Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): I saw pictures at the weekend of the Prime Minister engaging in a lot of back-slapping and bonhomie with President Sarkozy of France. Does he think that, as a result of his conversations, President Sarkozy will implement a VAT cut, as we have here?
The Prime Minister: The right hon. Gentleman is the first to say that we should not all do everything in exactly the same way in Europe. It is important to get a fiscal stimulus, but it is also important that countries choose the way in which they want to do that, as he will always acknowledge. We have chosen to do certain things, as have the French and the Germans. What is common, however, is that they are in favour of a fiscal stimulus and not, like the Conservatives, in favour of public spending cuts.
Dr. Gavin Strang (Edinburgh, East) (Lab): Is it not time that the whole House, including the Opposition parties, recognised that the Government have been absolutely right to attach the highest priority to stabilising the banking system? Is it not the case that the more we learn about the Royal Bank of Scotland, the more we realise that its shareholders and customers are entitled to become angrier and angrier? In view of the reports in certain newspapers, it is really no excuse for independent directors to say that they might have lost their jobs if they had stood up to the senior officers; surely that is the purpose of having independent directors.
The Prime Minister: My right hon. Friend is absolutely right. Independent directors are there not to rubber stamp decisions made by management, but to question them and to hold management accountable. I think that the Walker review, which is looking at the role of directors and people who sit on the boards of financial institutions, will conclude that a change of behaviour in the boardrooms is necessary. I think the whole country is angry at the practices we have seen in the Royal Bank of Scotland, and we condemn them.
Sir Peter Tapsell (Louth and Horncastle) (Con): On Second Reading of the Bank of England Bill in November 1997, the Prime Minister may remember that I strongly opposed the triangular regulation of our banks, which has proved such a disaster. In todays circumstances, facing as we are the danger of mass unemployment for years to come in this country and throughout Europe, may I repeat what I indicated before the pre-Budget reportthat I am a strong believer in fiscal stimuli, well chosen in every advanced country in the world, together with quantitative easing to maintain consumer demand, if we are to avoid the terrible mistakes made in Germany 80 years ago by Chancellor Bruning, from whom the present German Chancellor has mercifully learned the right lessons?
The Prime Minister:
I am grateful to the hon. Gentleman for his comments. When the private sector fails, and when banks fail and falter, it is the Governments duty to step in. If we are to have the level of economic activity in the economy that we want, there needs to be monetary activism, as the hon. Gentleman proposed, and also fiscal activism. I cannot see how the Conservative party can continue to resist the idea that we should have, as we are having, a fiscal stimulus in the economy.
The CBI supported our fiscal stimulus and wanted it to happen in November when we announced it. It has supported the measures we have taken.
Mr. Peter Hain (Neath) (Lab): I welcome the fact that the European Council has adopted many of the ideas that the Prime Minister has advocated consistently now for monthsa co-ordinated response on regulation and, yes, on a huge fiscal stimulus. Is it not extraordinary to get the same vacuous and juvenile posturing from the Leader of the Opposition when unemployment is 7.6 per cent. across the European Union and expected to rise to more than 10 per cent., with about 5 million jobs still to be lost across the EU? What we need in that context is huge public investment: the Tories simply will not learn the lessons of the 1930s and, yes, their own failure in the 1980s to tackle these problems through the power of government, using a fiscal stimulus to do so.
The Prime Minister: My right hon. Friend is absolutely right. It is right at this time to use the Governments powers to help people who are unemployed, to help mortgage holders with their mortgages and to help small businesses get the funds that they need. Of all the parties I know across Europe, only this Conservative party is saying that there should be public spending cuts: the German, the French and other conservative, right-wing Governments have supported fiscal stimuli. The Tories cannot walk away from the fact that they are the only party calling for public spending cuts.
Sir Menzies Campbell (North-East Fife) (LD): During the course of the Council, was there any discussion of the impact of the present financial crisis on defence budgets? Was there any discussion of the extent to which the countries of Europe are not fulfilling their obligations to NATO? In that regard, was there any discussion of increased defence co-operation and, in particular, the need to embrace the principles of force specialisation, interoperability and common procurement?
The Prime Minister: These matters are more appropriate for the NATO summit on 2 and 3 April. I hope that the right hon. and learned Gentleman will understand that there will be a big discussion of all those issues at that summit. I think he will find that we are meeting our obligations; I think he will find that our defence budget has continued to rise; and I think he will find that other countries of Europe are aware of their responsibilities.
John Reid (Airdrie and Shotts) (Lab): The Prime Minister is right that the restoration of confidence in the financial sector and reforms depends very much on increasing transparency, oversight and regulation. With that in mind, will he turn the minds of his colleagues to the least transparent and least regulated part: credit default swaps? In that area at least, will he attempt to get as much unity as possible for a clearing-house mechanism that can introduce transparency and regulation, rather than the current free-for-all with over-the-counter dealings?
The Prime Minister: I am grateful to my right hon. Friend, who has taken an interest in the matter and written to me about the issues. We have looked at credit default swaps, and will continue to look at the risks and dangers that they pose. Obviously, the best way of dealing with such a problem is international action. We will consult with our colleagues at the time of the G20.
