Financial Services (Market Abuse)
William Cash Excerpts(11 years, 10 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That this House takes note of European Union Documents No. 16010/11 and Addenda 1 and 2, relating to a Draft Regulation on insider dealing and market manipulation (market abuse), No. 16000/11 and Addenda 1 and 2, relating to the Draft Directive on criminal sanctions for insider dealing and market manipulation, and No. 8253/12, relating to the European Central Bank Opinion on market abuse legislation; recognises that an efficient financial market that aids economic growth requires market integrity and public confidence; welcomes the UK’s leading role in combating market abuse; and supports the Government’s decision not to opt-in to the Criminal Sanctions Directive until it is clear that related provisions within the Markets in Financial Instruments Directive Review and the Market Abuse Regulation are further progressed in order to enable the Government to evaluate the implications for the UK, and ensure high standards in tackling market abuse are maintained.
I welcome the opportunity to open the debate. It is important, before I deal with the details of the motion, for me to reinforce our commitment to ensuring that there are efficient financial markets which assist economic growth. If markets are to be efficient, however, they must command public confidence and demonstrate their integrity. Central to that is the sense that those who are trading in shares, whether they are retail customers or our largest fund managers, are doing so in possession of, or with access to, the same information. We must also ensure that markets are not manipulated against the interests of those who are trading in shares.
It is the recognition of the importance of markets that have integrity and command public confidence that has led to the UK’s leading role in tackling the problems of market abuse. We established our own civil market abuse regime in 2000, ahead of the EU market abuse directive of 2003. The Financial Services Authority has made considerable strides in recent years since launching its “credible deterrence” strategy for market abuse in 2008, particularly as a result of the financial crisis. Our no-nonsense approach to market abuse is now a regular feature of national and international news. The FSA levies increasingly large penalties, and exercises its criminal powers. Abuse of this sort will not be tolerated. In 2003, the FSA handed down fines relating to market abuse totalling just over £1 million; halfway through this year, the figure is £8.9 million. The FSA is bringing the full weight of the law against perpetrators of abuse, and that includes the £7.2 million imposed in the Punch Taverns case.
The hard-line stance that we have taken on market abuse is one of the reasons London flourishes as a global financial centre. Investors and other market participants value the cleanliness of our market, which is why they use London to carry out their business. Market abuse is a blight on financial markets. It destroys confidence. It puts typically sophisticated financial actors at an unfair advantage over ordinary investors and savers. Those who manipulate the markets or abuse their position to trade on inside information undermine the efficiency and safety of the financial marketplace.
Mr William Cash (Stone) (Con)
I am sure my hon. Friend is in no way trying to divert attention away from the fact that jurisdiction is now, effectively, with the European Court of Justice. I am not going to ask him to be precise, but does he not agree that for the purposes of interpreting financial services regulations within the framework of the supervisory authorities that have been created, all these matters are ultimately matters of European law as applied by our Parliament so long as it continues voluntarily to accept them?
Mr Hoban
I am not sure I agree with my hon. Friend. I do not want to be diverted along that path, but I point out to him that, as he will know as Chairman of the European Scrutiny Committee that put forward this motion for debate on the Floor of the House, the criminal sanctions directive acts as a minimum harmonisation directive, and this House can impose more stringent penalties than the minimum required.
Mr Hoban
My hon. Friend missed out on the opportunity that I and the hon. Member for Nottingham East (Chris Leslie) had of serving on the Financial Services Bill Committee. We spent a considerable amount of time developing the details of jurisdiction in the UK, through giving powers to the Financial Services Authority. There are areas where rules are made at a European level, but, equally, there are areas where rules are made in the UK, and it is not appropriate to say, “There’s only European law.” There is a whole raft of UK law on these matters.
To date, the UK has used the flexibility of the minimum harmonisation EU directive to create a stronger standard, applying the regime to more venues and having stronger rules. Now we have the opportunity to have a better framework applied across the whole of the EU, and that is in our interests.
It is clear that market abuse can take place beyond our borders and yet still affect securities traded within our borders. For that reason, the Government support the Commission’s objective to revise the EU market abuse framework. Improving the strength and consistency of the framework is vital to investor confidence.
There are challenges and opportunities in shifting to a regulation. There are challenges if the UK’s own practices are compromised. There are opportunities from having a more consistent and stronger EU regime and potentially reducing the cost and complexity of compliance for market actors.
Clearly, our prime objective is to ensure that the powers currently available to competent authorities are not weakened, which would damage the UK and the creditable work of the FSA. Secondly, we wish to deliver a robust framework for tackling market abuse within Europe.
Interest in changes to the market abuse framework extends beyond this House. In March, the European Central Bank published its opinion of the market abuse proposals. Its commentary focused largely on the new provision in the regulation for competent authorities to be able to delay the publication of inside information with systemic consequences. The Government echo the ECB’s support for seeking the legal framework to be improved in this respect. This is a key provision for the Bank of England and the FSA following the financial crisis and the difficulties experienced surrounding the disclosure of emergency lending assistance.
I want to outline briefly the EU market abuse package proposed by the Commission. In October 2011, the Commission published a regulation and an accompanying directive on criminal sanctions for market abuse. Those proposals together update the framework formerly established by the market abuse directive 2003, including proposing EU harmonisation of criminal law for market abuse for the first time. The legal basis for the criminal directive is article 83(2) of the treaty on the functioning of the European Union. This is the first use of the relevant provision since the Lisbon treaty was agreed. It means that the directive is subject to a justice and home affairs opt-in. The UK and Ireland have discretion on whether it should apply to them. Denmark is automatically opted out. In light of the fact that this was the first use of the article, it was important that the Government carefully contemplated the issues and came to the appropriate decision.
The European Scrutiny Committee also considered the use of the opt-in. In its 52nd report of the last Session, the Committee noted that the full potential impact for the UK of the draft directive will become certain only once negotiations are concluded. The European Affairs Committee concurred with that opinion, but we are, of course, bound by the regulation.
The Government’s decision not to opt in at this time is a reflection of the sequencing of the directive compared with related legislative proposals. The proposed directive is entirely dependent on the outcome of the market abuse regulation, and the markets in financial instruments directive, which are both in relatively early stages of negotiation. The Government believe that it is very challenging to assess the implications, scope and way in which the criminal directive may develop, given the broader uncertainty of the market abuse framework, which itself is simultaneously subject to a major review.
The key issue here is ensuring that the interaction between the criminal and administrative regimes is clear and workable for all member states. Above all, we need to address the flexibility of when to apply a criminal penalty and when an administrative penalty needs to be retained within member states’ national systems. That must be determined on a case-by-case basis, in the light of the evidence of an individual case. In addition, there was uncertainty about whether the powers of competent authorities would be weakened in respect of accessing telephone records in the regulation and, potentially, the accompanying criminal directive.
It is essential that competent authorities have the flexibility to determine the appropriate type of penalty—whether it is criminal or administrative—and the powers available to them to investigate suspected cases of market abuse. The Council has itself recognised the difficulties involved in trying to complete negotiations on the criminal directive, with linked proposals being negotiated simultaneously. Therefore, the presidency decided to pause progress on the directive, in order to wait for policy progress to be made in the market abuse regulation.
However, I note that although the Government have decided not to opt in at this stage, we have continued to participate fully in negotiations. It is important that we use our expertise in combating market abuse, including the fact that the UK already covers market abuse in its criminal law today. If we are able to do that, and further progress the related proposals in the market abuse regulation and the markets in financial instruments directive in a manner that meets our objectives, we may consider opting in to the criminal directive. We can assess this only when the trio of proposals are properly progressed.
Chris Leslie (Nottingham East) (Lab/Co-op)
This is indeed an important debate. Market abuse, insider dealing and market manipulation are issues that do not get the airtime that they deserve. It is important that white collar crime and abuses of what we might call white collar financial services activities are properly attended to. We know that in recent years the regulators, or the relevant authorities, have sometimes struggled properly to prosecute or pursue issues where allegations have been made and there are difficulties in pinning down the right level of evidence. This is an important opportunity to see how, when the European Union proposes new regulations to tighten up some of the rules, the UK Government approaches such questions. I was interested to see in the Financial Services Authority’s recent annual report the quite shocking statistics on potential market manipulation that still takes place and often goes uncaptured.
The statistic that leapt out at me concerned something called APPM monitoring—I know that hon. Members enjoy their acronyms—or abnormal pre-announcement price movement monitoring. Apparently, such movements are still at a level of more than 20% in respect of announcements of mergers or acquisitions. If we look back at share transactions and other dealings, we can see that there are palpably instances when information has leaked out and people have taken advantage of information asymmetry. Such market abuses are notoriously difficult to pin down and prosecute, but they are unfortunately still a feature of many of our markets and financial services and we need to do a great deal to bear down on them.
The original market abuse directive was adopted back in 2003, but the new set of regulations proposes to try to tighten up the arrangements in a number of areas. There are gaps in the new markets that have emerged, for example, particularly in commodities trading and derivatives trading. I shall talk about those in a moment. There are problems with regulatory enforcement, where outdated arrangements are in place. There is a lack of legal certainty, particularly when issues cross nation state boundaries, and a risk of regulatory arbitrage. I was not surprised, therefore, that that was one area in which the Commission made proposals.
Chris Leslie
I am grateful to the hon. Gentleman for showing that sanity is sometimes tested in these debates. I should also pay tribute to his work and to that of the European Scrutiny Committee, without which many of these important debates would never materialise on the Floor of the House—even if this debate is in the middle of the football, possibly with less exposure and fewer viewers watching on BBC Parliament than might normally do so. I am sure that there will be a rerun of these proceedings and people will be able to watch them at their leisure.
What is different about the market abuse regulations? We know that a parallel criminal sanctions directive is being discussed, although the Government’s position is far from clear. They are almost saying that they will not opt in at this stage, but might change their mind later depending on a number of rather strange factors. There are important reasons why we need to tighten up the criminal offences regime for market manipulation and for insider dealing, and those important steps must be taken. I agree with some of the proposals in the market abuse regulations that will broaden the definition of insider information to cover information that is not generally available for reasons of transaction opacity.
I am particularly keen to see improvements in the market abuse regulations in areas such as commodities and derivatives trading, which were not as large and significant as they are now. About 15 years ago, some £300 million of commodities trading took place in the UK, whereas that has now increased by almost 1,000%. Billions and billions of pounds are now moving from investment-based activity to speculation-based activity. These issues are serious. One might think about speculation in metals and gold and wonder where the harm is, as that is the nature of the world we are in today. However, speculation in wheat, cocoa and other basic food and commodity substances that can have a bearing on the nutrition of many millions of people in developing countries is an issue that matters in the real world.
