Section 5 of the European Communities (Amendment) Act 1993

Ian Swales Excerpts

Wednesday 30th April 2014 Commons Chamber

[Nicky Morgan]

I am certainly not aware of any changes. In fact, I think it would be fair to say that we have led the way in Europe and the eurozone in showing exactly how important it is to return to growth and the actions that need to be taken. It is interesting to see other European countries watching what this country has done and following some of the policies that we have put in place so assiduously. It is, as I have said, very important that they return to growth for the sake of our businesses and exporters, too.

The long-term economic plan has protected the economy through a period of global uncertainty and provided the foundations for the UK’s economic recovery, which is now well established. Since last year, economic growth has exceeded forecasts and has been balanced across the main sectors of the economy. Inflation is below target and the deficit has been reduced year on year. More than 1.5 million private sector jobs have been created. Employment is at record levels and interest rates are near record lows, helping to keep costs down for families and businesses. The Government are also making significant progress in reversing the unprecedented rise in borrowing between 2007-08 and 2009-10. The deficit has been cut by a third, as a percentage of GDP, over three years, and is projected to have fallen by a half, as a percentage of GDP, by 2014-15. The OBR also forecasts public sector net borrowing to reach a small surplus in 2018-19. The independent OBR has judged that the Government remain on track to meet the fiscal mandate one year early.

The Government’s consolidation plans have been central to the reduction in the deficit, with £64 billion of the £80 billion spending reductions in spending review 2010 already implemented. The Government are continuing to take action to improve financial management and spending control. Departments remain ahead of their consolidation targets and are again forecast to underspend by £7 billion in 2013-14. The OBR judges that fiscal consolidation has not had a larger drag on the economy than it expected in June 2010, and the UK’s fiscal vulnerabilities argue strongly in favour of maintaining our commitment to deficit reduction. The OBR forecasts that the underlying structural deficit is falling, but it is falling no faster than previously forecast, despite higher growth.

The persistence of the structural challenge supports the Government’s argument that economic growth alone cannot be relied on to eliminate a structural deficit. As my right hon. Friend the Chancellor has said, the job is not yet done. More work will need to be done to tackle historic weaknesses, including low productivity, poor skills and inadequate infrastructure. The deficit is still one of the highest in the developed world and the UK needs to continue to deal with its debts. We are on the right track. The deficit has already been cut by one third. Budget 2014 is fiscally neutral, despite lower borrowing across the forecast period, with an overall reduction in tax funded by a reduction in spending. We have set out our fiscal consolidation plan and it is vital to stick to it in future years.

Budget 2014 announced that the Government are cutting income taxes and freezing fuel duty to help hard-working people to be more financially secure; creating more jobs by backing small business and enterprise with better infrastructure and lower job taxes; capping welfare and controlling immigration, so that the UK economy delivers for people who want to work hard and play by the rules; and delivering the best schools, skills and apprenticeships for our young people. The OBR has revised the UK’s growth forecast upwards and it is now among the highest in the EU.

As the Chancellor said, the job is not yet done and the same is true for the rest of the EU, which is the UK’s most important trading partner. Some 45% of our exports are destined for the EU, and seven of the UK’s top 10 trading partners are EU member states. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. Much of the answers to these problems lie with national-level reforms, such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments. The UK has an interest in making sure those reforms happen. An ambitious EU-level reform agenda is also a key part of this equation and an essential counterpart to national-level reforms. While I can understand that some may be cautious about encouraging the UK to do more, an EU growth agenda would make a major contribution to growth across the EU as a whole and benefit the UK. Recent European Councils have underscored the strong commitment of Heads of State or Government to supporting growth and competitiveness. I know that the Prime Minister has been driving forward this agenda, along with leaders from a substantial group of like-minded member states.

Some would claim that we cannot have EU economic growth without EU spending growth. I disagree. While some areas of the EU budget, such as spending on innovation and research and development, have the potential to support growth, this in fact represents only 13% of the total EU budget. However, deploying EU-level policies in support of economic growth, such as the single market, regulatory reform and EU-level free trade agreements, can achieve maximum growth impact at the least cost.

[Ian Swales (Redcar) (LD)]

The Minister makes a point about EU spending. Does she join me in welcoming the fact that certain parts of the country have EU transitional status, which causes EU money to flow to areas such as the Tees valley?

