---

Mr. Rowe: My hon. Friend is a member of the Select Committee on Social Security and he is right to point out the fact that nowhere else in Europe appears to take the matter seriously. Will he consider consulting his colleagues on the Select Committee about whether it would be possible for it to host some kind of European seminar at a level that would have an impact on the entire debate?

Mr. Shaw: My hon. Friend is correct. That would be sensible and we have discussed it in the Select Committee. We would like to invite people from member states' Parliaments to London, because we think we have a unique piece of research. We have the benefit of the City of London and an increasing number of people in the country are aware of the subject. We wish to contemplate running a seminar and my hon. Friend has raised an interesting point.

The liabilities are real money liabilities and they will have to be paid in real cash amounts to pensioners in Germany, France, Italy and other countries in the

11 Dec 1996 : Column 204

European Union in due course. That time is not far away. Within the next decade, the liabilities will start to build up and, by about 2010, France, Germany and Italy will be paying out a much higher level of pensions each year than they pay out currently. We do not want to become involved in meeting that liability. We have good pension funds, as my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) pointed out earlier. We have a solid pension base with around the same total that everyone else in Europe put together has. We have some £600 billion of pension funds to protect our pensioners. Some of those pension funds are invested abroad, and some are even invested in the far east, so in many cases we will have the benefit of the young workers of the far east paying our pensions in the next 50 years. The aging populations of Germany, France and Italy, however, will not have pension funds invested elsewhere in the world. We are in a strong position and fortunately will not have to make the painful decisions that those countries will have to make. They have those painful decisions ahead of them, but they are not even having a debate about how they will meet those liabilities.

10.15 am

Sir Russell Johnston (Inverness, Nairn and Lochaber): In a way, the only surprising aspect of the Select Committee's report, which caused a considerable stooshie, is that it has come late to the subject. The hon. Member for Dover (Mr. Shaw) remarked in his speech that he raised the matter in 1991 and my noble friend Lord Taverne was the rapporteur for the Federal Trust on a pamphlet entitled "The Pension Time Bomb in Europe" two years ago. So this is not a new issue. It is also true, despite the rather harsh approach of the hon. Member for Dover, that the Governments in Germany, Italy and France are endeavouring, albeit slowly, to address the problem and have been for some years. I start on that basis.

The connection between the Select Committee's report and economic and monetary union hit the headlines with the suggestion that somehow we would end up paying for the lot, which was underlined by the hon. Member for Dover. The Chairman of the Select Committee, the hon. Member for Birkenhead (Mr. Field), was his normal patient and cautious self--not great characteristics of the hon. Member for Dover. I have no pretensions whatever to being a expert in the complex world of pensions and I am far too prudent to contemplate crossing swords with the Chairman of the Select Committee, because that would be foolish of me. I admire what he does and I read, in so far as I am able to understand them, the articles that he writes. I endeavour to do my best. All I can do is to call witnesses.

Fortunately--or perhaps unfortunately, but certainly usefully--there was a debate on this issue on 20 November in the other place. It was introduced by my noble friend Lord Taverne and it was an interesting debate. I am sure that hon. Members have read the report. Contributions were made, for example, by Lord Taverne himself, of course; by Lord Ezra, the former chairman of the National Coal Board; by Lord Barnett, the former Labour Treasury Minister; by Baroness Ramsay of Cartvale, who was a distinguished diplomat in her time and also a foreign affairs adviser to the late John Smith; and by the Government Minister, Lord Mackay of Ardbrecknish. All said the same thing and rested their case on article 104b of the Maastricht treaty.

11 Dec 1996 : Column 205

The hon. Member for Dover put a good argument when he said that if California were going bust, it could not be ignored in Washington. I take that point, but there is a difference to draw. I shall not keep the House long, but I want to approach the issue in two ways.

The European Commission has been referred to at length. It so happens that I have in my hand, hot from the press, a press release issued by the Commission this morning. It is not particularly long and the Commission clearly intended to make a contribution to the debate, so hon. Members may be interested to hear what it says. It refers to the claim in the Select Committee report

"that UK taxpayers could face increased bills to meet the pension fund liabilities of other EU member states. This was a serious misrepresentation of the intentions of the European Union."