If there is market abuse and manipulation, it can have a serious impact on real lives. That is why it is important that when we see so many giant corporations with very deep pockets so often being accused of distorting markets and purchasing whole monthly future contracts, potentially hurting consumers in poorer countries, we should take the opportunity to ask whether we have the right market abuse arrangements in place and whether we could make changes. If companies were cornering the market in equities or listed shares it would trigger regulatory action, but when large corporations corner the market in commodities it does not. That is a bizarre anomaly and we need to modernise the arrangements.
We need to see other important changes in the market abuse regulations. How do we identify insider dealing and market manipulation? What are the rules about information being delayed before public announcements? After the financial crisis, there were serious lessons to be learned about revealing information about abuses that might have a bearing on systemically important transactions and organisations. There are some proposals in the arrangements to deal with these issues. These are very serious questions that need to be addressed.
There is a parallel proposal for a criminal sanctions directive that defines the two offences of insider dealing and market manipulation, which should be regarded by member states as criminal offences if committed intentionally. The intention is to introduce a minimum level of harmonisation for criminal sanctions and, in particular, to provide that the competent authority should have the power to impose administrative pecuniary sanctions of up to twice the amount of profit gained or lost.
There is virtue in the criminal sanctions directive and the market abuse regulations, but we are now in this rather byzantine legislative Committee treacle trying to move these issues forward. The Minister may well be personally involved in these areas—I do not know to what extent—but if hon. Members care to take the time to look at the voluminous documentation associated with this debate they will find some interesting correspondence between the Minister and the European Scrutiny Committee. The Minister will have to forgive me if I paraphrase him incorrectly, but in that correspondence he says that the Council discussions have been somewhat fractured—I think that was the word he used—as a result of the fact that the criminal sanctions directive is taken through the Justice and Home Affairs Council whereas the market abuse regulations are taken through ECOFIN.
We then have the added little twist that the Cypriot presidency is taking over on 1 July an issue that has not been resolved and is still in abeyance. The Justice Secretary attended the Justice and Home Affairs Council at the end of April, which kept open—this is where we get into Eurospeak—the “horizontal articles” for a “partial general approach”. I know that is something that Members will be familiar with. In other words, those involved were saying, “Nothing is really going to change on this particular issue. We are just going to tread water for quite some time.”
Then we have the crazy situation in which the market abuse regulation grinds slowly forward while in a parallel universe the criminal sanctions directive enters an entirely different Council Committee. One almost, but not quite, feels sorry for the Minister trying to balance or juggle this particularly tricky set of negotiations, but rather than waiting, reacting and observing the process, he needs to grip this issue by the scruff of the neck and move it forward.
Ultimately, this is the main question I want to ask him: what is he doing to move matters forward? Can he give a proper explanation of where he stands on the substantive elements of the market abuse regulations and of the criminal sanctions directive in particular? He says that it is difficult to assess the scope and implications so far because it depends on the review of the markets in financial instruments directive and various other factors. Difficult or not, he needs to set out the Government’s position on the substantive policy issues. That is what I expected him to do this evening. The issues are not rocket science. He should set out his position. Even if it is a negotiating position, I would like to know the Government’s starting point in this set of discussions. This is a poor way of making decisions.
Clear leadership is not being shown in sorting out the matter and getting a grip of the question. It is necessary to improve and modernise the regulations on market abuse because modern-day financial markets have left behind the old regime. I understand the Commission’s attempts to get some coherence and harmony on market abuse issues and to deal with the regulatory arbitrage issues that arise from time to time, but the Government must answer a number of questions. Why do they feel that they are still unable to set out their position on the substantive policy issues? When does the Minister expect some resolution of the issues? In particular, who does he think should be moving matters forward? Is he just a bystander, waiting for others to do that—the Cypriot presidency or someone else? When will he, as a Minister, show a lead, tackling market abuse, dealing with insider trading arrangements and ironing out some of these important questions? He is too relaxed and a little complacent on these questions. He needs to take charge and grasp the issue.
Mr William Cash (Stone) (Con)
I thoroughly endorse almost everything my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) has said, but I would go somewhat further, because I have a complete aversion to the whole concept of the transfer of our jurisdiction over matters affecting the City of London. I have said that for many years now. In fact, when the de Larosière report was published I wrote in the Financial Times that I saw it as a ticking time bomb, or words to that effect, and that if matters were allowed to continue we would find ourselves mopped up by European jurisdiction.
Following the statement my hon. Friend the Financial Secretary made to the House only last week, I asked a simple question: in the light of the vast amount of commitment and time that has been spent transferring jurisdiction over matters affecting the City to the European Union, how on earth will we be able to protect the City, the related single market aspects, including financial services, and matters of the kind now before the House in the market abuse directive when they are governed by qualified majority vote? Those are the realities.
The truth is that we have made the most massive strategic mistake in relation to matters of this kind, which are governed by qualified majority vote, under directives such as the MAD directive otherwise known as the market abuse directive, which was bitterly opposed by the City of London in the early part of this century. I have to say that events then turned for the worse and those proposals have now been overtaken.
Before I turn to the specifics of the matter before us, I ought to mention that the veto on the fiscal compact, which the European Scrutiny Committee said was effectively unlawful on the evidence we received, has not been followed up. The Government and the Attorney-General are clearly of the view that the agreement on the fiscal compact between the 25 was unlawful, but in reality nothing has been done. We have just had a reply from the Government to our report on the question, and on which we held an inquiry, but in no way do they continue to do anything to put to the test the illegality that lies at the heart of the fiscal compact. We are therefore still in the position whereby the Government regard the fiscal compact of the 25 as being a matter of irregularity, but they do not do anything about it.
That is a dangerous situation, and it has gone beyond that—to the fiscal union itself being promoted and advocated by the Government. That will make things even worse, with an even deeper black hole, as I said on television yesterday. The banking union proposals, which are also now being pressed upon us, will come to fruition around the time of the summit on 28 June, and I fear that we are being taken down an extremely dangerous route.
The market abuse directive before us is one example of that tendency to legislate continuously on financial services matters, and my hon. Friend the Member for North East Somerset is quite right that we could legislate for ourselves on them. Bad markets, as I have said in articles I have written in the past, are bad business, and we have at our disposal in this Parliament every means to pass legislation on our own account, without necessarily or by any means having to leave it to the European Union. I would be going beyond the remit of this debate if I went into that in any further detail, but I repudiate the idea that we cannot legislate for ourselves on such matters.
I am by no means convinced that the Government intend to make it entirely clear whether or not we will opt in, and that is the problem with the opt-in. I think my hon. Friend is of the opinion that the Government have decided that we will not. I am not sure, but I thought he said that.
Jacob Rees-Mogg
I am grateful to my hon. Friend for giving way. No, that is not what I think. I think that the Government have not opted in, technically, at the moment, but hope to do so in future, and I think that will be a great mistake.
Mr Cash
In that case we are, as so often, ad idem and in agreement, and I am glad to hear that confirmation from my hon. Friend.
This whole business has one way or another been developing over the past 12 years—and before. It has been before the European Scrutiny Committee, and we have recommended it for debate, but it has been overtaken by further developments, particularly since the financial crash, which we are now in. I am extremely doubtful about whether market abuse in itself—important as the subject matter is, and something that needs to be dealt with—is in any way a contributor to the financial mess that the European Union is in.
We are in an economic crisis, we are in a black hole, and we should have a convention at which all those matters, including directives of this kind, are put before the member states with their cards on the table. We should say unequivocally that we want a different kind of Europe and put it to them, and the negotiating position that we adopt, those red lines, should then be put to the British people. We should have a referendum on those matters to make it absolutely clear that the direction of this over-legislated, over-burdensome European jurisdiction is doing no good whatsoever to the free markets—
Madam Deputy Speaker (Dawn Primarolo)
Order. The hon. Gentleman took some time to set his intended comments in context, which I allowed, but I now require him to address the business before us. We do not need any more general scene-setting on his attitudes towards the European Union, so perhaps he could come back to the business before the House.
Madam Deputy Speaker
Order. It is not for the hon. Gentleman to disagree with me. He thought that he was covering the subject by making general points about opt-ins, but I would like him now to refer to the documents before the House. He has been speaking for some time, and he should bring the attention of the House to his points on these documents.
Mr Cash
Well, to put it simply, the Committee is concerned that the Government might opt into the draft criminal sanctions directive once it is adopted. There would be a debate on that matter if they decided to do so. I do not think that we should opt in. That matter is part of the broader landscape and specific issues that are before the House.
The question of what the draft directive means by the word “intentionally” in relation to market abuse raises some very important legal issues. Then there is the question of whether the draft directive would apply automatically if there were proof of intent or whether there would be discretion to apply an administrative penalty rather than a criminal one. Those are all matters on which we could legislate on our own account if we wished to do so. I make no apology for repeating that point.
A further point concerns the practical application of the proposed new definition of “inside information”, which involves the whole issue of insider dealing. The trouble is—I say this with respect to Madam Deputy Speaker—that definitions in relation to European legislation raise the question of how this matter will be adjudicated on by the European Court of Justice. We have our own means and opportunities to pass legislation in this House that will define these questions.
Jacob Rees-Mogg
My hon. Friend has come to the absolute crux of the matter. Once we opt into something, it is then justiciable by the European Justice of Justice. That brings the ECJ into a role regarding our criminal law, and that is a very substantial step for the Government to be taking.
Mr Cash
I am deeply grateful for the support of my hon. Friend, who is also a member of the European Scrutiny Committee and who has very considerable expertise in his own right. He has developed an acute sense of British and United Kingdom interests in relation to matters of great importance to the City of London.
A further point is that there is no useful recital in the directive, as there normally would be, to indicate the parameters of the draft regulations. We are deeply concerned about that. There is no certainty that we will opt in, but that does not alter the fact that there is grave concern that we will eventually end up being told that we will do so. If that is what happens, I, for one, will undoubtedly vote against it.
The directive aims to prevent insider dealing and the misuse of financially sensitive market information in the financial markets. That cannot be separated from the broader landscape of the manner in which the European Union is interfering in matters in the United Kingdom that affect the City of London. The City of London represents some 20% of our gross domestic product. I entirely take on board the point made by my hon. Friend the Member for North East Somerset that we are at the top of the league in global financial market activity. I believe that a serious attempt is being made by other members of the European Union—with Frankfurt at No. 13—to move further up the positions. That will be done partly through regulatory collusion and the use of qualified majority voting, as Professor Roland Vaubel has indicated in his general concerns about the manner in which qualified majority voting and directives are dealt with.
