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Mr. Hands: I am not sure exactly where I had got to, but I think that I was in the middle of describing yesterday’s Commission report on the 27 EU members and the parlous state of the UK economy. It is worth reiterating that the figures that I am reading out are not those forecast by, for example, the Conservatives or any other Opposition party; they are the figures produced by the European Commission in its assessment of the EU economy. As I have said, the report forecasts that the UK will have a deficit of 8.8 per cent. this calendar year and 9.6 per cent. in 2010. It is interesting to note that those are way higher than those shown for Spain. I refer to Spain because its credit rating was downgraded yesterday by Standard & Poor’s, which is one of the leading credit-rating agencies.
Although the Commission text expects the recession to be broad-based across the Union, it states that “sizeable differences persist” between the countries. The Minister’s case that somehow everyone is in the same boat is only partly true. The Commission text singles out one country in which the “downswing” is “particularly marked”. That country is the UK, which is the only country named in that way in the document. According to the Commission, on GDP growth, of the 27 EU members, only Ireland and the three small Baltic states will do worse than the UK in 2009, and we will fare far worse than the US and Japan. The same picture of only those four states doing worse than us also applies in relation to increases in unemployment—although in that case, Spain is also projected to do worse than us.
Probably the most amazing aspect of the Commission report on the UK economy is that, with the exception of Ireland, we are predicted to be the country to have the largest budget deficit in percentage terms across the EU. The UK is absolutely the worst in terms of the numerical size of our budget deficit. That continues to have massive implications for the gilts market. Given that even the German Government had to pull a bund auction last week, I would be interested to hear the Minister’s contingency plans in the event that there is simply no bid in any of the forthcoming gilts auctions this year. If the Germans cannot sell their debt, despite starting with a nearly balanced budget, what hope is there for ours? I hope that we will be able to do something with the gilts market, but I would be interested to hear what the Minister has to say.
It is also worth pointing out that, for the Commission, it is their figures that count, not the Government’s. This is not simply a difference in forecast. Given the provisions of the treaty, the UK is way beyond what is allowed under the Maastricht criteria. Returning to today’s meeting of Finance Ministers, which has already been mentioned, the Czech Prime Minister and host of the meeting, Mirek Topol├ínek, said yesterday:
“The EU is split, in its usual way, between countries that want to stick to the rules and countries that want to breach them in tough times.”
Angela Eagle: Is the hon. Gentleman saying that the Opposition’s policy is to stick to the Maastricht criteria in these unprecedented times?
Mr. Hands: I thank the Minister for her intervention, but Opposition policy is not under discussion today. If she wants to discuss Opposition policy, I suggest that she call a full debate on the Floor of the House or, even better, a general election, so that we can tell her precisely what our policy is.
Angela Eagle: Go on, answer the question—it will not do the hon. Gentleman any harm. Given that he is listing the European Commission’s Maastricht criteria and saying that it is a big problem that we are currently outwith them, is he therefore suggesting by implication that the right way to deal with the current economic situation is to stick rigidly to the Maastricht criteria? It is a simple question. We are having a debate about the economy and are entitled to know the Opposition’s approach to that kind of matter, so perhaps he will enlighten us.
Mr. Hands: Really, the whole point of talking about the Maastricht criteria is that, for us, there is a fundamental difference: we are not pledged as a party to adopt the euro at a time when conditions are deemed to be right. Therefore, the Maastricht criteria are very interesting for the Minister, but far less so for us.
Mr. Lilley: Is my hon. Friend aware that section 5 of the European Communities (Amendment) Act 1993 is entitled “Convergent criteria: assessment of deficits” and that it commits the Government to report to Parliament for its approval an assessment of the medium-term economic and budgetary position in relation to public investment expenditure and the goals set out under article 2? The Minister seems to be committed in some way either to show that she is at least meeting those convergence criteria or to justify not doing so. For her to put the onus on the Opposition, as well as being out of order, seems quite extraordinary.
