House of Commons Hansard Debates for 24 Mar 1993

(a) not less often than once in every six months, lay before Parliament a report stating what, if any, steps are being taken by the United Kingdom with a view to moving to the third stage, and (

(b) seek Parliamentary approval for any such steps as are being, or are proposed to be, taken with that objective in view.'.

New clause 56-- Convergence for economic and monetary union : reporting fulfilment--

In complying with the requirement to submit information under Article 103(3), Her Majesty's Government shall report annually to Parliament on the extent of its fulfilment of the criteria set out in Article 109j, and shall include within its reports a statement on the implementation of a programme to improve economic performance, including measures for investment and employment measures to realise the objectives of Article 2.'.

Amendment No. 82, new schedule :--

Second Stage for Achieving Economic and Monetary Union-- (1) Article 109e.

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(2) Article 109f.

(3) Protocol on the Statute of the European Monetary Institute.'.

Mr. Davies : The amendment mentions "Schedule". In this case the word "Schedule" refers to the second stage of economic and monetary union.

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes) : Order. I wish to hear what the hon. Gentleman has to say, but it is impossible if there is too much noise. Will those who are leaving please go quickly and quietly ?

Mr. Davies : Amendment No. 81 seeks to strike out the whole of the second stage of economic and monetary union, including the European monetary institute and the protocol related to it. Perhaps I may respectfully remind the Committee that this group of amendments deals with the transitional arrangements, with the second stage and the third stage, so it covers the whole of the process towards the final act of a single currency, if that should happen. Amendment No. 409 seeks to exclude the protocol on the convergence criteria which have to be achieved before a member state can enter stage 3. Amendments Nos. 38 and 381 deal with the balance of payments crisis and the power given to the Commission, within those stages, to control and supervise any action taken by a nation state in respect of that balance of payments crisis.

Although chapter 4 of the treaty of union on page 25 is headed "Transitional Provisions", it deals in the main with the second stage and then with the third stage.

Before I discuss those, perhaps I could clarify the legal position. I should like the Financial Secretary to answer some questions. Despite the fact that he has been up all night, he is bright-eyed and bushy-tailed, and I am sure that he will courteously seek to answer questions on the literal interpretation of the text, which is not easy to understand. I give him warning that I shall have to ask such questions.

I am glad to see the Attorney-General here. During most of the debates he has kept a watching brief. We have not had the benefit of his words, but he has looked wise, as Attorneys-General are apparently supposed to do. I shall try to set out the legal position as I understand it. Some of the amendments may be desirable from the Government's point of view, but they may not be necessary--to use the language of the Foreign Secretary or of the Attorney-General. Stage 2 of economic and monetary union imposes treaty obligations on us. We have not acquired an opt-in or an opt-out to stage 2, which is a treaty obligation. We are not supposed to refer to the gentlemen in the Box, and I do not know whether they are Foreign Office legal advisers, but I see that they agree with me. I am not sure whether that is worrying.

To return to the Attorney-General's helpful intervention on amendment No. 27, when he said in so many words--I should have thought that it was a fairly simple legal point--that if one has a treaty obligation, one must incorporate it into domestic law. The corollary is that, if one has no treaty obligation, one has nothing to incorporate into domestic law.

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According to the Government, amendment No. 27 did not create a treaty obligation, so nothing was put into domestic law ; thus, it did not really matter what one put into that law.

Stage 3 does not involve any treaty obligations. The Financial Secretary did not say so in so many words, but I am not criticising him. He does not have the courage of the Minister of State, who rushes into the legal arguments with great enthusiasm. Therefore, any amendments to stage 3 are not fundamental to the treaty. I mention that to Members on the Labour Front Bench, so that if they wish to be courageous on this occasion and to vote on an amendment relating to stage 3, they need not worry, because the treaty will be fine and can still be ratified. I think that the Attorney- General will confirm that that is correct. I want my hon. Friends on the Front Bench to be careful not to vote on stage 2 because it might badly hurt the treaty, which apparently the official Labour party supports.

First, I will deal with stage 2. On page 25, the first paragraph of article 109e states :

"The second stage for achieving economic and monetary union shall begin on 1 January 1994."