The intervention of the financial crisis in 2007 delayed the implementation of the original provisions and prompted a rethink. Whether that rethink is beneficial is another issue. The new EU regulation that will replace the original directive, which is proposed alongside the new directive, provides for minimum harmonised standards of enforcement and sanction throughout the community. Although the UK Government are broadly supportive of the measures, there are procedural uncertainties, notably in the problem of aligning the three interlocking legislative measures at the same time. That has led the Government to conclude that the UK should not yet opt into the directive. I am interested to hear whether the Minister has a view on the words “not yet”. I do not think that he will commit himself at this stage, but there will be considerable difficulty and trouble for the City of London if we do opt in.
I do not believe that the directives are in the interests of the United Kingdom. We can legislate on these matters ourselves. There is much talk of fiscal union, banking union, supervisory authorities and the wholesale transfer of our jurisdiction over the City of London, which means so much to our gross domestic product and to our ability to compete internationally. That is being undermined by proposals of this kind, whether or not they are brought into effect.
Banking Reform
William Cash Excerpts(11 years, 11 months ago)
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Mr Hoban
It has always been the case that I would make the statement today. This may come as news to the shadow Chancellor—it may be different from his experience when he was City Minister—but the Treasury is a team. We have worked together on these reforms, and it was always the intention that I would make today’s statement. The shadow Chancellor should not believe what he reads on Twitter.
Mr William Cash (Stone) (Con)
Having invested so much time advocating EU jurisdiction over banking in the City, how are the Government going to protect the City of London both from that EU jurisdiction and from qualified majority voting?
Mr Hoban
I think it is very clear that the emerging debate about a banking union flows from the problems we are seeing in the eurozone. It is important that the banking union helps resolve some of the problems in the eurozone, but it is a consequence of having a single currency, not a consequence of having a single market. It is important for the eurozone to move ahead in dealing with its problems and strengthening the banking regime within it. It is also important for the future of the City to ensure that there are proper safeguards over the functioning of the single market.
Financial Services Bill
William Cash Excerpts(11 years, 11 months ago)
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John Healey
There is a saying that what is measured matters, and if it matters, measure it. In many ways, that is the core of the argument being made by Opposition Members.
Sixteen per cent. of those who aspire to own their own home and who borrow to buy do so from building societies. Roughly one in six of us borrows our mortgage from a building society. That significant market share is gradually growing. That is why I have argued that building societies are the unsung success of British financial services. They are certainly unsung by a Government who promised to be their champion.
In my view, building societies are the quiet strength of British financial services, but it is time that that strength was properly supported by Government policy and action. Mutuals look at the coalition agreement and point to the words on the paper, but they cannot point to the action that followed. The amendment is designed to force the hand of the Minister, the Treasury and the Government. I am surprised that it finds any objection on the Government Benches, because it simply seeks to hold the Government to the promise they made
Mr William Cash (Stone) (Con)
I have found this debate both curious and inconsequential in many respects. There has been a great deal of talk about the technicalities of achieving the objective, but not, as far as I can judge, a great deal about the reasons why mutual societies are so important. However, I share the view expressed by the right hon. Member for Wentworth and Dearne (John Healey) that the coalition agreement, of which I am not an uncritical observer, clearly stated that there should, in effect, be support for mutuals.
I declare an interest, because my family founded the Abbey National building society and the National Provident in the 1830s and later in the 19th century. The Abbey National is now Santander, and we need only look at what is happening in Spain to hope that there is some ring-fencing for its customers in the United Kingdom. The reason why mutuals are so important is the same reason why John Lewis is so important. It is the reason why the co-operative movement, which was founded in Rochdale—I do not apologise for also pointing out that that was where John Bright was born—is important. The Rochdale co-operative movement was the means whereby people could buy houses that they could not otherwise afford.
I have always been very much in favour of the right to buy, because having a property stake is important for individual responsibility. The great thing about the mutuals—and it still pertains, because they still exist, but need to be enhanced, improved, developed and encouraged—is that they enable people to come together in a proper and balanced relationship, with a sense of individual responsibility and, by co-operating together, to benefit each other and society as a whole in relation to the most fundamental aspects of property and insurance, without excessive profits, or indeed any real profits, for the people who put it together. That does not mean that I am against capitalism. Indeed, those who promoted mutual societies were invariably capitalists, and I count my own family in that number. William Cash founded the National Provident with the Lucas family, and the Cadburys were much involved in similar objectives. A raft of Quakers and other Dissenters were integral to the development of this incredibly important movement, which changed the face of society in the 19th century. We could do with that now.
Some five years ago, I wrote a letter to The Times, criticising aspects of the manner in which the banking system had given way to greed and self-indulgence. The Minister knows my views on the subject of the transfer of jurisdiction from the City to Brussels, including the point that legislation is no substitute for self-help. My hon. Friend the Member for Wycombe (Steve Baker) understands that better than anyone else. Indeed, Samuel Smiles, who wrote the famous book on self-help, was devoted to all these objectives because he knew that individual responsibility, operating within the framework of co-operatives and mutuals, would and should provide the kind of society that is worth living in. I put it as high as that, because to me this is a moral objective. We do not talk enough about morality. Law is no substitute for morality.
Mr Thomas
Will the hon. Gentleman accept that one lesson regarding the regulation of building societies, friendly societies and other financial mutuals arising from the inquiry by the all-party group on building societies and financial mutuals, to which my hon. Friend the Member for Nottingham East (Chris Leslie) referred, was that regulators did not put enough time and effort into understanding the mutuals market and that this simple amendment will help to prevent a repeat of that scenario?
Mr Cash
It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.
I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.
Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.
Mr Cash
The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.
Mr Love
It is a great pleasure to follow the hon. Member for Stone (Mr Cash), whose strictures I shall try to address. First, however, I want to appeal to the Minister, who, I know, is personally sympathetic to mutuals: this will be a modest contribution that tries to reflect his own coalition manifesto commitment to foster diversity and promote mutuals. In answer to the hon. Member for Wycombe (Steve Baker), I say that the amendment seeks to do that by trying to measure the strength and complexity of the mutual movement using the regulator.
No one has said why we would want to foster diversity and promote mutuals. I want to address that question, because it goes to the crux of what the hon. Member for Stone talked about. First, members benefit greatly from membership of mutuals. The tables of the best savings rates or lowest mortgage rates are populated by mutuals, which provide basic but risk-averse financial services—exactly what the ordinary consumer is looking for. Of course, the reason they can provide such services is that they do not have any shareholders and, therefore, no demands for dividends each year, allowing them to deliver their services efficiently.
Perhaps even more importantly, mutuals provide a consumer benefit by offering a competitive spur in the marketplace. The hon. Member for Stone says he believes in capitalism. I believe in a market system, and competition is a very good spur, and that is exactly what the mutual movement provides. The reduction in the number of building societies has meant that they have not been able to provide a stronger spur, which provides another reason for the amendment.
Mutuals provide choice in financial services. Does someone want a mutual member benefit or to contribute to shareholder value? People will make that choice in all sorts of ways, for all sorts of reasons, but it is important in a marketplace to have choice. We are confident that people will choose mutuals, because all the studies and polling of consumers of financial service show that mutuals are more popular and, perhaps more importantly, more trusted than their plc rivals. That is a very important consideration.
Why move the amendment now, other than to reflect the coalition agreement? Currently, the marketplace is dominated by the plc model, which is unhealthy. We all know what happened in the lead-up to 2007 and 2008: heightened risk, and the search for yield followed by the credit crunch. I am not suggesting that the Government are not taking steps, including in this Bill and forthcoming legislation this Session, to address some of these problems. I am saying that there developed a monoculture—group-think—in which everybody thought exactly the same. We need to avoid that. This modest amendment will help us to do so.
The amendment will also address the danger of the one-size-fits-all attitude displayed in recent years by the regulator, who did not deal effectively with life funds for friendly societies and mutual insurers. At the heart of the ongoing dispute is the failure to understand the essential difference between a mutual and a plc. The amendment would go some way to address that. The regulator now admits that the Financial Services Compensation Scheme, which was introduced some years ago, got it wrong by basing what each organisation had to pay on deposits, discriminating directly against building societies. There was no understanding or empathy in the regulator to address the issue. The Minister will say to me, “But the FSA has now updated its regulatory role. It’s opened a department to deal with these specific matters.” That is all to be welcomed; however, I hope that the Government will welcome this amendment, which represents a small step towards creating greater understanding and trust in the regulator’s dealings on these matters.
Mark Durkan
I had not originally intended to speak to this amendment, as time is tight and we need to make progress. I have also dealt with some of the points in interventions.
The Government say that they are committed. This Bill gives them an opportunity to go a bit further on that commitment. That is what the amendment offers them. The Government have said that they want to encourage mutualisation. I have heard Ministers talk about the damage done by the rampant trend towards demutualisation in the past—they have blamed that on others, as well as perhaps accepting some blame on behalf of a previous Government. However, clause 47 is a permissive clause, and there is good cause for saying that if the Treasury amends legislation dealing with mutuals—let us remember that we are talking about industrial and provident societies, building societies, credit unions and friendly societies—and if it transfers functions to the FCA, the PRA or both, given that the clause provides that functions can be transferred between different bodies, the Treasury should, in making those arrangements and exercising those powers, have regard to ensuring that someone can measure the size of the mutual sector overall and show progress where that is relevant. That is what the amendment would provide for. Such information will be relevant for Parliament’s interests and purposes—I am sure that future Treasury Committees will want to know what is happening and who is responsible for measuring such things, rather than relying on the market players. The information will also be hugely important for consumers, because if, as the hon. Member for Stone (Mr Cash) said, we are to encourage more people to have confidence in this option, then the more people we can show are using it successfully, the better.
When the hon. Gentleman suggested that the mutual sector would, by its nature and character, not need detailed regulation and legislation, it occurred to me that he was going off in a different direction. Given the experience that some of us had with the Presbyterian Mutual Society and others, I can say that mutuals do need to be regulated by their nature, so that people can be sure that they are living up to the good name that they properly have. Consumers embrace mutuals on the basis of that confidence. They need to be able to rely on the fact that legislators have put in place a regulatory system to ensure that what they are getting is what they think they are getting.
Mr Cash
I would not want the hon. Gentleman to misunderstand what I meant. It is not that I do not think that there should be a degree of regulation. Rather, I am concerned about over-regulation to the point where the purposes of mutuals, as with so many other sectors of society, are sucked out by a vast amount of oppressive legislation, which is so bureaucratic and impossible for people to understand that they cannot see the wood for the trees. The whole objective of the mutual arrangement is that it is very much a personal relationship in a society to enable people to benefit one another.
Mark Durkan
I thank the hon. Gentleman for that clarification. That brings us to the point that we go through all this complicated legislation, with all this complicated jargon, to try to give consumers confidence that a regulatory regime is policing these matters for them, so that they know that the people they are entrusting with their money—their savings and so on—are performing to a due and proper standard. I would not want the House to create a situation where people felt that mutuals were, by their nature, less safe and less regulated, because non-mutuals would use that on a predatory basis in their marketing.