Mr. Hands: I entirely agree with my right hon. Friend. It really is up to the Minister to explain whether she thinks that she should be meeting the Maastricht criteria and what actions she will take if the Commission issues any kind of instruction that the Government should be meeting them.
Angela Eagle: Will the hon. Gentleman give way?
Mr. Hands: No. I was in the middle of quoting Mr. Mirek Topolánek, who went on to say:
“It is clear at this point that the discussion will be very stormy.”
It would be interesting if the Minister told us what the reaction of the Chancellor’s EU colleagues was today and whether the meeting was indeed stormy. Britain is in the camp of those wanting to support the breaching of the rules, but I fear that the Germans will have a pretty lonely time being on the side of fiscal discipline.
I do not know whether the meeting was as stormy as the exchanges on budget deficits that took place between Britain and Germany in December. As we know, the German SPD Finance Minister, Peer Steinbrueck, memorably remarked that the Prime Minister was introducing “crass Keynesianism”. On the Prime Minister’s VAT cut, he said that
“all this will do is raise Britain’s debt to a level that will take a whole generation to work off.”
The CDU/CSU budget spokesman, Steffen Kampeter, who is Angela Merkel’s right-hand man on the budget, went even further, hitting out at the “tremendous level of debt” being considered and called Labour’s approach
“a complete failure of Labour policy”.
It certainly does not sound as though much convergence is going on there.
Many observers have remarked that, for the Germans, it all appeared like payback time for the times when they were lectured by our current Prime Minister in his previous job. As Kampeter said:
“After years of lecturing us on how we need to share in the gains of uncontrolled financial markets, the Labour politicians can’t now expect us to share in its losses”.
The Germans really did fix the roof while the sun was shining. Although their deficit is also set to increase, they started out in this recession with a nearly balanced budget after considerable effort, while our budget deficit was exploding. I note that the Germans in their stimulus package, which was agreed last week, are proposing a constitutional balanced budget amendment that the deficit should never ordinarily exceed 0.5 per cent. of GDP.
Clearly, another implication of all this is that, with the UK blasting its way through the Maastricht criteria, any desire by the Government to join the euro has thankfully been blown out of the water, not for reasons of principle, as we Conservatives have, but for reasons of expediency. The UK economy under Labour has been brought to its knees and, to repeat, the recession has not yet even officially started.
So I should be grateful to the Minister if she outlined again today what the current Government policy is on joining the single European currency. Does she believe that it is still in the UK’s interests to join the euro if and when the time is right in her view? Can she reiterate whether it is Government policy to have a referendum on the issue? I expect that the answer to those questions will be yes, but I would be interested to hear her latest thinking.
The Conservative party believes that it would be strongly against Britain’s interests to join the euro. I want to return to Standard & Poor’s comments yesterday about Spain, because S&P said that Spain would be better off outside the euro. S&P said that the euro insulates Spain from exchange rate crises, but it
“puts greater onus on microeconomic and fiscal policies.”
In the UK, of course, we have both an exchange rate crisis and a crisis in our micro-economic and fiscal policies. Indeed, the pound is down against the euro from an average rate of about 1.46 in 2007 to 1.02 last month. That is a decline of almost a third in about a year. The pound recovered slightly in the new year, before collapsing again this week.
It is also worth noting that, if we were in the euro, we might well be facing binding recommendations from the Commission on our budget deficit and a set of fines or a requirement to place money in non-interest bearing deposits, all totalling anything up to 0.5 per cent. of GDP. Clearly, it is not likely in the current environment that those sanctions would be imposed to that extent, although it is sometimes hard to read the Commission’s thinking. However, it is clear that they could be imposed, so that is another reason why we need to be thankful that we are not in the euro and that it does not appear that we have any immediate plans to be in it. None the less, I would be grateful for the Minister’s explanation of the current policy.
By virtue of its opt-out, the punitive positions do not apply to the UK. The UK is, however, bound by article 116 (4) which states that
“member states shall endeavour to avoid excessive government deficits”.