[Nicky Morgan]

My hon. Friend is absolutely right. As we are a part of the EU and contribute, as a country, to the EU budget, it is absolutely right that some of that money comes back to this country—or to particular parts of this country—and we see the benefit of that financial contribution. He mentions his area of the country, and I know that EU funding in the midlands has been particularly valuable in supporting vital work on things such skills and apprenticeships.

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[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am grateful to the new Financial Secretary to the Treasury for her introduction to the debate, and I congratulate her on her promotion to her new post. I look forward to continuing the debate with her in the Finance Bill Committee, which got off to such a strong start yesterday.

When I first looked at the motion, I was mystified about the nature of the debate, which is why I have thanked the Financial Secretary for her introduction to it. The motion, as framed, does not exactly leap off the Order Paper. When Members go to the Vote Office, as I did to find the convergence documents, they will find that the motion still does not quite leap out at us in respect of what is going on in the House this afternoon. That situation is not a state of affairs that is alien to Members, given that we often have to debate issues that can sometimes seem impenetrable to those on the outside, and often to those on the inside too.

Let us turn to what could be described as “minus page 2” of the Red Book. I thought it quite telling that underneath a note about the Crown copyright and the ISBN number, are the words:

“Printed on paper containing 75% recycled fibre”,

and

“The Budget report, combined with the Office for Budget Responsibility’s Economic and fiscal outlook, constitutes the Government’s assessment under section 5 of the European Communities (Amendment) Act 1993”.

That is relevant to today’s debate, as the Minister helpfully outlined in her introduction. This is in a very small font and is easy to miss, and it is not immediately clear what it really means.

Looking at the 1993 Act, Members will have spotted that it refers to the Maastricht treaty, article 2 of which states:

“The Community shall have as its task...a harmonious and balanced development of economic activities, sustainable and non-inflationary growth”.

Article 103 is relevant, too, as it talks about economic policies being a “matter of common concern” that should be co-ordinated within the Council. For some Members of all parties, these are the sort of words that are difficult to stomach. That article continues:

“For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy”.

Once we break through the rather impenetrable language and the odd nature of this old treaty obligation, the emphasis of which has changed from when the obligation was made to the state of play within the EU today, what we get to is the fact that the House is essentially being asked to approve the Budget Red Book as a true and accurate reflection of what is happening in the UK economy. When we are finally able to frame the question in that way—asking whether the Red Book is in and of itself a true and accurate reflection of that—I would have to say, “Where shall I start?” It will probably not surprise Government Members to know that the Opposition do not consider it a true and accurate reflection of what is happening in the UK economy

Let me start with the top line of page 4 of the Red Book:

“The government’s long-term economic plan is underpinned by its commitment to fairness.”

I seem to remember that during the run-up to the last general election, before the Government began their life in the current Parliament, the right hon. Member for Tatton (Mr Osborne), who was to become Chancellor of the Exchequer, uttered his famous line about how they were not going to balance the books on the backs of the poor. There was also that other famous line about how we were all in it together. On the face of it, who could say that those sentiments were wrong? Certainly, if they had proved to be genuine, we should be in a very different place.

At the heart of those lines of rhetoric, however, is the implication of a deep commitment to fairness. My charge against the Government is that that commitment—and the “commitment to fairness” to which the Red Book refers—can only be seen as genuine if we accept that “fairness” can describe an economic plan that gives a huge tax cut to the wealthiest in our country. In the 2012 Budget, the Government announced a tax cut for millionaires that would be worth an average of £100,000 to each of them—a sum that is far out of the reach of millions of people in our country today. Meanwhile, the Government are presiding over what might be termed one of our more successful growth industries, which, unfortunately, happens to be the food bank industry. The number of people receiving three days of emergency food has grown from 67,000 four years ago to 913,000. How can it possibly be true that, as the Red Book states, the Government have a deep “commitment to fairness”, when the richest members of our society receive a huge tax cut while the poorest, in ever growing numbers, are being forced to use food banks?

[Ian Swales]

Perhaps the shadow Minister will quote another statement in the Red Book, namely the statement that net income inequality is at its lowest since 1986. The period following that year has included 13 years of her party in government.

[Shabana Mahmood]

Later in my speech, I shall deal directly with issues relating to household income and what is happening to the ability of families on low and middle incomes to make ends meet.