Business and the Economy
William Cash Excerpts(11 years, 12 months ago)
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Vince Cable
Yes, and this is one of the big success stories. I understand that since the Government came in, half a million apprentices have now been trained through this process, which is 63% growth in an area where we made a major commitment, even in the context of necessarily declining public expenditure.
My hon. Friend’s first point leads on to my comment on the reform Bill, which contains a wide-ranging package of measures to overhaul the competition framework to support dynamic markets, to scrap unnecessary bureaucracy that is holding back companies, and to boost business and consumer confidence.
Mr William Cash (Stone) (Con)
We have been here before. We have heard about enterprise and regulatory reform Bills and all the like. Will the Secretary of State categorically assure us that he will arrange in the Bill for the overriding of that European legislation that imposes an impossible burden on small and medium-sized businesses? He knows it, the Government know it, promises have been made, and the Prime Minister said that he regarded it as an imperative necessity. Will the Secretary of State please get on with it?
Vince Cable
I think that I can deliver the spirit if not the letter of the hon. Gentleman’s intervention. I do not think that we can override European legislation in quite that way, but I do agree that there is a lot of unnecessary and burdensome European regulation, and I am working with what we call like-minded Ministers in other European Governments to get rid of it as much as possible.
Mr William Cash (Stone) (Con)
The Queen’s Speech has not been universally well received in the press—we saw that yesterday—or by the electorate. However, I want to concentrate on the broader landscape, and on the question of what is at the root of the problem that we face today. It is partly the level of debt. We are not really telling the British people the truth about that, as my right hon. Friend the Member for Wokingham (Mr Redwood) and I, as well as others, said repeatedly before the general election. If we include pension funds, Network Rail and all the rest, the level of debt is probably about three trillion pounds. That debt has to be serviced, and finding the money to pay for it presents an enormous challenge.
The second point that I want to make is that this is not just a question of austerity or no austerity. Yes, we must be efficient and we must reduce public expenditure, but as I must have said a thousand times before the general election and on other occasions—and in a paper that I wrote only last year—the main issue is growth. I agree with earlier speakers who have pointed out that that growth must be demonstrably produced, and that cannot be done without a prescription. Small and medium-sized businesses must be given the oxygen that will enable them to provide employment and generate the revenues that pay for public expenditure.
Let us consider what is going on in the rest of Europe. Mr Hollande has just said that he does not want austerity and he does want growth, but the problem is that when he applies his test to austerity, he will not be able to secure growth. Let me say this to some of my friends on the other side of the Chamber. The fact is that employment regulations, the working time directive, paternity and maternity leaves and so forth have reached a point at which—in aggregate; I do not refer to any individual measure—they have strangled the small and medium-sized business environment of Europe which, in the real world, must compete with the Indias, the Chinas and the South Americas.
For practical purposes, we in this country must recognise that growth will come only from the generation of small and medium-sized businesses and a reduction in legislation. Yes, there is massive youth unemployment in other countries, but we cannot grow within a European Union which itself represents about 40% of our trade with those countries, and they cannot grow because they themselves were inhibited by the strangulation of small businesses, and also by the increase in legislation. As Chairman of the European Scrutiny Committee, I can assure the House that there is no stopping that; every week we are given pile after pile of it.
Another problem is caused by the treaties themselves, and by the whole construction of the economic governance. I ask Members on both sides of the House to try to see the broader landscape, and to recognise that this cannot go on. It is destroying not only our economy, but other economies throughout the European Union. This is not just about the amounts of bail-outs; it is about the reason for the bail-outs. This is the message: the reason for the bail-outs is the fact that there is no growth and no competitiveness. Young people are out of work because there is no means of giving them work.
We need a convention of the whole of Europe, at which the leaders of Europe sit down opposite each other and talk this through in a sensible, rational manner, admitting that what has gone wrong has to be remedied. Representatives of the national Parliaments must be present, too, and there must be a constructive dialogue about the kind of Europe we want, because at the moment it is heading for disaster.
In the meantime, we have to deal with our own immediate problem, which is that there is no growth in this country either, and there is the massive debt, and the deficit is not really being reduced at all. The Opposition’s criticisms are therefore justified in theory, but in practice they offer no remedy. I strongly believe that we should override the European legislation. I was disappointed in what the Secretary of State said in response to an intervention of mine, because it is essential that we kick-start our small and medium-sized businesses and reduce the burden of regulation.
In 2005, the current Prime Minister described it as an imperative necessity to repatriate powers. On 16 May 2006, I proposed an amendment to the Legislative and Regulatory Reform Bill that, notwithstanding the European Communities Act 1972, would have enabled us to override European legislation where necessary. Some 50 current Government Ministers—Conservative Ministers—supported my amendment. It was then “three-lined” in the House of Lords, and it was opposed by the current Deputy Prime Minister and the Lib Dems. No repatriation of powers is a suicide note for the British nation. That is the message. We have to deregulate; we have to give oxygen to the SMEs. That is in the national interest.
Section 5 of the European Communities (Amendment) Act 1993
William Cash Excerpts(12 years ago)
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Chris Leslie
We have a blinkered and, in many ways, deluded approach to austerity—or über-austerity, as some might characterise it—which is hurting not only in the eurozone but here as well. What angers many people is that the Government’s approach to helping the eurozone out of its difficulties is to throw money at it. Technically, that money is going to the International Monetary Fund, but everyone knows that it is all about eurozone bail-out funds. We are giving a further £10 billion loan, even though the Americans and the Canadians are all saying that we should stand firm and negotiate with the wealthy eurozone countries, including Germany, and make them dip deeper into their own pockets. If they do not do that, and if Britain, China, America and others provide the money, those eurozone countries will not do the deep, serious thinking that they need to do, and they will not take the consequences of their situation within the single currency. They will not put up a proper firewall, as they ought to do; they will not build what has been characterised as the “big bazooka”.
That is why we have consistently expressed our scepticism about the Chancellor’s decision to cave in and give extra resources—British taxpayers’ money—to the IMF, which we all know is going to be used for that particular purpose. We like the IMF for its work with other countries in the developing world, and of course we want a strong IMF, but we should not be letting those wealthy eurozone countries off the hook. They need to confront those issues.
Mr William Cash (Stone) (Con)
I apologise for coming in late, but I have just got off the plane from Denmark where I was meeting the chairmen of the scrutiny committees of all the other national Parliaments of the European Union. We have recently witnessed the resignation of the Dutch Government and the consequences of the French elections. Would the House be interested to know that there is deep disquiet behind the scenes throughout the whole of Europe, as I discovered through speaking to those chairmen in the last couple of days?
Chris Leslie
I am afraid that I am not surprised to hear that that is the case. The hon. Gentleman spends a great deal of time and effort monitoring how these issues progress. Personally, I feel we need to find ways of supporting and stabilising the situation in the eurozone, but I do not think that the Government’s strategy is the right way to do that. However, I digress.
Kelvin Hopkins
That is a problem for Ministers and local authorities, but it has been estimated that we need another 4.5 million homes over the next few years if we are going to house our people. However, I will not go into that now, because I want to talk about the European Union.
I do not agree with the Budget—I think we ought to have a different one—but even if it were a good Budget, I nevertheless do not think that we should necessarily be required formally to send it to the European Union. I say that because the motion before us refers to the European Communities (Amendment) Act 1993—the Maastricht Act—which, I am pleased to say, my party voted against. Indeed, some Government Members voted against it as well. It is the Act that requires us to send the report to the European Union. Personally, I do not feel bound by that, because my party voted against it, and I do not think it is sensible anyway.
However, let us return to the stability and growth pact, which, as I have suggested, is like building castles in the air. What stability? What growth? We have grotesque instability at the moment—terrifying instability, in fact—and absolutely no growth. Indeed, even the powerhouse economy of Germany has serious problems. There is talk of convergence, but who do we want to converge with? Greece? Portugal? Some of the countries that are actually contracting, with mass unemployment? In Spain there is even talk of unemployment rising to 6 million, which, as a proportion of the population, is the equivalent of 9 million in Britain. This is absolutely insane. I do not want to be “disable-ist” about this, but anybody running that economy must want their head examined, quite frankly.
Mr Cash
Given the hon. Gentleman’s important comment about the convergence criteria, does he accept that it is absolutely clear that what was thought would happen in 1993, when the Maastricht treaty went through, has gone completely off the wall, as we predicted at the time and as everybody now knows? The Prime Minister said recently that he thought there ought to have been a referendum on that treaty. Does the hon. Gentleman not agree, therefore, that there is a powerful case for having a referendum on the current situation with the euro and the eurozone?
Kelvin Hopkins
Indeed, and I think many of the peoples of the European countries that are now suffering would like a referendum as well. What I find difficult to understand is why so many people in the countries facing difficulties still support the euro. I do not know why, because supporting membership of the euro is almost like having a death wish. If only there were some courageous politicians who could say, “The way out of our problems is to recreate our own currency, depreciate it against the countries we’re competing with and reflate behind that barrier,” those countries would start to solve their problems. However, they cannot do it because they are tied into the euro.
We have collective deflation, right across the entire European Union, and although this country is perhaps tinkering round the edges compared with some other countries, that is entirely the wrong way to go. One thing that is causing us problems at the moment is that the eurozone is in such trouble that the euro is now weakening, which, by contrast, is strengthening sterling and making life more difficult for our manufacturers. That is causing problems in many ways. However, if there were a sensible, managed deconstruction of the euro, with the re-creation of national currencies in many, or possibly all, of those countries, thereby allowing them to reflate their economies, they would benefit, as would we, and the whole European Union would then start to work properly—as a group of democratic, independent nations co-operating voluntarily for mutual benefit, rather than something driven by people in central banks or people in Brussels in the Commission.
Mr Nuttall
I am most grateful, as I am sure are all Members, for that confirmation from the Minister. That answer raises the following question, however. No doubt many officials at the Treasury have been engaged in the preparation of this convergence document, spending many hours of precious time and energy on it, but why? What a complete waste of time! As was ascertained last year, anybody who is interested in this information could glean all of it from the internet, without any need to move any paper about. This is a complete, gigantic waste of time. It is a giant, paper-shuffling exercise.
Mr Cash
As someone who took a very active part in the Maastricht debates, I can say that this current debate is a case of déjà vu. As my hon. Friend said, we are being required to submit this report under the provisions of section 5, even though everything has changed and it is utterly impossible for us to set out to achieve the stated objective, because it is impossible for us, in the national interest, to attempt to apply the convergence criteria. The whole thing is a complete mess, which is why we need to have a referendum on the whole issue, including our relationship with the European Union.