There is not much time. The treaty may or may not be ratified by then--who knows? No one knows what will happen in the Danish referendum, or in this House and the other place.

Even if the treaty is ratified by 1 August--let us give the Government some hope--there is not much time for the Financial Secretary, the Foreign Office and the Treasury to get their tackle in order, as we shall be straight into stage 2 of economic and monetary union, which is obligatory. We cannot plead the opt-out or the opt-in.

Article 109e continues by stating that even "Before that date"--presumably the date when every country has ratified--and the second stage "each Member State shall" do certain things. In paragraph 2(a) we are told that each member state shall adopt multiannual programmes. I suppose I know what multiannual programmes are--lots of programmes in one year, I take it. As this is Treasury stuff, I hope that the Financial Secretary will be able to tell us whether we are to embark on these multiannual programmes in the middle of this year. These are very important programmes.

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Mr. Rowlands : I see that the Financial Secretary is shaking his head, but the achievement of economic and monetary union must be the purpose of a multiannual programme.

Mr. Davies : I hope that the Financial Secretary was not indicating dissent. We do not know who is watching these debates. We do not know whether the Commission has a magic eye. We have heard in previous debates that member states must be careful, that they are not supposed to interfere with the Commission. Others may say what they like, but Ministers have to be careful. I hope that we shall be told that these multiannual programmes are starting. Otherwise, after the treaty has been ratified, the Government will be breaking one of the first articles. That would be a bad start.

Mr. George Howarth (Knowsley, North) : Which one?

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Mr. Davies : I shall try to answer my hon. Friend's question, and the Financial Secretary will no doubt provide clarification. In fact, it seems that he is going to do so now.

Mr. Dorrell : The Red Book is a multiannual programme. It was laid before the House on Budget day.

Mr. Davies : That is a multiannual programme, not just an annual programme?

Mr. Dorrell : Yes. A multiannual programme is one that publishes plans in respect of more than one year.

Mr. Davies : Now the Minister tells us. The Chancellor did not tell us, did he? I wondered why he was putting three Finance Bills into one, and three Budgets into one. They cover three years.

Mr. Spearing : Is my right hon. Friend aware that the words "multiannual programme" are used frequently by the European Community? The EC does not do this in relation to just one general matter of public expenditure, to which I think the Financial Secretary referred, but in relation to programme after programme, sometimes for five or six years ahead. It therefore commits expenditure well ahead of the annual budget. That is the way in which not only the multiannual programme but the whole budget commitment works, irrespective of future economic developments. This practice of our friends and neighbours across the channel has not been a major feature of the United Kingdom until recently.

Mr. Livingstone : Cannot the Government give us an explanation? What is the difference between this multiannual programme, about which they seem so happy, and the old five-year plans of Comrade Stalin, which they regarded as an appalling abuse of human rights which led to dictatorship? How can the Government prevent the multiannual programme from becoming a panoply of Stalinism and repression? What is the difference? Is there a difference?

Mr. Davies : My hon. Friend asks a very important question and no doubt the Financial Secretary will answer it. He has certainly given us a new name for the Red Book. "Multiannual programme" sounds much better.

Dr. Godman : I should like to offer a concrete example of the imposition of a multiannual programme by the European Community, not by a national Government. The programme to which I refer concerns the size of the United Kingdom fishing fleet. Several years ago the European Community instructed the United Kingdom Government to reduce the size of its fishing fleet, over a period of three years, by about 20 per cent. in terms of horse power and gross registered tonnage. That instruction came from the European Commission by way of a multiannual programme.

Mr. Davies : I am grateful to my hon. Friend, who is diligent and understands such matters.

Sir Teddy Taylor : Is not the hon. Member for Greenock and Port Glasgow (Dr. Godman) being a little unfair? Does he not appreciate that the European Community multiannual programmes have huge advantages in terms of flexibility over our programmes? The commitments in the Edinburgh budget are worth millions of pounds more than the available resources. A European Community

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multiannual programme commits a country to spending far more money than it has. If we apply that principle to our resources, expenditure and budget, we can do extremely well. The method was used in 1988 when, because of a multiannual programme and working on a metric year of 10 months, it was possible to spend 20 per cent. more. I hope that the hon. Gentleman will not allow himself to throw out the possible advantages of the much greater degree of flexibility afforded by the EC's multiannual programmes, under which one can spend far more than one has, and nobody seems to complain.