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[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention, but he will not be surprised to learn that I wholly reject the point he makes. Government Members often try to lay the whole cause of the global financial crisis at the door of the previous Labour Government, but it was a global financial crisis that affected countries all over the world; the Labour Government were not responsible for the fall of Lehman Brothers in the United States. That is the first point I would make in response to him. The second point is that this Government have now been in power for four years and they cannot keep trying to get off the hook about their own record. The important point is that they set a target for themselves. Previous Red Books show what was supposed to happen with this programme of fiscal consolidation, but it has not proceeded at the pace the Government set for themselves. That is not spelt out clearly in the Red Book in open language that anybody could understand.

Anyone looking at the Red Book would be forgiven for thinking that these are halcyon days and everything is exactly as it was always planned to be, but that is not a true and accurate reflection of what is happening in the economy. On page 1 of the Red Book, in a section from which the Minister quoted, we see that

“GDP growth has exceeded forecasts”.

It also states that

“the deficit as a share of GDP is forecast to have fallen by a half by 2014-15 compared to 2009-10”.

Again, that implies, “Everything is okay. Move along. There is nothing to see here.”

Yesterday’s growth figures and the 0.8% growth we have seen in the first quarter are welcome, but they do not make up for the previous three years of flatlining in the economy. We have to remember that in quarter 2 of 2010, growth was at 1.2%, and in 2010 after coming into power the Chancellor said that the economy would have grown by 8.4% by now, whereas in fact it has grown by just 3.8%, which is less than half of what he forecast. Again, what has happened is not quite as rosy when compared with what was supposed to happen in terms of the challenge the Chancellor set himself. It is also not as rosy a picture as is painted in the Red Book.

Let me deal with the point about personal allowances raised by the right hon. Member for Chelmsford (Mr Burns). We see a similar flannelling about what is really going on in the economy when we look at the impact of tax and benefit changes on people on lower and middle incomes and, in particular, on the interplay with their living standards. The Red Book tells us that

“a typical basic rate taxpayer will pay £705 less income tax…in cash terms than they would have paid in 2010-11.”

Page 10 of the Red Book tells us that pressures on household budgets “have eased”, but that is simply not the experience of millions of people on lower and middle incomes in our country. I fail to see how that statement can be true at the same time as the OBR tells us that wages will be 5.6% down in 2015 compared with 2010.

Treasury Ministers have failed to admit that latter point; they have been asked a number of times to accept that the OBR has said that wages will be 5.6% down, but no Treasury Minister has ever answered yes or no to that question. I will happily give way to the Financial Secretary if she wants to confirm that that is the case, but she is looking at her papers and I think she is going to do what every other Treasury Minister and colleague of hers has done, which is duck the opportunity to confirm on the Floor of the House and for the benefit of the record that the OBR is right in saying that wages will be 5.6% down in 2015 on the 2010 level.

[Ian Swales]

I am listening to the hon. Lady’s arguments. Would she like to add that because the income tax cut is a flat-rate amount it has the biggest impact on the low-paid and that the low-paid, particularly those on the minimum wage, have had a real-terms increase in their net pay?

[Shabana Mahmood]

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

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

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

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

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

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

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

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[Jacob Rees-Mogg]

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

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

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

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

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

[Ian Swales]

I thank the hon. Gentleman for giving way, and he is making a characteristically interesting speech. Presumably one of the enforcement options open to the EU if we do not meet the criteria is not to allow us to join the euro. Will he enlighten us on whether, through his studies, he has come across any other enforcement procedures that might be brought into play if we do not meet the convergence criteria?

[Jacob Rees-Mogg]

It is always difficult to know what action can be taken until action has been taken and until the European Court of Justice has adjudicated on whether that action is legitimate. Obviously, the hon. Gentleman’s point that we could be prevented from joining the euro is brilliant and I am impressed that the Liberal Democrats are so keen to prevent us from joining the euro that they would like legal action to be brought by the European Union to prevent that.

My warning is not so much that I can see a specific threat coming down the track, as the hon. Member for Birmingham, Ladywood said. There were a lot of tracks in the hon. Lady’s speech, and I wondered whether she was confused with Monday’s debate about the Government’s production of a lot of extra track in one direction or another. There is always a problem if Governments commit themselves to things that they have no intention of doing. At some later date a body comes back and says, “Actually, you agreed in 2011 that the European Commission would have the right to challenge you on how you were developing your fiscal and employment policies. That is not being done, so we want you to put your house in order.” Then we reach the question of what action can be taken to enforce that.