Mr Nuttall
I entirely agree with my hon. Friend on both those points: first, this is a complete waste of time, and secondly, we certainly ought to have a referendum. That is not, of course, the matter before us tonight, however. Instead, this is the question under discussion tonight: what is the point of sending this document to Brussels?
The Minister admits that we pay no attention to what Brussels says to us, and that we govern our own affairs, so what is the point of producing this document? We should be honest with the people in Brussels and say, “Look, we’re not going to listen to you anyway. We’re independent in these matters, and we’re going to stop sending you this document every year.” It is a complete waste of time to send it this year—and I would be very interested to know what happened to last year’s document.
Mrs Anne Main (St Albans) (Con)
I just wish to contribute a few words at the end of this debate, which I have listened to with interest. I am extremely concerned, but not because we are having to justify our Budget. I think that our Government are doing absolutely the right thing in cutting back on the deficit left to us by the previous Government, putting our house in order and putting the public first. That is where I would like to be: putting the public first. I do not wish there to be any consideration of whether Europe agrees that we are putting our public first or that we are putting European issues first. The European issues must be sorted out in Europe, among the people there. I do not feel that, as a sovereign Parliament, we should have to submit our Budget, regardless of whether the Opposition oppose or agree with it. It is up to us to decide the best for the British people and deliver the best for the British people—whether or not that causes “convergence” is neither here nor there.
The convergence that was perhaps envisaged in 1993 is not a route we would even want to go down now. As my hon. Friend the Member for Bury North (Mr Nuttall) said, we are not sure what we are trying to converge with. I do not know why we are submitting documents that have the word “convergence” on the front of them, unless people are giving us marks out of 10 for converging with something.
Mr William Cash (Stone) (Con)
I simply wish to say that I thought that my hon. Friend the Member for Bury North (Mr Nuttall) really put his finger on it. He told us exactly what the position is with regard to which paper we were considering and he identified the questions that needed to be asked, as did my hon. Friend the Member for St Albans (Mrs Main). This is about whether that treaty that we entered into all those years ago, after all that contention, has or has not done its work. It has failed, and it has failed not only this country but Europe as a whole. That is why we need to vote against the motion; this motion makes an assumption that this treaty is still alive. It is as dead as a parrot.
Mr Deputy Speaker (Mr Lindsay Hoyle)
That must be the shortest speech that Mr Cash has made.
Question put.
Amendment of the Law
William Cash Excerpts(12 years, 1 month ago)
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Mr William Cash (Stone) (Con)
I welcome many aspects of the Conservative parts of this Budget, including its emphasis on the need to encourage small businesses, enterprise and research and development, and its encouragement of economic growth, which is the key to everything. I welcome the simpler cash accounts system, which will bring significant benefits to small businesses, and the R and D tax credit system, as well as the seed investment programme for start-ups, which is very important. The patent box arrangements will be very useful, too, as will the proposals for young enterprise loans. Indeed, I recently attended an event in my constituency at which young people from Alleyne’s school in Stone were selling produce, based on proper commercial principles. They were learning key enterprise skills, therefore, and it would be wonderful if they could have access to some loans as well, to enable them to continue in that virtuous direction.
I welcome the reductions in corporation tax. In fact, I believe we should aim to reduce it to 15% by 2020, as the Institute of Directors proposes. I also approve of the proposals to reorganise personal allowances. That will be enormously beneficial to many people. However, despite the statements made this morning, I remain slightly concerned about the situation of pensioners. I am not yet convinced on that issue, so I think we shall have to tease it out during our deliberations on the Finance Bill.
I remain deeply worried about fuel duty. I do not think we should increase it at all. At least £31 billion comes into the Exchequer as a result of that duty, and 60% of the price at the pump is represented by taxation. Therefore, more positive policies were required. I would have liked fuel duty to have been reduced, and certainly not increased.
There will be no economic growth unless we have proper private enterprise, as that is what pays for every penny received by the public sector. There is no money except for what comes from reasonably taxed private enterprise. We must therefore ensure that we are truly competitive, and if that requires reducing our tax rates, that is the direction in which we must go.
I am deeply concerned about the failure to deal with the problem of over-regulation. I have read the Red Book, and it does not fill me with a great deal of confidence. On page 43, under the heading “Exports and inward investment”, there are a few comments about export finance. The next heading on that page is:
“Making the UK the best place in Europe to start, finance and grow a business”.
Mr Cash
My hon. Friend anticipates what I was about to say: the UK should be the best place for businesses in the entire world, not just Europe.
That is very important. Especially given the current eurozone crisis, we cannot carry on kidding ourselves that our future depends on our trade with Europe. It is an important part of our trading relationships, but it is a failing part. Our balance of payments figures show that in just one year the deficit in our trade with the other European Union member states has risen from £14 billion to £46 billion. I understand the figures will be revised on 28 March. I trust the figures for 2010-11 will not show that the deficit is worse still.
The previous Government put all their eggs in the European basket. This Government, to their credit, are beginning to refocus their trading relations with the rest of the world. We have a monumental opportunity to be able to get that straight in terms of—
Remuneration of EU Staff
William Cash Excerpts(12 years, 2 months ago)
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The Economic Secretary to the Treasury (Miss Chloe Smith)
I beg to move,
That this House takes note of European Union Documents No. 17625/11 and Addendum, relating to a draft Regulation adjusting, from 1 July 2011, the rate of contribution to the pension scheme of officials and other servants of the European Union and a Commission staff working paper: Eurostat report on the 2011 update of the 2010 actuarial assessment of the Pension Scheme for European Officials, and No. 17627/11, a Commission Communication to the Council providing supplementary information on the Commission report on the Exception Clause of 13 July 2011; questions the European Commission’s conclusion that recent and challenging economic conditions do not warrant application of the Exception Clause; regrets that the Commission has not modified the salary adjustment method this year; stresses that consequent increases in EU staff pay, proposed by the Commission, are completely unacceptable when as part of its fiscal consolidation plans the Government has imposed restraints on public sector pay; notes that the framework for setting EU remuneration requires reform to increase Member States’ oversight and control, which the ongoing review of the EU Staff Regulations may enable; and commits to achieve very significant reductions in EU administrative spending in the next Multiannual Financial Framework as part of the UK’s overarching goal to impose real budgetary restraint.
I welcome the opportunity to discuss the 2011 EU salary adjustment and the Government’s agenda to reform and reduce EU administrative spending. The House is familiar with the context for EU spending: while Europe’s economy remains very fragile, delivering and supporting plans to consolidate public finances remains crucial and, at the same time, we must also seek to promote growth using available resources.
There are two clear implications for the EU budget. First, the EU must live within its means; high spending is not the way to fix Europe’s problems. Secondly, all EU spending must deliver the highest added value. Strict and rigorous prioritisation is necessary to reduce waste and inefficiency.
Over the past few years, the Government have worked hard to establish a new framework for budget discipline at EU level. That is an important task because current EU spending targets, agreed by the previous Government, set a rising trajectory for EU spending to 2013 that is no longer realistic.
We have pursued our goal with considerable success. For 2011, growth in EU spending was limited to 2.91%, far below the unacceptable 6% increase demanded by the Commission and European Parliament, and last year, the 2012 EU budget was set at only 2.02% above the original 2011 budget, exactly as proposed by the European Council in July. That delivered on the Prime Minister’s determination to freeze the EU budget in real terms, and set spending €4 billion below the level advocated by the European Parliament.
A drive to limit EU administrative savings is a key plank of the Government’s approach to budgetary restraint at EU level. It reflects the tough domestic measures the Government are taking to find savings. As set out in the spending review, the administrative budgets of central Whitehall Departments will be reduced by 34%, saving £5.9 billion a year by 2014-15 so that resources can be focused on front-line services.
The EU should show a similar drive to find efficiency savings. Any suggestion of waste in the EU budget damages the standing of the EU institutions and of the EU as a whole. Its ambition, however, is evidently lacking. Strikingly, for 2012 the Commission proposed to save only €695, much less than one 1,000th of its €3.3 billion budget. We are clear, however, that the EU institutions must manage themselves and the programmes that they help to manage far better and on lower budgets. We have called for a cash freeze in EU administrative spending in recent annual budget negotiations and we want to see cash cuts in that area over the next multi-annual financial framework.
Today, I can inform the House that the Chancellor took the unprecedented step of voting against discharging the accounts for the 2010 EU budget. We have not seen enough progress in reducing the level of errors in EU transactions, which is unacceptable. We should remember that national taxpayers stand behind the EU budget and that is why we have clearly signalled the need for important and urgent improvements to the quality of EU financial management.
Mr William Cash (Stone) (Con)
I am sorry to intervene on the Minister because of the effects of her unfortunate accident, but is there a blocking minority against the proposals and has it been exercised? May I ask whether we are not only voting against it, but have voted against it, and what the outcome was?
Miss Smith
I think I will cover all those points in my speech, although I am grateful to my extremely well-informed hon. Friend for his prompt to do so.
Let me turn now to the 2011 EU salary adjustment. The Commission’s attitude towards EU staff pay adjustments is another clear indication of its estrangement from reality. In the UK, the public sector pay bill makes up more than half of departmental resource spending, so action on pay is inevitably part of the Government’s fiscal consolidation strategy. Accordingly, the Government have announced a two-year public sector pay freeze for those earning above £21,000, with pay awards following that averaging only 1%. Those measures are estimated to save around £3.3 billion a year by 2014-15.
At EU level, on the contrary, staff remunerations counted for 69% of the Commission’s budget in 2011, which means that EU annual salary adjustments have important implications for the size of EU administrative costs. However, rather than taking action to reduce its wage bill the Commission proposed to increase it by 1.7%, representing an extra €39 million, in the year from July 2011, despite the fact that the vast majority of EU officials earn significantly more than most public officials in the UK and many other member states.
I turn now to the position of the UK and the Council. Clearly, any pay increase for EU staff is unacceptable. In conjunction with other member states, the Government called on the Commission to lower its proposals, taking into account the economic situation and the policy measures in many member states to curb public wage bills. The request was made not once but twice, first in December 2010 and again in November 2011. The requests were made by invoking the so-called exception clause—article 10 of the 11th annex to the EU staff regulations—the only means for seeking to alter the mechanistic salary adjustment process under the current system.
Each time, the Commission has stubbornly refused to reduce growth in EU staff pay. Its defence for its inaction has been internally inconsistent, self-serving and, as the European Scrutiny Committee observed, one-sided. By claiming that there has been no
“sudden and serious deterioration in the economic and social situation”
in the EU, the Commission has undertaken faulty analysis. For example, it based its rosy evaluation on forecast indicators that did not pertain to the period defined for its assessment.
More seriously, the Commission ignored the huge number of important fiscal consolidation measures adopted and implemented by member states during the period under review. The Commission itself has strongly advocated such measures, yet incredibly it used stabilising debt and deficit levels to justify higher pay for its own staff.