Miss Kate Hoey (Vauxhall): Most of us, if not all of us, have not seen the press release. Does the hon. Gentleman have a special hotline to the European Commission?

Sir Russell Johnston: Would that I had. A kindly person brought the press release to me in an envelope while I was sitting innocently here minding my own business.

The press release continues:

"It is written in the Treaty on European Union (Article 104b) that Member States will not be responsible for each other's liabilities in EMU. There will be no common fiscal policy, so the UK could not be called upon, under a single currency, to pay for the possible profligacy of any other country."

Mr. David Shaw: Will the hon. Gentleman give way on that point?

Sir Russell Johnston: If the hon. Gentleman does not mind, it would be easier if I finished quoting the press release. It is not very long. I will certainly give way after that. It continues:

"Nor is there any possibility of this issue having an effect on interest rates. If a Member State borrowed heavily to fund its pension liabilities, thereby forcing a rise in European interest rates, it could be faced with heavy fines."

That refers to the stability pact. It continues:

"This is because all Member States which participate in Stage III of EMU will be required to keep their public sector deficits at less than 3 per cent. of GDP. This will put a clear limit on the total amount of borrowing permissible by governments. It is this commitment to avoid excessive deficits which will be underpinned by the Stability Pact to be further discussed in Dublin. The Pact is intended to act as a form of mutual self-discipline backed by heavy fines. European governments are increasingly aware of the future problems they may face unless pension funding arrangements are addressed. That is why, regardless of the Maastricht Treaty and the moves towards EMU, many European governments have embarked on strenuous efforts to overhaul their public finances."

Mr. Shaw: Does the hon. Gentleman concede that, as a minimum, the issue puts into question the ability of Governments to come within their annual deficit requirement of 3 per cent. under the Maastricht criteria? Does he also accept that paragraph 1 of article 104b ends with the words:

"without prejudice to mutual financial guarantees for the joint execution of a specific project"?

11 Dec 1996 : Column 206

A specific project could be to share out Europe's pension liabilities.

Sir Russell Johnston: It is difficult for me to interpret the phrase, "a specific project", but I should have thought that pensions were more than a specific project; it is a massive area of policy. The words, "a specific project" suggest something of manageable size rather than the enormous problem that we are facing.

Mr. Bill Walker (North Tayside) rose--

Sir Russell Johnston: Before I give way to the hon. Gentleman, I should like to add that we all know that we are talking not about present debt but about projected debt if we are operating on the basis of pay-as-you-go. Unless the Germans, the Italians and the French reform their systems in the meantime, 10 years hence they will be faced with an unbearable amount of money to pay. The hon. Member for Dover and the Chairman of the Select Committee have properly asked whether the Governments of those countries have the guts and the political determination to take such action in the face of undoubted unrest. There is nothing extraordinary about people protesting if their benefits are cut. I hope that the Governments will take action, but there is no certainty about it. So far as I can tell from all the evidence, including that from the Commission, the fear expressed by the Select Committee is not accepted by the European Union.

Mr. Walker: I thank the hon. Gentleman for his usual courtesy in giving way. Does he accept that the article that has been referred to is a fact of life? It exists and has been agreed. The hon. Gentleman is proposing something that has not yet been agreed in defence of his position. We can address only the known--not hopes and aspirations, but reality.

Sir Russell Johnston: In European matters, it is always difficult to separate the reality from the aspiration in the simple way that the hon. Gentleman has just done. There is always an element of aspiration. The social chapter, about which some hon. Members get so furious, is composed largely of aspiration rather than reality. However, I must not lead myself away in that direction.

There is nothing further that I wish to say. What I had intended to say in conclusion I have already said in response to the hon. Member for Dover. There is a very big and real problem. It can be solved, but it will be hard. People are entitled to question whether the necessary political rigour exists. The problem is certainly fully recognised. As we know, considerable efforts are already in train in Germany and, notably, in Italy.

---