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“Restructuring of the European defence industrial and technological base around centres of European excellence, avoiding duplication”.
Is not that both very anti-competitive and a threat to many successful factories in Britain?
Mr. Hague: My right hon. Friend is right to draw attention to that passage, which does indeed appear in the conclusions obtained by our right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) from the Danish Parliament. I obtained another version a few hours ago, although it was entirely in French. The English version had not yet reached me.
We shall want to know in much more detail exactly what that means from, among others, the Prime Minister when he returns and makes a statement to the House next Monday. The Foreign Secretary clearly did not want to include it in his analysis of the summit, but anything that was anti-competitive or constrained the country in its defence co-operation with the United States would be a very serious matter.
Kelvin Hopkins (Luton, North) (Lab): Does the right hon. Gentleman not accept that the Prime Minister committed one act of great wisdom in keeping Britain out of the euro? Had we been in the euro, we would have been pinioned to an over-valuation that would have been catastrophic for our economy. The depreciation will at least deflect some demand to our home economy, and help us to recover.
Mr. Hague: The hon. Gentleman anticipates a passage a few pages later in my speech. Having not talked about the euro for many years, I have been given the opportunity to do so again today by Lord Mandelson’s blundering into the matter. I shall come to the hon. Gentleman’s point shortly, but first I want to finish my point about the fiscal stimulus to which the Foreign Secretary referred, when he called in aid other countries around Europe. I am surprised that he did not cite the Irish Government, who have said:
“The priority for countries like Ireland, with relatively high general government deficits, is to get our public finances back in order”
—or the German Chancellor, Mrs. Merkel, who has rightly said:
“We should not get into a race for billions.”
If the Foreign Secretary will not listen to a Conservative Chancellor, he ought to listen carefully to Germany’s Social Democrat Finance Minister, who has said:
“Since I've been dealing with economic stimulus packages since the end of the 1970s, they've never had the real effect that was hoped for. In the end the state was just more in debt than before."
“Just because all the lemmings have chosen the same path, it doesn't automatically make that path the right one.”
The Foreign Secretary may think that the German Government have the same view as our Government, but the German Government themselves do not think that they have the same view as the British Government, and the British Government should take careful note of that. What I have quoted represents the approach of a responsible centre-left party in a Government who are not set on doubling their national debt over the next four or five years while spending more on paying off debt than they spend on schools and transport, which is what is happening at present in the United Kingdom. Ministers might also benefit from listening to other advice that some EU Governments have been kind enough to offer. In particular, they might wish to pay attention to Madame Lagarde, the French Finance Minister, who has gently explained:
“I do not like to disagree with my friend Alistair but as far as we’re concerned...we’re not certain that when prices go down a VAT reduction is that effective”.
The truth is that the Government are isolated in Europe, having lectured others about supposedly being isolated.
Members might have wondered why the European Commission avoided recommending specific measures on national stimulus proposals in the economic recovery plan to which the Foreign Secretary referred. One European diplomat leaked the reason. He spoke on condition of anonymity, no doubt fearing he would be arrested if he came to this country. He said:
“Several member states would have liked to openly back some concrete ideas on the preferred instruments for the national recovery packages, but they disagreed to support the idea of VAT cuts, but the UK did not want to see this measure missing on the list, so as to avoid criticism at home for taking this approach. So the conclusion was not to include any preferable measures.”
The Government therefore preferred to have no list of recommended measures than one that emphasised their own minority, and isolated, position.
Mr. Mark Hendrick (Preston) (Lab/Co-op): Will the right hon. Gentleman give way?
Mr. Hague: No, I will just finish on this matter, because the hon. Member for Luton, North (Kelvin Hopkins) made an important point on the euro that I want to address.
Given this dire economic background and the steady loss of the Government’s credibility, a truly bizarre development has been the sight of members of the Cabinet returning to advocating—
Madam Deputy Speaker (Sylvia Heal): Order. The right hon. Member for Richmond, Yorks (Mr. Hague) is clearly not giving way at this time.
Mr. Hague: I have taken a number of interventions, and I will give way to the hon. Gentleman later, if he behaves; that might be unlikely, but we will see how he gets on.
As I was saying, a truly bizarre development has been the sight of members of the Cabinet returning to advocating the one measure that, as the hon. Member for Luton, North said, would have made matters even worse for this country: membership of the euro. Since eurozone interest rates have been held at lower levels than those of this country for many years, it is fair to assume that if they had been applied to this country they would have made the unsustainable boom in our housing market even worse, and since those interest rates have been cut more slowly than British interest rates in recent weeks, it is also fair to assume that membership of the eurozone would now be making our dramatic bust even worse. So while the Prime Minister’s claim to have abolished boom and bust is already a matter of ridicule, it is clear that a boom-boost cycle in the British economy would have been exacerbated, rather than dampened, by eurozone membership.