Most seriously of all, the Commission has manipulated the current system to deprive member states of the opportunity to evaluate the situation independently and to adopt appropriate measures, at a time when it is evident to us all that taking immediate action to curb growth in EU staff pay is the right thing to do. That is why the UK and the wider Council rejected the 1.7% pay increase in December. It is also why we have blocked reductions in EU staff contribution rates to their pension scheme. In addition, the Council has lodged a court case against the Commission for mishandling the 2011 salary adjustment.
The Council’s decision to proceed with legal action against the Commission indicates the seriousness with which we treat the issue. Should the Council lose the case, it will simply add weight to our view that the current process is defunct and cannot adapt properly to difficult economic circumstances. In any event, reform of the salary adjustment system is urgent. The ongoing review of the EU staff regulations, which set out the rules in this area, provides an important opportunity to make that happen.
Delivering a subtler and more responsive way of setting EU staff pay, which empowers the Council to make suitable adjustments in times of economic distress and more generally, is an important objective. One part of the Government’s broader agenda to achieve efficiency gains and financial savings in the EU budget is via reform of the staff regulations that determine such a high level of the EU’s administrative budget.
Overall, the potential for savings is high. This dossier is subject to qualified majority voting and co-decision with the European Parliament. Our success will depend on building firm alliances, so the Government are already working closely with other member states to agree cost- saving ideas that can command broad support in Council.
Cathy Jamieson
I had better not incur the wrath of the Speaker by commenting, other than to congratulate those MPs who were able to take part. I note that, apart from my hon. Friend, none of them is here to participate in the debate. Perhaps they are recovering.
I begin by thanking the European Scrutiny Committee for recommending this for debate on the Floor of the House and for the work it has done in scrutinising these documents. European institutions can sometimes seem remote and impenetrable, but as we are aware, the workings of the EU in general, and of the Commission, have a significant impact on a range of issues that affect us all. We also know that the EU produces a huge volume of documents, and members of the European Scrutiny Committee do us a service by examining a number of those in detail, and recommending debate on the Floor of the House where there are further questions for the Government to consider.
The Committee’s reason for drawing attention to these documents relates to a number of specific concerns: first, the process that has led us to the position where once again we might see a legal battle between the Commission and the Council in the European Court of Justice; secondly, the Commission’s view that there was no justification for invoking the exception clause; and thirdly, questions about what action the Government have taken, and will take, regarding the negotiations on the amendment of Annex XI.
As the European Scrutiny Committee recognised, the documents are technical in content, but they nevertheless raise issues of far greater political importance. In properly scrutinising these documents, it is important to understand their background and history. The Minister has already covered some of that territory and I will not seek to repeat it. However, it is worth highlighting some of the context again, because it is entirely linked to the wider economic situation we face.
In less difficult financial times such documents, which essentially put in place the necessary paperwork for salary upgrading, might have passed, if not entirely unnoticed—the Scrutiny Committee would always have had an eye on them—at least without significant comment, except from Members who view anything to do with Europe as by its nature a bad thing. I do not take that view, but we are in a climate where there is justified anger at excessive pay, outrage at bankers’ bonuses and a general feeling that staff who are already highly paid should not get extra rewards simply for doing their job properly.
Mr Cash
Is there not a further point on economic performance arising from the hon. Lady’s comments? The calculations being made are based on the assumption that there is reasonable growth in the European Union, which simply is not the case. It falls on economic as well as legal grounds.
Cathy Jamieson
The hon. Gentleman makes a useful point that I will address in greater detail later.
Being somewhat older than the Minister, I can recall the days when the so-called Eurocrats were high on the hit list of public anger, as salaries and conditions in European institutions were perceived to be far more generous than those enjoyed at home. Some of the most highly paid officials might be relieved that they are no longer the focus of that anger as bankers and others have taken over. However, the subject of EU salaries and pensions remains important. As the European Scrutiny Committee has highlighted, it is clear that this subject needs greater clarity and resolution. As we have heard, the Commission took the Council to the Court over EU salaries and pensions in 2009, and only last month it announced its intention to do so again. In advance of today’s debate, I asked the House of Commons Library about the costs involved in the last case. I was told:
“There is no straightforward way of getting a figure for the costs borne by the Council in Case C-40/10.”
I was also told that the Library had attempted to obtain information, but the Court had said that
“replying would be a massive undertaking that will require all sorts of cost allocation analyses (within the Commission’s legal service and the European Court of Justice), at great expense to European taxpayers”.
The Court might be unable to tell us exactly how much that wrangling cost, but it is clear that any legal fight will have come at great expense to the taxpayer. The questions that taxpayers will no doubt ask is whether that ping-pong between the Commission and the Council is really the best way to resolve such matters, and I was pleased to hear the Minister refer to that. However, taxpayers will want to know exactly what the Government have done in the past year to push for reform so that we are not faced with this annual tit for tat and ongoing uncertainty.
The second area of major concern for the European Scrutiny Committee was the Commission’s decision not to provide for an alternative salary adjustment in its 2011 report and the basis on which that decision was taken. Members of the Scrutiny Committee amplified their concerns in the conclusions of their report of 2 November by describing the assessment required of the Commission in considering the exception clause as appearing to be a one-sided exercise.
There are different opinions on Europe across the political parties, and indeed within them, but there is one thing that I am sure we can agree on: times are now tough across Europe. GDP fell throughout Europe at the end of the previous quarter, unemployment in the eurozone is at a record high and we continue to face uncertainty surrounding the eurozone crisis. In reality, apart from those at the very top, people in work in both the public and private sectors are already experiencing those tough times, and families are bearing the brunt. Every day we hear that small business are struggling, and they consistently report that they cannot get the finance that they need or, indeed, previously had. It is becoming harder and harder for people to buy their first home, with the deposits required now out of reach for many young people starting out in family life.
Yet, despite that wider economic climate, the Commission did not deem the general economic outlook in Europe to be an “extraordinary situation” as defined by the European Court of Justice. Try to explain that to the low-paid couple who are set to lose about £4,000 in working tax credits when they hear that a highly paid official could gain an extra £4,000 under the proposals.
If we are not in an extraordinary economic situation, what would make for one? We have to question why it is deemed correct to ask hundreds of thousands of public sector workers in the UK and throughout Europe to take the hit and to face a cap in their pay and an uncertain future, while no similar restraint is shown by the EU institutions.
Another part of the problem is that, owing to the structure of the current arrangement, annual adjustments are implemented across the board irrespective of salary levels, meaning that a high earner who is already on £200,000 will receive thousands of pounds more under the proposals.
The Opposition have made it clear that financial discipline in the public and private sector must be accompanied by fairness, and in terms of salary scales, just as at home, we must be tougher on those at the top to help protect those at the bottom. Have the Government made representations on that point during any part of the negotiations?
I agree with the European Scrutiny Committee that the process smacks of being one-sided, and it could be argued that the Commission’s conclusion that we do not face extraordinary times has made a mockery of the exception clause, so urgent reform is clearly needed.
That brings me to my next point, and the Committee’s third area of concern: the Government’s action and representations on the issue. We hear a lot from the Government, as we have again today, about them taking a tough position on EU administrative expenditure and wanting to see real budgetary restraint in the EU over the coming years. They spell that out in their memorandum on the subject, and they go on to express dissatisfaction with the substance and procedure of the salary and pension adjustment proposals, making the point that the formal proposals were first circulated only on 24 November 2011 but required Council approval by the end of the year.
Again today, although we have heard a great deal about the facts of the situation, we have not heard in detail how the Government intend that tough position to manifest itself, or who exactly they are going to be tough on. The fear and worry for many will be that this is just another example of talk but not necessarily action on Europe by the Government, so I should like to hear from the Minister how the Government expect to take the lead in talks on reform at a time when the UK’s political capital in Europe is at its lowest in a generation.
In recent months we have seen how the Prime Minister’s actions have left Britain somewhat isolated in Europe, because leading up to last December’s summit he did not appear to put any real effort into alliance building.
Mr William Cash (Stone) (Con)
I am in the unusual position of largely agreeing with not only my own party’s Front Benchers—that is always a great pleasure, if something of a rarity in European affairs—but, as it happens, the Opposition spokesman. This is a very important debate, because it indicates what is going on in the European Union. There is a complete cloud cuckoo land, which I observed when I went to the multi-annual surveillance framework meeting a few months ago.
Mr Cash
I am glad that my right hon. Friend is nodding vigorously, because it was simply staggering. There we were, faced with a huge European financial crisis, and all people were doing was getting up, one after another, and demanding more and more money.
There is so much common ground in the House that I am happy to be brief and allow my hon. Friends to explain their points of view and concerns. I am conscious of the fact that I have had quite a few opportunities to do so. However, I wish to point out that my right hon. Friend the Prime Minister recently signed a joint letter with Mr Rajoy, the Prime Minister of Spain, and other EU leaders. It is also signed by the Prime Ministers of a number of Nordic and Baltic countries, together with the Polish Prime Minister. It is about building up a sense of alliance, and it is reported in today’s Financial Times under the headline, “Cameron steps up moves to rebuild links with Europe”. I trust that that is being done on an entirely realistic basis.
For example, to return to the point that I made to the Economic Secretary, I hope that the group getting a blocking minority and voting consistently against the measures in question will include a sufficient number of member states to ensure that the Commission cannot get away with what is no more or less than the manipulation of the rather arcane formulae contained in the regulations. The European Scrutiny Committee is deeply concerned about the situation, as other Members will be.
I entirely agree that the European Commission’s analysis is faulty, and it is also completely out of date, to say the very least. I am being rather generous in saying that, because it has fitted the facts to what it wants to hear. That is why the Committee describes what it has done as “self-serving”. As my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) said, there is also the problem that the Commission is the judge and jury in its own case.
We must also consider what we might expect to get from the European Court of Justice. Serious questions often arise about whether many of its decisions are taken on too much of a political basis rather than a strictly juridical one.
Mark Reckless
On a recent visit to Brussels, I had the pleasure of meeting the civil servant who negotiated the package in question. He was absolutely up front in saying to me that his role was to do the best for his colleagues. Having done that so successfully, he was promoted. What more do we need to know to see that the EU is run for the benefit not of its members but of its staff?
Mr Cash
Indeed, and that is far too much of an endemic problem throughout the EU. We know about the case of Marta Andreasen, who was one of the chief accounting officers in the EU some time ago and had the temerity to challenge the basis on which its administration in the Court of Auditors was being run. She was sacked. Before that, there was Bernard Connolly. I am given to understand today that in Greece the chief representative for EUROSTAT, who has to operate within its regulations, is under siege and under incredible personal pressure, and may even be taken to court because he has taken unpopular decisions.