It is clear that, in the case of the UK, the deficit is excessive. Moreover, as has already been referred to by my right hon. Friend the Member for Hitchin and Harpenden, one of the Commission’s criteria for examining the UK’s convergence programme is that the member state should
“avoid real exchange rate misalignments and excessive nominal exchange rate fluctuations.”
In the UK, we have had both a massive move in our exchange rates and huge fluctuations just this week alone that are certainly not in accordance with the Maastricht criteria.
Returning to the procedure set out in the legislation, the Minister needs to tell us what recommendations she is expecting to receive from the Commission in reply to submitting her report, which we are discussing today. Is she expecting the Commission to endorse a budget deficit of 9.6 per cent. in 2010?
In other news today, we hear of yet another ringing endorsement of Government policy on public finances—this time from the left. Will Hutton, who may well have been reading the Commission report that has already been referred to, tells us:
“With the amount of red ink in the UK budget deficit next year, together with the amount of new liabilities the taxpayer is having to underwrite, we look like Iceland-on-Thames. The open question is whether we can get through this without a loan from the IMF.”
Overall, these documents are a rehash of a PBR that was alarming at the time. It uses figures that have since fallen apart, and it is being sent to a Commission that already rejects its central argument. It encapsulates a catastrophic failure of Government policy. It should pain us all that our nation’s public finances are in this condition, especially at a time when the recession has not yet officially started.
In last year’s debate, it seems incredible that the Minister’s predecessor stated that Britain is well placed to withstand some of the international risks that are out there at the moment and the belief that that is a record of which to be proud. The hopeless optimism of last year has been replaced by deep despair in our economy. These documents are a national embarrassment, and that is why we shall vote to oppose the motion.
5.36 pm
Dr. John Pugh (Southport) (LD): I welcome you to your position, Mr. Amess, and I welcome the hon. Member for Hammersmith and Fulham to Treasury matters. His forensic intelligence will be a real plus. I do not, however, share his faith in economic forecasting, either by the EU or the Government. Show me the forecaster who six months ago predicted the current crisis in the world economy, with slowing economic expansion in China and so on. My faith in the religion of economics has gone out of the window. The clever people who needed to get it right six months ago got it badly wrong and lost money.
This is a very strange statutory instrument. Off the back of it, we could each debate every aspect of macro-economic policy, Government spending, the recession, the credit crunch and monetary union. The debate could go on for hours and we could repeat everything that has been said in the Chamber over the last few months. I could take the opportunity to praise the Liberal Democrats for their farsightedness, and talk about the sage of Twickenham. You could do absolutely nothing, Mr. Amess. You would have to bear with us as the hours passed by. However, on this occasion I prefer a slightly narrower interpretation of the statutory instrument.
In a sense, as the document says in the foreword to the first section, we are dealing with the consequence of the treaty of Maastricht, which was settled back in 1992. It makes me feel slightly nostalgic, because the only time I ever wrote to a Member of Parliament was to the then hon. Member for Yeovil, now Lord Ashdown, when he failed to support a vote of confidence that would have brought down the Conservative Government. Somewhat indignant, I wrote to him suggesting that he had taken the wrong option in backing Maastricht. However, that is by the bye, and I will not push the discussion further.
In essence, the SI is about sharing information with other EU countries and with Parliament. That includes information on growth, investment, employment and the balance of trade, and comparing that information with others. We would all agree that information not only from the UK but from other sources would make interesting reading. The principle of sharing the assessment is agreed by all of us. The nature and optimism of the Government’s assessment will not be agreed on at all, no matter how long we are here or how long the debate goes on. I do not see the point of the Committee deciding whether the Government have any reason for the claims that they make—that is more for the Commons Chamber.
I suggest that a good use of our time would be to leave a little time to hear what the President of the United States has to say, which might be marginally more important than anything said in this room.
5.38 pm
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