None of this has stopped the dear noble lord, Lord Mandelson, who seems to be taking over ever wider swathes of the Government’s foreign and economic policy—the Foreign Secretary had better watch out on
that score—from reminding the nation that the Government are committed to euro membership in future. Nor has it stopped some of the “people who matter”, in the words of Mr. Barroso, the President of the European Commission, from telling him that Britain is warming to the euro.
What makes this even more ridiculous is that the shockingly incompetent management of the nation’s finances by the current Government means that Britain will soon not be eligible to join the euro, since our Budget deficit is ballooning way beyond the Maastricht criteria and our national debt is heading for a level that, if any of the massive off-balance sheet liabilities of the Government are included, will take us outside the euro’s entry criteria. Is it not a pretty damning summing up of this Government’s conduct of our nation’s affairs that they are reaffirming their dogmatic commitment to a policy that would have made matters worse, while bringing such ruin on this country that they would no longer meet the rules for implementing it anyway? That is now the Government’s policy on the euro.
Mr. Heathcoat-Amory: As my right hon. Friend will be aware, just as Europe was about to go into recession, the European Central Bank increased interest rates in July. What did he make of the Liberal Democrats’ call for radical and immediate cuts in interest rates at the precise moment when the rate for the euro, which they want to join, was going in the opposite direction? Would that not have been truly catastrophic for the British economy?
Mr. Hague: My right hon. Friend is, of course, right to say that that would have been catastrophic. What I make of what he has described is that the Liberal Democrats have adopted two wholly inconsistent positions. I am unable to regard that as a novelty; it is a commonplace of our debates, but I am grateful to him for pointing it out. Just to move on from that—
Mr. Hague: Oh, I am not going to move on; I shall give way to my hon. Friend.
Mr. Cash: I am glad to hear that. Would my right hon. Friend also reflect upon the fact that the figures given by the Chancellor of the Exchequer in the pre-Budget report statement referred only to the British position as compared with the Maastricht arrangements? If those are taken into account, the figure that was given for debt—57 per cent. of national income—is below the 60 per cent. to which my right hon. Friend has just referred. That was a deliberate misleading of the House because the Chancellor refused to comment on the figures in the pre-Budget report when I raised the matter with him.
Mr. Hague: The point I would make in relation to the one made by my hon. Friend is that the 57 per cent. of gross domestic product that our national debt is meant to represent will, of course, apply only if the Government’s economic forecasts are correct. The recent record is that they are spectacularly incorrect, so the figure could be much higher. I have just made the point—I think that this is also what he is referring to—that this country has massive off-balance sheet liabilities and they take our true debt to a far higher level.
It would be helpful if, in the spirit of open government, the Foreign Secretary or the Minister for Europe cleared up some questions about the euro. Which Minister
discussed Britain’s membership of the euro with the President of the Commission? When did the Foreign Secretary last discuss it with him? Can the Minister for Europe tell us whether the Business Secretary was correct in saying that he has not had a conversation with Mr. Barroso about Britain’s membership of the euro since 2004? Alternatively, does she share the Health Secretary’s view? He said that
“it would be very unusual if”—
wasn’t talking to Barroso”.
Specifically, was the Business Secretary right to say that it is still the Government’s goal for Britain to join the euro? We would love to know whether the team of Foreign Office Ministers shares that opinion.
Mr. Hague: I shall give way to the hon. Gentleman; he has behaved.
Mr. Hendrick: I thank the right hon. Gentleman for giving way; he is quite gracious. Since when has it been Conservative party policy not to reduce taxation? He will recall the former Conservative Government increasing VAT to 17.5 per cent. and this Government reducing VAT on domestic fuel to 5 per cent. Since when have his Opposition been against tax cuts?
Mr. Hague: I did not catch the end of the question, but I think that the hon. Gentleman was asking about tax reductions. It is our contention that if tax reductions are to be made when there is a ballooning budget deficit, they have to be paid for. That is why we have shown how all the tax reductions that we have advocated would be paid for.
Mr. Hague: I think that the hon. Gentleman has had his opportunity to ask that.
My hon. Friend the Member for Stone (Mr. Cash) referred to figures in the pre-Budget report, and I wish to draw attention to a European aspect of the figures. The House will remember that at the end of 2005 the Government chose to give up £7 billion of Britain’s Fontainebleau rebate in return for a commitment to review the common agricultural policy in 2008. Many of us pointed out at the time that that was a very concrete and expensive concession to make in return for a vague and almost certainly meaningless commitment. The agreement of the then Chancellor, now the Prime Minister, to that unnecessary fleecing of the British taxpayer was an early sign that his premiership would be characterised not by prudent strength in financial matters, but by dithering weakness—indeed, that has proved to be the case.