The problem lies in the idea of acting as judge and jury and being self-serving when the whole of Europe is in a state of complete crisis. People are, frankly, lining their own pockets at public expense at a time when we know, because we have just had our letters from the Independent Parliamentary Standards Authority, that we are not going to be given an increase, any more than are the civil servants and so forth. The disparity between what is going on in the European Union and what is going on in the domestic administration of this country is so glaringly obvious that we have every reason as a Parliament not only to debate the issue but really to put our foot down.
How are the Government approaching the negotiations on annex 11 of the staff regulations, which deals with annual salary adjustments? It strikes our Committee that the procedure by which the exception clause is invoked is tantamount to a breach of natural justice, as the Commission, in effect, decides whether it should freeze the salaries of its own staff. I would be grateful if the Minister explained how she would like this procedure to be amended.
Bob Stewart (Beckenham) (Con)
Would it not be natural justice for European bureaucrats to have exactly the same conditions as our own civil service, with no additional money being paid by this country for them to get an add-on to their salaries?
Connecting Europe Facility
William Cash Excerpts(12 years, 3 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That this House takes note of European Union Documents No. 16176/11 and Addenda 1 and 2, No. 16499/11, No. 16006/11 and Addenda 1 and 2, No. 15629/11 and Addenda 1 to 35, No. 15813/11 and Addenda 1 and 2, relating to the European Commission’s draft regulations on the Connecting Europe Facility in the next Multiannual Financial Framework 2014-20; supports the Government’s view that at a time of ongoing economic fragility in Europe and tight constraints on domestic public spending, the Commission’s proposal for substantial increases in EU spending in this area compared with current spend is unacceptable and incompatible with the tough decisions being taken to bring deficits under control in both the UK and countries across Europe; considers that spending in this area should focus on identifying and providing genuine EU-added value, and not on spending where domestic governments and the market are better placed to act; and further supports the Government’s ongoing efforts to reduce both the Commission’s proposed budget for the Connecting Europe Facility and the overall level of spending in the next Multiannual Financial Framework 2014-20.
The European Commission’s proposal for a connecting Europe facility for transport, energy and telecommunications infrastructure cuts across the work of Government. I am therefore grateful that I have been joined in the Chamber by ministerial colleagues from the Department of Energy and Climate Change, the Department for Transport and the Department for Culture, Media and Sport, in putting forward the Government’s case on the motion.
Matters of deficits, spending and growth are at the top of all of our concerns, not just here in the UK, but across Europe. Those issues go to the very heart of the continued instability in the euro area. That ongoing instability vindicates the Government’s decision to get ahead of the curve, cut our deficit and impose strict financial discipline on our budget.
Mr William Cash (Stone) (Con)
Whereas many hon. Members will agree with the sentiment of the Government’s motion, the idea that we should contribute to the EU indirectly through the International Monetary Fund on the scale that is proposed is unacceptable.
Mr Hoban
My hon. Friend’s point is outside the topic of the debate this afternoon. He is aware of the Chancellor of the Exchequer’s comments and assurances on that matter.
As I have said, at home, we have taken tough decisions to tackle our deficit and demonstrated leadership. We expect exactly the same leadership on spending in Europe from the European Commission, but whether on the annual budget or the financial framework, such leadership has been completely lacking. Instead of finding ways to cut spending or to drive better value for money, the Commission, through the connecting Europe facility, proposes to increase spending on transport, energy infrastructure and telecommunications by 400% as part of a multi-annual financial framework that increases payments by more than €100 billion over its duration.
Just as at home, where we have prioritised spending on growth while tackling the deficit, the Government would like a higher proportion of a restrained EU budget spent to promote sustainable growth. The proposal does not achieve that objective. We are arguing that spending should be lower, and that what spending remains should be focused on areas that offer genuine added value across the EU.
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment (a), in line 5, leave out from ‘2014-20’ to end and add
‘believes that there should be no overall increase in expenditure compared with current levels; takes note of the concerns about the Eurozone economy expressed by Standard and Poor’s that “a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues”; calls on the European Commission to reduce its proposed budget and the proportion of the Multiannual Financial Framework set aside for the Common Agricultural Policy and to reorder the Connecting Europe Facility proposals to phase capital infrastructure components so that they enhance employment and economic growth within a more limited multi-year budget; supports action to promote EU competitiveness and review the impact of the structural funds; and calls on the Government to develop more effective deficit reduction strategies at home and across the EU by advocating urgently a credible plan for growth.’.
I am glad that the amendment has been selected, because the Government’s motion is missing a rather important component—something conspicuous by its absence. To give hon. Members a clue, it is a word missing not only from the motion but from our economy.
What problem do the Conservative party, and those very full Liberal Democrat Benches, have with the concept of economic growth? The lack of growth is the reason the Government say they have to borrow £158 billion more than planned last year. It helps to explain why in the three months to November unemployment was at its highest level since 1994; and, of course, it explains why business confidence has collapsed. The Government are either ignorant of the negative impact that an austerity obsession here and in Europe is having on the prospects for growth, or they are wilfully pulling the rug from underneath the economy in the twisted expectation that that will somehow restore confidence and deal with the sovereign debts created in the wake of the global financial crisis.
The European Commission’s plans before the House are revealing of the current approach to economic policy across Europe and of the Government’s lack of influence and lack of interest in showing a positive lead. We are all agreed on the need to reduce the planned budget for the multi-annual financial framework for the years until 2020, and we too believe that there should be no overall increase in expenditure when compared with current levels, but why are Ministers totally failing to make the case for a proper growth strategy in Europe with our main trading partners, with whom we need to do well if our exporters are to succeed?
Mr Cash
I am extremely interested in the shadow Minister’s approach to the question of growth. When Labour was in government, over several years I raised the question about lack of growth and the vast increase in indebtedness, but there was no response or attempt to deal with over-regulation—over-regulation being one of the main reasons we are not getting growth. Does he accept therefore that it is difficult to stomach any lectures from him on growth? I have criticisms of the failure on growth in Europe and in this country, but we certainly do not want any lectures from him and his team.
Chris Leslie
I hope that I am not striking a lecturing tone. I am simply imploring the Government to pull their finger out and do something about economic growth in the UK and Europe. I am making the point that what happens in Europe affects our economy. The regulatory debate did indeed go on for many years. The Minister himself called for deregulation and light-touch approaches across the City and elsewhere. We have to get regulation issues correct, and we all have lessons to learn from what went wrong in that regulatory debate. We have admitted that mistakes were made, but I am still waiting for the Minister to accept that he too made poor decisions in calling for deregulation, particularly in financial services.
Nothing in the Government’s motion seeks to steer the Commission towards a more activist role in boosting and stimulating European economies, particularly in the short term. There is no sense that the Government are seeking to influence this connecting Europe facility in order to re-phase capital investment and bring real help now to an economy on the brink. One-dimensional collective austerity, as advocated by our Government—and also, unfortunately, by the Germans and others—makes it harder to get deficits down, not easier to reduce public debt.
Hon. Members do not have to take my word for it. Six days ago, the credit ratings agency Standard & Poor’s, after downgrading the status of some eurozone nations, stated that
“a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues”.
Even the credit rating agencies are now worried about the lack of growth in the European economy and about whether the eurozone has the right strategy for building its way out of the fiscal hole in which it finds itself.
Mr William Cash (Stone) (Con)
The problem with this over-arching proposal is basically that it will be carried by qualified majority vote and is therefore, in effect, a form of taxation. Whatever proportion of that overall budget of £43.7 billion eventually falls on the United Kingdom, the Committee of which I have the honour to serve as Chairman believes that the scale of the Commission’s ambition for the 2014 to 2020 financial period is clearly unacceptable. On that basis, there is no doubt that the thrust of the Government’s motion is correct.
Although I happen to agree with the proposals on growth in the Opposition motion, the fact is that the Opposition are guilty of having severely restricted any opportunity for growth through the massive increase in public expenditure that they imposed on the United Kingdom. I and two or three other Conservative Members continually attacked that increase for the best part of three years and, as I repeatedly said at the time, there was no proposal for growth, which was connected to the problems of over-regulation, of which these proposals are yet another example.
The truth is that there should have been a full debate—there still may be opportunity for such a debate—on what is going wrong with the European Union as a whole. That debate is necessary because, as the Government have pointed out, the EU is calling on member states such as ourselves to produce more money for projects that could be better carried out under the so-called principle of subsidiarity at a national level.
At the same time, it is abundantly clear that there is no money in the European coffers. We should be debating the eurozone crisis as a whole in a three-hour debate on the Floor of the House, which my Committee has unanimously called on the Government to provide, but when I and my hon. Friends the Members for Gainsborough (Mr Leigh) and for Bury North (Mr Nuttall) repeated our calls this morning for a general debate it was denied by the Government, yet again.
Mr Cash
I certainly would. I endorse that course of action, and I would be grateful if the Whips on duty would pass that message to the Chief Whip—and, indeed, the Leader of the House—because we are faced with a monumental crisis in the European Union. That is only a symptom of the problem, which is generated by the intrinsic defects of the accumulated treaties, particularly since the Maastricht treaty in the 1990s.
So much is decided by qualified majority vote despite the fact that we currently face such severe restrictions and so much austerity, which is causing difficulties for our hospitals, schools, transport and so much else. Proportionality in respect of allocations is required. Getting that balance right is vital for our national interest. We should therefore have a debate on the Floor of the House, and not only on this one issue, important though it is.
I attended the multiannual financial meeting of about eight weeks ago as a member of the European Scrutiny Committee on behalf of the United Kingdom national Parliament, and I felt compelled to get up and complain bitterly about the complete “Alice in Wonderland” attitude that prevailed there. People were calling for an ever-greater increase in the amount of money that should be made available to the EU, and they were justifying that by reference to the Lisbon treaty, for example. They said that as the functions had grown, there ought to be more money. There is absolutely no recognition of the fact that there is simply not enough money to go around. We should be proceeding on the basis that we must reduce, rather than merely freeze, the budget.
The Government motion is right, therefore. However, we are facing demands from the financial transaction tax—I accept that we can veto that—and there are also attempts to stop our rebate and proposals to increase own-resources. Cumulatively, those moves are putting pressure on us to move in the wrong direction. There are great opportunities for the UK in a trading environment that is global—across the world, rather than just in the EU, important though that may be—and that is the direction we should be going in. All transport issues, including aviation policy and the development of our local infrastructure, should be taken by ourselves in the interests of the UK, rather than determined by QMV involving the other member states.
The European project is completely misconceived, and it is failing; the eurozone crisis will ultimately lead to collapse. The current situation is rather like the phoney war of 1938 and 1939: everybody knows the situation is doomed, but they are continuing to pretend that somehow something will turn up.