Mr. Davies : Does my hon. Friend the Member for Newham, South (Mr. Spearing) wish to amplify the argument?

Mr. Spearing : The recent exchanges show the value of Committee procedure. Does my right hon. Friend agree that the introduction of commitments ahead of the raising of taxation strikes at the root of the financial power of the house over any Government who determine expenditure year on year? Making a commitment too far

ahead--particularly in respect of the European Community--means that money is committed ahead of the economic circumstances and taxation at the time, which means that control over the Executive of the day is lost.

Mr. Davies : My hon. Friend is correct. I know something of the subject because, years ago, I used to have some ministerial responsibility- -if that is not stretching it a bit--over the EEC budget. The Treasury was hard on the EEC budget and did not like the spending commitments whereby money was spent in one year and rolled over to the next, because the Treasury could not control the process. The Treasury was, rightly, austere.

No doubt in the laxer financial climate that prevails under the present Government--who create public sector borrowing requirements of up to £50 billion and more--the Treasury has been worn down. I am sure that the Financial Secretary can tell us.

Mr. Dorrell : The right hon. Gentleman is performing a remarkable feat : apparently he is signing up all his right hon. and hon. Friends to the sternest and strictest interpretation of the principle of annuality, which has historically been ascribed to Her Majesty's Treasury. That is something for which the Treasury is usually more criticised in the House than praised. Are we to take it that out of the window will go support for year-end flexibility and for taking a longer-term perspective ? A multiannual programme is simply a commitment to look at an economic programme over more than one calendar year--in every other debate in which the subject has arisen in the House that policy has been accepted by both sides of the House as a good thing.

Mr. Davies : The Financial Secretary is perhaps making too much of the matter. I was saying that my hon. Friend the Member for Newham, South and the hon. Member for Southend, East (Sir T. Taylor) have argued that the way in which the EC has developed is different from the way in which the Treasury used to do things when I was a Treasury Minister. I was merely making a neutral statement. Perhaps Treasury Ministers then were pedantic, old-fashioned or wrong--but the Treasury always used to argue strongly against the idea of a carry-over. Obviously

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it is somethimes necessary to adopt the carry-over policy when dealing with large projects, such as those relating to defence. However, payments and commitments were constantly being made in relation to the Eurpoean budget and it was sometimes difficult to follow what was happening and to maintain control. The Treasury was sensible to do so then, but we now live in times of laxer control over public expenditure- -as was made obvious by the figures that the Chancellor gave us a few weeks ago.

Mr. Tim Renton (Mid-Sussex) : I think that the right hon. Gentleman is suffering from a slight shortage of memory. He was in the Treasury when the Chancellor, now Lord Healey, introduced his Budget in 1975 or 1976. In that, as in today's Red Book, there was a carry-forward of anticipated expenditure for a number of years ahead. That led to an expected PSBR of many billions of pounds and caused great concern to those of us in opposition at that time. No doubt at that time the right hon. Gentleman defended the multiannual PSBR, the deficit on planned Government expenditure that was shown up in the Red Book. At heart, the right hon. Gentleman is a sensible man and knows that Governments enter into expenditure programmes that will run for some years. The multiannual programme is simply a forecast of the likely outturn over future years. The right hon. Gentleman must remember that from his years at the Treasury. The Treasury may have been lax in those days, too, when, as far as I remember, he was one of its more spendthrift members.

Mr. Davies : We certainly had many Budgets ; it was a kind of multibudget era. But we had only one PSBR each year and we carried very few things forward. The Financial Secretary says that multiannual means carrying forward or rolling forward. At least he has explained what is meant by multiannual programmes.

Mr. Rowlands : The multiannual programme in this article has the specific purpose of achieving economic and monetary union. Does my right hon. Friend agree that one of the major purposes of the Red Book was to achieve economic and monetary union ?