Given this background of soaring public debt in Britain, it ought to be particularly disappointing for the Government that, as we predicted and as was entirely predictable, despite the sacrifice of so much of the rebate, there is no guarantee that the current talks on the CAP health check will produce the result that all parts of this House want. Member on both sides of the House may not have noticed figures in the pre-Budget report that were buried in a very small footnote on page
210 showing that Britain’s annual net contribution to the European Union will rise from £2 billion this year to £6.5 billion in 2010-11—that is precisely the moment when the Government expect belts to be tightened in British public expenditure. That is the result of their pathetically weak negotiation three years ago.
Daniel Kawczynski: Does my right hon. Friend share my concerns about the British rebate and the fact that under this Government we have fallen behind France in terms of GDP, but will continue to pay more into EU coffers?
Mr. Hague: My hon. Friend makes a powerful point. It looks as if we will fall behind Italy soon, in terms of the size of the national economy, and that will be the legacy of this Government, who have broken all records in economic indebtedness and in damaging the competitiveness of this country.
Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): The right hon. Gentleman mentions the subsidies that the transfers from the UK have given to the European Union, but he should remember that the common fisheries policy—as pointed out by the hon. Member for Great Grimsby (Mr. Mitchell)—has probably accounted for about £3 billion of unseen subsidy. Does he agree with the SNP’s position that exiting the CFP is the best policy?
Mr. Hague: I hope that the hon. Gentleman is very familiar with our wish to see greater local and national control over fisheries policy, which will only ever be achieved through a change of Government here at Westminster, and we look forward to working on that in future.
I hope that Ministers will be able to tell us whether they think that the sacrificing of such a large part of our rebate represented a good deal, and why the priority of the French Government in the negotiations was to get their way, but the priority of the British Government was to climb down whenever possible. Perhaps they can tell us why British taxpayers now face a double increase in expenditure, with a lower rebate and an expensive common agricultural policy. They might tell us, too, what estimate they have now made of the effect of the pound’s dramatic fall against the euro and the further effect on Britain’s budget contribution to the European Union.
Mr. MacShane: Will the right hon. Gentleman give way?
Mr. Hague: As a former Minister for Europe, the right hon. Gentleman may know the answers to those questions, and we look forward to hearing them.
Mr. MacShane:
The shadow Foreign Secretary’s last point about the depreciation in the value of sterling is important, because it will alter our financial contributions to the EU. But let us be clear that it was unacceptable that some of the poorest countries that had joined the EU after escaping from communism should have to sign over disproportionately large cheques to the UK because of the way in which the rebate was organised. It was right that, as a gesture of solidarity shared by other richer countries, we should help those new member
states. The Opposition and their supporting press have been foul about the Poles and the other eastern Europeans working in this country—
Mr. MacShane: I suggest that the Tories should not send the message out that they oppose a dime of solidarity with our new friends in eastern Europe.
Mr. Hague: I do not think that we have been foul about the Poles. In fact, a party that contains my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) could not possibly be foul about the Poles, because we would get in a lot of trouble.
The right hon. Gentleman puts the case for giving up the rebate— [ Interruption. ] Well, he puts the case for giving up a large part of the rebate, then. Our point is simply that if the Government were going to do that, they should have driven a hard bargain, which is what previous Governments would have tried to do. To give up £7 billion of the rebate—an act that was not shared by other countries, as he suggests, because the rebate was an arrangement particular to the UK—and not receive in return concrete answers on the reform of the CAP was weak negotiation.
The same weakness has characterised the Government’s approach to the European constitution and its reincarnation as the Lisbon treaty— [ Interruption. ] The Foreign Secretary mentioned that in his speech, so he cannot just roll his eyes when I mention it. It is an item for discussion at the forthcoming European Council, and, looking at the draft conclusions, it is one of the few items on which they do not yet know what they are going to say. Item 1 is the Lisbon treaty, and then there is a gap. It would be extraordinary if we did not raise that issue. What they ended up signing contained a huge number of provisions that they had vigorously opposed in the first place. What has been worse about their conduct of the negotiations on the constitution— [ Interruption. ] The Foreign Secretary is now asking the shadow Foreign Affairs team for copies of the conclusions, with which he ought to be familiar. If I were Foreign Secretary, I might have looked at them in advance rather than now.
What has been worse about the Government’s conduct of the negotiations is the anti-democratic nature of the decision to break a solemn election pledge to hold a referendum in the United Kingdom. Those actions have fed cynicism about politics and the European Union and the Government have compounded that error by joining the refusal to listen to the people of Ireland, who so sensibly said no to the Lisbon treaty in their referendum last June.
Mr. Douglas Hogg (Sleaford and North Hykeham) (Con) rose—
Mr. Hague: I shall give way only twice more, because I have not yet come on to the major foreign policy issues that I was going to address.
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