It is worth concluding on the glorious issue of convergence simply by saying that we are so lucky that we are not converging and that the Government have managed to make policy in this country so much more successfully than our continental friends. For example, the EUROSTAT figures—I shall cite a European body, not because I want to but for the sake of consistency, as similar figures are used across the areas covered—show that in 2013 the UK economy grew by 1.7% against 0.1% growth in the EU as a whole and 0.4% contraction in the eurozone. According to our own figures from the Office for National Statistics, we are now, according to the quarterly figures, growing almost as fast as China at an annualised rate, which is very encouraging. I never thought, even with my confidence in the Chancellor and his team in the Treasury, that we would manage to achieve near-Chinese rates of growth under this Government—emerging-market levels. We also have much lower unemployment than our continental cousins, and that applies not just to adult unemployment but, most importantly, to youth unemployment.

Let us hope that we do not converge but continue to diverge from the failures that the eurozone has inflicted on itself, to maintain our independent economic policy, to have an economic policy that thrives and succeeds because Her Majesty’s Government know what they are doing, unlike their predecessor, and can therefore boldly and with confidence send these statements to the European Commission and say to Señor Barroso and all the rest of them, “If only you had the sense to do what my right hon. Friend the Chancellor of the Exchequer is doing, you, too, might grow as well.”

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

It is always a pleasure to follow the hon. Member for North East Somerset (Jacob Rees-Mogg) in a debate on Europe. I tend to agree with his analysis of and almost everything he says on Europe, but, fortunately, I do not agree with his analysis of the British economy. It gives me an almost unique pleasure to be able to vote with my own party on a European resolution, which I have not done for some time, and I was surprised and pleased when the Opposition tabled the amendment.

First, it is also not unique for a Minister to come to this Chamber with almost nothing new to say, but it is unusual, to say the least, for the Minister to explain to the House that she has nothing new to say. There is a reason for that. The House is expected to report on the Budget and what we are doing financially to the European Union. In one sense one might take the rise out of that and have a little joke about it, as we are just sending the documents that we have already produced to the European Union and to Brussels, but we must remember that the European Union is a thin-end-of- the-wedge organisation. If it cannot get what it wants immediately, it will concede a little. It will say that as it cannot control our budgets, which it would like to do as it wants to create a much more centralised European Union, we should send it the details of them. Initially, that happened under the guise of looking for convergence since the euro was created just over 10 years ago. For a House that believes and should believe in its sovereignty, there is danger in that process even if nothing is being added to what is being given to the European Union.

My second point is the obverse of the point made by the hon. Member for North East Somerset. We certainly do not want to converge with the European Union, because the euro has been the biggest machine for destroying jobs in Europe since the 1930s. It has been a complete and total disaster. It is not just a matter of our not wanting to converge with the euro and the rest of the European Union. There is still an insistence within the eurozone on convergence and trying to converge is a disaster for the countries inside the zone and for the United Kingdom, because we want to trade with a thriving economy. While the euro is there, that economy cannot thrive. It is as simple as this. In Germany, the euro is simply an undervalued Deutschmark that is helping the German economy to trade around the world. That is hugely successful and Germany is building up huge trade surpluses. The rest of the eurozone, particularly the Mediterranean regions, is dealing with an overvalued euro that is depressing its economies.

Without the ability to change exchange rates, those countries are effectively in a competitive deflationary situation and it is very unlikely that they will ever be able to pay off their deficits and get into a better economic situation. The only way they could do that is if the German surplus was taken and spent in Portugal, Spain, Italy and Greece, where they have huge unemployment rates and where there is unemployment in what industry is left. It is very difficult—almost impossible—for the eurozone to converge, and that is bad for those countries and, because we want to trade with them, for this economy.

If the eurozone had done better since the banking crisis five or six years ago, this country would not have suffered as much as we have.

[Ian Swales]

I am carefully following the hon. Gentleman’s argument, with which I absolutely agree. I must admit that since I first became a candidate for the Liberal Democrats, the policy on the euro was the one policy on which I disagreed with my party for exactly the reasons that he is outlining. However, to be positive, does he agree that sending these documents to the EU might, in the spirit of learning, make it reconsider the errors of its ways?

[Graham Stringer]

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