Mr. Davies : My hon. Friend is right. I was coming to that issue, because the Red Book is intended to ensure the lasting

convergence--not just a one-off convergence--that is necessary for the achievement of economic and monetary union.

The Financial Secretary got into some difficulty, which may have been due to the lateness of the hour, when he was asked by my hon. Friend the Member for Oxford, East (Mr. Smith) what the Prime Minister meant when he told The Irish Times that he was in favour of economic and monetary union as it would put us at the heart of Europe and all that. The Financial Secretary wriggled. He said, "Ah, well, of course there are all kinds of economic and monetary union." He nods, but perhaps he is tired. He did not mention the hard ecu, but it was the sort of 13th currency that the Treasury and some guy in the City dreamt up to try to get out of this nonsense. It was a rather clever idea, but, unfortunately, nobody bought it. There may be all sorts of economic and monetary unions, but this one cannot be interpreted flexibly, whatever else has been interpreted in that way. The Financial Secretary shakes his head again. What other economic and monetary union can it be? If I were debating

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some other economic and monetary union I should be called to order. I am debating this one. In effect, it is monetary union because I do not know what economic union means. Monetary union is quite clear. We are told that the Red Book is intended to ensure the lasting convergence that is necessary for the achievement of economic and monetary union.

Mrs. Teresa Gorman (Billericay) : I congratulate the right hon. Gentleman on elucidating an issue that seems to have been missed by every hon. Member and certainly by the media. It is that propositions in the Bill have already been adopted into the practices of our budgeting structure. Another little item in the Budget caused some consternation and bamboozlement. It was VAT on fuel. That is the adoption of the concept of harmonisation of VAT because most member states have VAT on fuel and we will have a great deal more put on it before we see the end of that impost.

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Mr. Davies : I had better be careful not to go down that particular road.

The Financial Secretary is studying the text of the treaty carefully, for which I am grateful. The Attorney-General has left--frankly, I do not blame him.

The multiannual programme must have regard to price stability. We are back to that again. The Government are doing all right with price stability at the moment, at 1.5 per cent. or 2 per cent., or 3 per cent. depending on whether it is the underlying rate. Perhaps next year, when the subsequent multiannual programme is published, the Financial Secretary will not be doing so well with price stability. I suspect that the pass has been sold and the Prime Minister realises that the British economic system needs inflation. We will return to that debate another time.

Article 109e states that the multiannual programme exists "for the achievement of economic and monetary union, in particular with regard to sound public finances".

That is a bit of a joke, with a £50 billion PSBR at 8.2 per cent. of GDP. That particular multiannual programme does not come anywhere near "sound public finances".

I do not think that next year's multiannual programme will do so, either. Will it be different, or does the current programme apply for three years? We have been given some Mickey Mouse figures that are supposed to allow forecasting of the PSBR for next year and the year after. I seem to remember that it was difficult to forecast on Friday the PSBR for Monday, let alone for three years ahead.

Sadly, whatever the Financial Secretary may say about his rolling programmes and the sophistication of public expenditure control--or the lack of it these days--the Government are not doing very well. There will be real problems. My hon. Friend the Member for Oxford, East mentioned flexibility. There is little flexibility in the treaty's provisions. The figure must fall and continue to fall to about 3.5 per cent. before too long--and that requirement must be observed because it is a treaty obligation. It is not an opt-out or opt-in. It must be done now, or at least when the treaty is ratified.

The Government claim that they will meet that obligation. They say, "We are all in favour of bringing

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down the PSBR. We will have a balanced budget." The figure must fall to 3 per cent. because the stage 2 obligation is to bring it as close to 3 per cent. as they can.

Paragraph 3 states that many of the provisions

"shall apply from the beginning of the second stage."

It is suggested that there is a cut-off point between stages 2 and 3, when we can sit back as though nothing happened at stage 2. The Financial Secretary offered an explanation earlier. Apparently, the House is to be given a marvellous choice--unlike the Messina conference, the British people and the House will have a marvellous choice, some time in the future, on whether they want to take a decision, unfettered and uncluttered by anything that has gone before, to go for a single currency and--dare I say it?--economic and monetary union.