My message is that the Government motion is right in general, but that there is not enough determination to renegotiate the treaties. I welcome the veto, but once we cross the Rubicon, we cannot cross back. The reality is that any attempt to do so will meet with disaster, division and acrimony.
I am glad that we have had this debate, but there are also more important matters that must be debated as a matter of urgency. As I and my hon. Friends the Members for Gainsborough, for Wellingborough (Mr Bone), for Bury North and many others have said, we must have a proper debate on the extent, range and depth of the eurozone crisis and its impact on the UK.
We must also explore the other key issues facing us, such as why we are being confronted with QMV decisions to impose what is, in effect, a form of taxation to provide for certain facilities. Such decisions should be made on a bilateral national basis. It is not anti-European to say that is what we should do, because doing that is in the interests of Europe. What Europe is doing, however, is determinedly pursuing a completely false prospectus and then compounding that—sadly, with our Government in agreement, it appears—by proposing that we should find yet more devious means of providing money through the IMF to support what is an insupportable project. That simply flies in the face of common sense.
Banking Commission Report
William Cash Excerpts(12 years, 4 months ago)
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Mr Osborne
There are things that we have done and are doing now to make our banking system safer. Banks are required to hold more capital—more cushion—to protect them against losses, whether from sovereign debt or anything else. We regularly take part in pan-European stress tests, and actually the British banks pass those tests when other European banks do not. I think that that is because the British banking system is well capitalised and liquid.
We are also introducing a new system of regulation, which, as I say, will be operational in 2013; once the legislation has passed through the House of Commons, the Bank of England will be in charge. Furthermore, we are introducing the Vickers requirements over the next three and half years, until the general election at the end of this Parliament—we are getting all that legislation through as well. We are doing a huge amount to make the British banking system safer now, but also safer in future.
Mr William Cash (Stone) (Con)
To protect the City of London, will the Chancellor follow the example of the Prime Minister when he used the veto the other day? When necessary, will the Chancellor here in Westminster override European legislation to protect the taxpayer, the City of London and the United Kingdom?
Mr Osborne
We need legislation that works effectively for British banks across Europe; British banks have subsidiaries in other European countries. Actually, a single market in financial services would be a very good thing—and it is a good thing for this country, although we need to see it deepen. We also need to make sure that countries with very large banking systems, such as our own, are able to take national decisions that protect our banking systems. I am confident that we can secure agreement to that.
Eurozone Crisis
William Cash Excerpts(12 years, 5 months ago)
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Glyn Davies (Montgomeryshire) (Con)
Thank you, Mr Caton, for giving me the opportunity to contribute to what is probably the most important subject of debate that we will have during this Parliament. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate and on presenting his arguments in a challenging and clear way. I look forward to the Minister’s response to the points he has raised.
Most of my hon. Friend’s speech dealt with the financial aspects of the issue. My view, however, is that it is not possible to consider the issue without also looking at the wider context. Indeed, I raised that point when I intervened on him. The key concern for me and many others is that the euro is destroying democracy as we know it in western Europe. That was my main reason for opposing Britain’s entry to the euro when it was established.
I am not sure how many of the hon. Members present were involved, like me, in the 1975 campaign to leave the European Economic Community, but I think that some of us might have been—I can see one or two. At the beginning, we thought there was a chance that we would be successful, but in the end the argument that I supported was well beaten. I was not trained as an economist—or as anything really; I left school when I was 16 to be a farmer—but my argument was that the public’s gut instinct in those days was that we were creating a huge bureaucracy whereby the ability to influence decisions in our country was to be transferred somewhere where we would not have influence. That was the fundamental gut instinct that drove us to the “no” side.
When the eurozone was being established, I became involved in the opposition to it, which was unusual, because I was the chairman of the Agriculture and Rural Development Committee in the National Assembly for Wales and the agricultural community was fairly supportive of Britain joining the euro. I remember being dismissed on platforms as an extremist, but I was simply not in favour of Britain joining the euro. My argument was exactly the same as that which many people are making today—to create a successful eurozone almost certainly means financial union. Nobody has hidden that. In 1975, the purpose of many people who were behind the establishment of the EEC was that we would eventually move to political union in Europe. That was the small print. Today, I hear people saying that they thought we were joining an economic community, but that is not what I or a lot of other people thought.
Mr William Cash (Stone) (Con)
My hon. Friend is making an important point. Last night, the Prime Minister made a speech at the Guildhall in which he called for fundamental reform in the European Union, but it is not really just a question of fundamental reform in the EU, is it? What we have to have is a fundamental change in the relationship between the United Kingdom and the European Union, because it is a failed project. We have been enmeshed in it and it is increasingly causing damage to our own economy.
Glyn Davies
My hon. Friend has anticipated my next point, although I shall not use precisely the same language that he uses and has used for a long time—probably about 30 years. The Government’s policy, which I support, is that we should seek to repatriate powers from the European Union. That is easy to say, but for the Government to deliver that objective, the Prime Minister, Chancellor and Foreign Secretary have to have a way to do so. As Members of Parliament, we have a responsibility to think about exactly how we are going to do that. Which parts of European policy, precisely, do we wish to repatriate—whole blocks or just specific parts? The issue is hugely complex and a tremendous amount of work will have to be put in to enable it to be addressed.
We could speak for hours on the issue—I am sure that I could. A lot of Members want to speak. I have raised the points that I wanted to make and look forward to the Minister’s response.
Stephen Hammond (Wimbledon) (Con)
I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this debate. Like him, I spent some years in the City of London, in various institutions. I want to address three things. First, I want to look at the theoretical construction of the euro as it was set up. My hon. Friend talked about the various eurozone summits and why they failed to find a solution. The reality, of course, is that a theoretically implausible project means that any eurozone solution will not be practical. I also want to talk about some of the reactions, and conditions the International Monetary Fund might want to attach to its bail-out, and our interest in it.
The single market was much welcomed in terms of the encouragement of free trade, which then drove some people to the aspiration for a single currency. It was clear that those countries that were going to join would lose the basic levers of economic policy, namely taxation—that is, fiscal policy—as well as interest rates, exchange rates, protectionism and, indeed, unemployment. It was also clear to any undergraduate, or even A-level economist, that the reality was that a fudge might be possible in good times, but not in a recession. The opponents of that view pointed to optimal currency area theory, which showed that the transaction costs would be lessened and that everything would, therefore, be fine. In practical terms, however, we have seen a theoretical misconstruct. The euro was a misconstruct because it failed to recognise exactly what that theory says: for optimal currency area theory to work, the economies have to be homogeneous in nature or flexible in their arrangements, so that they can move to homogeneity, or a currency union needs to be established alongside a fiscal union at the same time; otherwise, the overwhelming point is that whatever is set up in terms of a single currency will fail.
On the economies that were in the eurozone when it began—the wealth of Germany, the emergence of Ireland and the agrarian underdevelopment of Portugal— surely the appropriate description is diverse rather than homogeneous. Moreover, if we look at the policy formulation since the currency has been in existence, we see that there has been no flexibility that would allow movement to a homogeneous economy. Unless we recognise that the project is flawed in theory and do something about the theoretical basis, we will never find a practical solution. It is not surprising that we have had 15 eurozone summits that have provided no solution whatever.
The absurd reactions of Europe’s senior eurocrats are also of extreme concern. They are preventing any serious discussion of a resolution. The basic premise at the moment is, “The euro must be saved, the euro must be saved, the euro must be saved.” Only last week, President Barroso said yet again that the euro should be the norm for Europe. He even denied the UK’s permanent right to opt out. The President of the European Council, Mr Rompuy, also made an extraordinary remark over the weekend when he suggested that, if the eurozone’s integrity was not preserved, the functionality of the internal market could not be taken for granted. That is an absurd proposition. First, we need only look at the history of how the single market functioned before the euro came into being. Secondly, a single market does not need a single currency, but I will not bother to go into the theoretical construct for that.
Mr Cash
Does my hon. Friend remember Madame Lagarde saying on 17 December 2010, when she was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs? The rules have been broken, and that relates to the stability and growth pact and every single aspect of this.
Stephen Hammond
My hon. Friend is right, and my hon. Friend the Member for Basildon and Billericay made exactly that point. I will not go on, but it seems simply ridiculous. If the eurocrats of Europe think that saving the euro is more important than working out the solution to the economic crisis, progress will be, at best, tortuous.
From a UK perspective we must be interested. The idea that we are not interested in what the IMF bail-out is—or, indeed, in the fact there is a eurozone crisis—is clearly wrong. The impact on the UK is extraordinary. We trade with the eurozone, and therefore have a significant interest. My hon. Friend the Member for Cities of London and Westminster (Mark Field) referred to the possibility of a default of Greek banks. It may or may not be true that we have little or no exposure to Greek banks—I think it is broadly true—but we have great exposure to banks that lend to Greece within the eurozone. That contraction of balance sheets will affect lending to small and medium-sized enterprises in the UK. Therefore, we must have that interest.
A basic and necessary precondition of what the IMF must say to the leaders of Europe is that they must recognise their wider international responsibilities. My hon. Friend also made the point about the Germans effectively wanting to control the eurozone, but not being prepared to accept the economic leadership that that implies by allowing the ECB to attempt to solve the liquidity crisis. We should extend money to the IMF, but I am realistic in accepting that, overall, that means the IMF would extend extra money to the eurozone. Any money that the IMF extends to the eurozone should be met with the precondition that the ECB becomes entirely independent and able to print money for the eurozone, or else it is bound to fail.
The IMF also needs, and almost certainly will accept, a necessary theoretical construction that provides a solution. The most likely solution is that we see a number of countries leave the eurozone—leave the euro—and some perhaps form a tighter unit. That being so, the IMF must stand up and say that it is prepared to fund the cost of dislocation for those leaving the eurozone, so that they have a chance to devalue, make the necessary adjustment to living standards and the necessary lowering of labour costs to allow a competitive solution.
Neil Carmichael
This Government’s real achievement is to address the deficit. They have set out a plan that is effective and encouraging markets to understand that we are taking the appropriate action. That is one of the benefits of being outside the euro, and we should focus more on that, rather than worrying about the benefits or otherwise of devaluation. I repeat for the last time that I do not think that devaluation is a panacea that we should be pursuing.
Neil Carmichael
One of the obvious pieces of evidence is that we are not talking about the IMF coming to bail us out—a huge achievement by the Government that should be recognised. We will have to move on from devaluation, but I think that I have made my point and others have attempted to make theirs.
Inflation would certainly help debt reduction, because it does in the long run. As I said in an intervention, when Denis Healey borrowed money from the IMF, that did arrest devaluation. We were more easily able to pay the IMF back quite quickly because of the impact of inflation. I do not support inflating the economy in that way either, as a remedy.