it manages its own economy nationally and it can adjust the shock absorbers of separate currency, which are vital. The example used is Japan, which has had serious problems but is managing its economy internally.
I draw Members’ attention to the one country that has come out of the current crisis rather better than all the others—that is, America. It is surprising, but American growth is at 2%, whereas ours is well below 1%. Although America still has serious difficulties and serious unemployment, it is doing better than Europe because it is pursuing growth policies, which necessarily mean more borrowing.
I know that hon. Members on the Government Benches are horrified at the thought of more borrowing, but I urge them to read the great book by John Kenneth Galbraith, “The World Economy since the Wars”, where he pointed out that during wars—classically, the second world war—America borrowed vast sums from its own citizens. They finished up with lots of war bonds which they cashed in, and the American economy started off as the strongest economy in the world, stronger than it has ever been because of the massive investment in manufacturing that took place during the war. Its debt was based on borrowing, which was paid back over time, as the American economy grew, with full employment.
I could go on, but I will not. Debating the motion every year is a nonsense. We ought to be looking at more sensible ways of running our economies.
May I begin by saying how pleased I am that this debate has come to the Floor of the House and commend my right hon. Friend the Leader of the House for bringing it here? He was unduly modest to send it upstairs to Committee because this gives us an opportunity to highlight the Government’s achievement and send it to Brussels with a panache that says, “We know what we are doing and we are pleased to educate you.” Unlike Chris Leslie, who I think has been confused in his economics this evening, the document shows how well we are doing, compared to our continental colleagues.
Before I adumbrate our great achievements and the success of this Government since 2010 as set out in the document before us, there is one little matter that I wish to raise about the surveillance mission that the European Union is entitled under a 2011 agreement to send into a country that is not meeting the convergence criteria. Although it cannot punish us for failing to meet the convergence criteria, the European Union can, I believe, send in a surveillance mission or even a rather ominous-sounding enhanced surveillance mission.
I hope the Government will be clear, and I thought from what my right hon. Friend the Minister was saying that the Government are being clear, that they will not accept such surveillance and will use all their abilities to discourage the European Commission from sending any surveillance mission. It would be a great audacity—a great cheek—if it were to do so when 19 member states are in special measures for their economic failings for the excessive deficit procedure. We, of course, are in it too because of our deficit, but those 19 other members are in the eurozone, which is why bringing their budgets together is so important, whereas for us it is essentially a technicality from the Maastricht treaty.
It is a matter of importance that the Government have got the policy right. The key to getting it right is found on page 31 of the documentation and then on page 15. Page 31 deals with the quality of the public finances. It deals with what the Government are doing to consolidate our situation and the projection. Projections should be treated with the greatest suspicion. All forecasts are wrong, and it is merely a question of how wrong they will turn out to be. None the less—
That was a wonderful interjection, as always, from Stephen Pound. I fear not. It is a statement based on a knowledge of history that forecasts invariably turn out to be inaccurate and it is merely a question of how inaccurate they turn out to be.
But if we look at what the Government are trying to do, they are getting spending down from 47.4% of GDP to about 40% of GDP. We know from our history that about 40% of GDP is a sustainable level of Government spending. It is a level that I personally would like to see reduced further, but it is none the less a level that has been consistently affordable over the long run, certainly going back to the early 1970s, based on taxation revenues going up to 38.3% of GDP. Now, 38.3% of GDP for tax revenues is very near the peak level that has ever been achieved. It is rare for tax revenues to go above 38% of GDP or to remain there for a sustained period.
So what is being done with the public finances is an extraordinarily effective consolidation on both sides, with taxes being pushed up and expenditure being cut, with most of the burden being taken by expenditure cutting and with a small amount of it on tax raising. That is setting the basis for a long-term recovery of the economy. Where I think the hon. Member for Nottingham East was perhaps unduly party political in what he said—uncharacteristically so, because he is normally a man of such consensus, support for the middle way and so on—was in ignoring the benefits of monetary activism.