It will not be like that, because stage 2 runs into stage3--and the transitional provisions run into stage 2. It used to be said of nuclear strategy that it was a seamless web. When Ministers found themselves in difficulty over the nuclear deterrent--I am sure that the right hon. Member for Mid-Sussex (Mr. Renton), as a former Chief Whip and Foreign Office Minister remembers this--the stock phrase was "a seamless web". Well, this is almost a seamless web. By the time we get to stage 3, the web will have spun all around us by stage 2. But I see that the former Chief Whip is itching to intervene.

Mr. Renton : The right hon. Gentleman has egged me on to my feet. In my interesting days as Chief Whip, or Patronage Secretary, I cannot recall hearing either the Labour party or the Conservative party described as a seamless web. It strikes me as an

extraordinarily inapt description. I should have thought that both our parties were more like spiders' webs, full of little traps from which hon. Members appear. Does the right hon. Gentleman regard his party as a seamless web in regard to the issue of the Maastricht treaty? Far from it, I should have thought.

Mr. Davies : The right hon. Gentleman is not on his best form this morning--or perhaps I did not explain properly. I was using the phrase "seamless web" to describe the whole process of the deterrent, from the little shells that nearly blew up Germany to the big ones that blew up the world. The right hon. Gentleman was a disarmament Minister, but I remember being on a television programme with him during the Reykjavik summit : he had not a clue what was going on and nor had I. I am not sure that the right hon. Gentleman learnt very much in the Foreign Office.

Dr. Godman : My right hon. Friend quoted paragraph 3, which states that paragraphs 1, 9, 11 and 14 of article 104c are excluded from the second stage. Does he agree that some powerful sanctions still exist--for example, in paragraph 8 of article 104c--which can be levied against a recalcitrant member state ? Cannot a Council censure such a state in public ? That could be disastrous, in an election year, for the governing party that is being so censured.

Mr. Davies : Indeed. I was coming to article 104c. My hon. Friend is right : some of the more draconian paragraphs are excluded until stage 3 is reached--paragraphs 1, 9, 11 and 14. Paragraph 3, however, states :

"If a Member State does not fulfil the requirements under one or both of these criteria"--

the ratio criteria, which we have debated--

"the Commission shall prepare a report."

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That is pretty fierce in itself.

"The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors".

That is the starting point. Then, as my hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) pointed out, if the nation state fails to do certain things, the Commission can publish the report. Under paragraph 12, it is held in terrorem over the head of the member state.

No member state--least of all a member state like Britain, which will probably have a balance of payments problem and whose currency will be rather wobbly--will want to incur such international opprobrium, with all the attendant effects on the international markets, the pound or interest rates. The report would be like an IMF report--the right hon. Member for Mid-Sussex can tease me about that again if he likes. We know the effect that the IMF can have on a nation's status in the currency and financial markets.

Paragraph 4 of chapter 4 states :

"In the second stage, Member States shall endeavour to avoid excessive government deficits."

The Financial Secretary does not even look up. The word used is "endeavour", but the whole area encompasses pressure on the member state to ensure that it avoids excessive deficits.

Mr. Rowlands : Before my right hon. Friend deals with paragraph 4 of article 109e, let us consider the second part of paragraph 3, which lists a series of articles that will apply from the beginning of stage 3. At the beginning of his speech, my right hon. Friend mentioned the formula used by the Law Officers and the Foreign Secretary. They identified the articles and amendments that were necessary and those which were only desirable. They said that one category created rights and obligations. Is it my right hon. Friend's understanding that some of the articles listed in the second part of paragraph 3, relating to stage 3, are not necessary and, therefore, do not create rights and obligations at this stage and are thus only desirable? If so, could not some easily be knocked out of the Bill without preventing ratification?

Mr. Davies : That follows on from what I have tried to argue. The second part of paragraph 3 deals with articles which will apply from the beginning of stage 3. It could be knocked out without affecting ratification of the treaty. That must be right and I am sure that the Financial Secretary agrees.

Mr. Cash : In the same spirit of scrutiny, does the right hon. Gentleman agree that it would be as well to remember that we are talking about a legal requirement? The requirement for member states to "endeavour" to avoid excessive Government deficits under paragraph 4 of article 190e is, to all intents and purposes, no different from the requirement under the so-called opt-out in article 104c, of which much has been made, that member states "shall" avoid excessive Government deficits. The important point is that, if member states do not avoid such deficits, they will be up before the beak.

Mr. Davies : That is right. As the hon. Gentleman knows, the phrase "shall endeavour to avoid" appears in

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many contractual documents : "the party of the third part shall endeavour to avoid". If it can be shown that the party of the third part has not endeavoured to avoid, damages, fines, or whatever the document specifies, follow. However, we shall endeavour. Every day, the Financial Secretary "endeavours to avoid" at the Treasury. We heard that the Belgian Government had been endeavouring to avoid, although they did not manage it and lost a Prime Minister. They will try again because they will have to. Everyone is endeavouring to avoid.

I disagree with my hon. Friend the Member for Oxford, East, who appears to think that there is flexibility and that we do not have to worry. Everyone will be endeavouring to avoid and will endeavour to reach the 3 per cent. target as fast as they can, especially, and paradoxically, as the economic situation in Europe gets worse. It will drive member states towards economic and monetary union faster because that will be regarded as the panacea--get there quickly and everything will be all right. I suspect that it will work in a different direction.

The Financial Secretary is endeavouring. There will be another Red Book next year and he will ensure that the Commission does not come down on him like a ton of bricks. He will be a good boy and do the best he can.

Mr. Legg : I was interested in the right hon. Gentleman's comments about nation states in Europe wishing to go faster, even though economic circumstances were against them. I recently had a meeting with Pedro Perez, the socialist Economics Minister of Spain, where there is an unemployment rate of 20 per cent. He said that Spain had a convergence programme to get its public sector borrowing requirement down to 1 per cent. He saw the solution to Spain's unemployment problem as the driving down of the deficit. The right hon. Gentleman has hit on a very good point.

Mr. Davies : I wish to move on, but I agree that Governments will try to reach the 3 per cent. target as quickly as they can because they will be under pressure. Now that the ERM has failed to deliver economic and monetary union, because it could not traverse the chasm in one leap--it tried to do it in two leaps but fell down--there will be pressure to arrive at a common currency in another way, like a big bang, and everyone will have to converge as fast as they can. I think that that is what will happen, but it is a matter of opinion. I shall now move on.

Mr. Hain : In support of that important point, may I remind my right hon. Friend of the statement by the Economics Commissioner, Mr. Henning Christophersen ? My right hon. Friend may recall that a few weeks ago there was much speculation about the "impossibilist" convergence criteria. Countries were finding them difficult to meet ; in fact, virtually no country was meeting them. Mr. Christophersen quickly jumped in to say that that did not mean that Europe was not still on course :

"We are not talking about a delay in the general process. We are talking about a common time frame."

That was an important confirmation from the EC Commissioner.

Mr. Livingstone : And on the same point, does my right hon. Friend--

The Second Deputy Chairman : Order. We cannot have one intervention upon another.

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8.15 am

Mr. Davies : I agree with my hon. Friend the Member for Neath (Mr. Hain). I, too, saw Mr. Christophersen's statement. It was rather a diplomatic statement, because I gather that different views were expressed at the meeting and the Commissioner may have been trying to straddle those different views. I believe that in general there will be an effort to get the process over with as quickly as possible.

Mr. Livingstone : One the same point, in view of what the hon. Member for Milton Keynes, South-West (Mr. Legg) has just said about the attitude of the Spanish Government, does not a clearer idea of what is likely to happen emerge from the first stage of the French election results ? The French Government, also misguided, have striven to prepare the French economy for the criteria and have followed every stricture on monetary policy that comes out of Brussels, to try to make France the premier nation in terms of preparation for monetary union. The result has been the destruction of popular support for that Government and their elimination from Parliament. The results have been devastating, the worst showing by any French Government this century, and that is because that Government have complied so faithfully with the criteria. After the best part of a decade and a half in the first stage of the transition towards monetary union--that is what the exchange rate mechanism was all about--popular support has been destroyed, because the scale of pain involved is not sustainable in a democracy.

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