I refer right hon. and hon. Members to page 15. The key difference between the UK economy and the continental economies is that we have the ability to change our monetary policy to ease the austerity—[Interruption.] Indeed, printing money. Absolutely right. It is the printing of money that is allowing the deficit to be sustainable and is allowing businesses and individuals to carry on borrowing and work through a consolidation of their finances, which is also in the document—the consolidation of individual finances—to take place in a way that is not crippling. On the continent that is not happening, which is shown up in the gilt yield figures. The latest gilt yield figure is 1.65%. That is the lowest in our history. In Italy it is at 4.05% and in Spain just under 4.5%, which shows the much tighter monetary situation in Spain and Italy as compared with the United Kingdom. That is why the austerity programmes in those countries are causing such extraordinary pain, whereas in this country it is manageable.
That is why I say the document is a model for our friends and neighbours across the channel. We ought to send it to them with a fanfare, with trumpeters, with Garter King of Arms leading the way, to say to them, “Look, this is how you do it. This is how you restore a country to fiscal sense, and you do it through monetary easing.” Although I loathe the fact that we have to report to a multinational body about matters that are our own sovereign right and should not be interfered with from abroad, on this occasion we can take real pride in what the Government are achieving and what they are working towards and the manner in which they are doing it.
It is, as always, a great pleasure to follow my hon. Friend Jacob Rees-Mogg, if, as always, somewhat of a challenge to match his oratory. If, as will no doubt be the case after tonight’s proceedings, the Government eventually send this tome to the bureaucrats in Brussels, it would be sensible and appropriate for them to append to it a copy of my hon. Friend’s speech, which succinctly set out the Government’s achievements in managing so sensibly the British economy since they took office in 2010.
This evening, in the few minutes that remain for the debate, I want briefly to set out why I oppose, as so many have, this annual charade of going through the process of submitting a document entitled “Convergence Programme for the United Kingdom”. As always, the question is: what on earth are we converging with? Why would this country want to converge in any way, shape or form with the other countries of the European Union, when our growth, as judged by the EU’s own statistical body, EUROSTAT, is forecast to be 0.9%, the EU average to be 0.1% and the eurozone to be minus 0.3%? It is forecast not to grow at all. Why on earth would we want to try to converge with it? What is the point of submitting this convergence report every year?
I do wonder whether we ever get any feedback. Every year, the eurozone stumbles from crisis to crisis. It does not appear to take any notice of this document in which, since 2010 when the Government took over the nation’s finances, we have set out for the benefit of our European partners the way in which we manage our affairs in this country. We may have our political differences in this Chamber as to the right way forward for our economy, but those arguments are solely for this Chamber and for the other place, for this Parliament, to determine. We should in no way be beholden to the Brussels bureaucrats when it comes to British finances.
The Minister referred to the convergence programme document, saying that no time was spent in producing it. Nevertheless, there is a document. Someone has spent some time putting together this weighty tome, which this year runs to some 235 pages. It is a bespoke document, submitted in accordance with the European treaties. This evening, time does not permit us to go through the long process as to how we got to the state that we are in today, but the question remains as to why we go through this annual charade. Surely it would be much better if, as I have said in previous years, we simply said to the bureaucrats in Brussels, “Look, if you are that interested in finding out what we in the UK are doing, just log on to the internet and have a look at all the documents on the Treasury’s website. You will see the Budget statement and the Red Book. That is what we are doing, and if you want to comment on it, go ahead and do so. But why on earth should we waste our time and money in submitting this convergence document to you?
What really matters is not what the Brussels bureaucrats think, but what the British people think. At the next general election, the British people will have a crucial choice to make. Should they vote for the party that has led this country through the most difficult of times and put it back on the road to recovery, taking very difficult decisions that may well have adversely affected them? They will know in their heart of hearts that the decisions were right; they were right for the British economy and ultimately they will be right for them and their families. Should they vote for the party that has put us on the road to recovery or for the party that got us into this mess in the first place? That is the crucial decision that really matters at the next election. It doe not matter what the Brussels bureaucrats think about the running of the British economy.
I oppose the motion not because I oppose the Government’s economic programme, but because I oppose the idea that we should in any way be beholden to Brussels. We should not be spending our time submitting this document or any others for its consideration.
Question accordingly agreed to.
That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.