Mr. Elfyn Llwyd (Meirionnydd Nant Conwy) (PC): Does the Prime Minister recognise that his financial stimuli and counter-cyclical investments have helped some parts of the UK, particularly the financial sector in the south-east of England, unfortunately without much benefit outside that area? When he next talks about public, taxpayers investment, will he consider the effects on the rest of the UK? Precious little is filtering through to other parts of the UK, as we saw in last weeks unemployment and job creation figures.
The Prime Minister: Every pensioner in the United Kingdom got the benefit of the pension rise, every family got the benefit of the child benefit rise that started from the beginning of January, and every family has got the benefit of the cut in VAT, which extends to the whole of the United Kingdom. Also, every community is getting the benefit of further public investment, which we have instructed to be advanced to help keep jobs in our economy. So I disagree with the hon. Gentleman: the benefits that we are trying to spread to the whole of the country to deal with the crisis include benefits to Wales.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): In his statement, the Prime Minister rightly highlighted the need to have economic stability, good governance and economic development in the eastern neighbourhood. Were there any discussions on some countries, particularly Romania, which, although they are in the European Union, still have considerable internal problems with good governance, about how they can be helped with not only their economic problems but their internal governance problems?
The Prime Minister: As you know, Mr. Speaker, some changes have taken place in Romania, and it is important to remind it of its responsibilities. If it signs up, as it is doing, to the European Union, it must meet the test of democracy. The European Union has that explicit test to enable members to join, and Romania is not excluded from that test.
Mr. Michael Howard (Folkestone and Hythe) (Con): In discussing the financial crisis with his colleagues at the Council, did the Prime Minister draw to their attention the important report of the National Audit Office on the nationalisation of Northern Rock? Did he consider with them the lessons that can be learned from the reports finding that in 2004 the Treasury over which he presided was specifically warned that we were ill-equipped to deal with a systemic banking crisis, but decided that the issue was not a high priority? Does he now regret his failure to take that warning seriously?
The Prime Minister:
Long after 2004, we did a number of exercises with the American authorities about what we would do in situations in which individual banks collapsed and about whether there was a systemic crisis as a result. Far from not taking action, we did take action and looked at what the global repercussions of individual bank failures would be. We talked to the United States Treasury and Federal Reserve and the regulators. The right hon. and learned Gentleman must recognise that Northern Rock, among other companies in the United Kingdom, was buying assets, from the United States of America, which were at that time labelled triple A but which turned out to be absolutely
worthless. So there is also a failure in international regulation, which must be dealt with. I hope that he will agree that the measures that we are taking at the G20 are the right ones to take.
Mr. Gordon Prentice (Pendle) (Lab): Forty per cent. of the jobless in the United Kingdom are under 25, and we face the prospect of rapidly rising unemployment this year, especially as young people leave education. What did my Friend learn from his counterparts across the European Union about what can be done specifically to help young people into work?
The Prime Minister: I can tell my hon. Friend what we are doing. We are determined to ensure that school leavers who leave in the summer are given the best possible chance to obtain training or jobs, or to stay on in further education if that is what they wish to do. We will be introducing measures to ensure that as many young people as possible are given that benefit, and I am sure that the same will be happening in other parts of Europe.
Mr. John Maples (Stratford-on-Avon) (Con): Did the Prime Minister have a chance to discuss with his colleagues at the Council the five European Union directives that are in the pipeline, all of which could impose considerable costs on employers? I am sure he agrees that at a time of high and rising unemployment, the last thing that we ought to be doing is imposing additional costs on employers, whether they are in the public or the private sector. Would he consider giving a lead in Europe in calling for a moratorium on regulation that imposes costs on employers until the recession is over?
The Prime Minister: Environmental and other regulations have been put forward by the European Union. Part of our promise of a low-carbon recovery is that we will be able to make progress on the environment. I will of course look at what the hon. Gentleman called the five regulationsalthough he did not name themand will write to him.
David Taylor (North-West Leicestershire) (Lab/Co-op): The European Councils pledge to protect the worlds financial systems from opaque and unco-operative tax havens is naturally good news, but will the Prime Minister tell us how he intends to implement that in our own country? We have four major banking groups. Two are effectively under national ownership and might be expected to respond to leverage on co-operation, but the other twoHSBC and Barclayshave long promoted tax evasion and avoidance schemes using offshore tax havens. How will the Prime Minister secure their co-operation?
The Prime Minister: Tax evasion is illegal, and we are dealing with it in the ways in which we can. If anyone has evidence of tax evasion, they should supply it to the prosecuting authorities. As for tax avoidance schemes, every Budget attempts to deal with the problems that arise from tax avoidance. We introduced new rules in 2005, and, as I have said, about £14 billion in revenues has been saved as a result. However, anyone who has any evidence of tax evasion should tell us.
Mr. David Curry (Skipton and Ripon) (Con):
Whatever peoples degree of enthusiasm for the European Union, it is commonly accepted that the free movement of people, goods, services and capital is a huge achievement, and that anything that undermined it would be very
destructive of prosperity. In the light of that, when we reach the G20 may we have not just another mantra about the evils of protectionism, but a promise of some action to promote free trade and combat protectionism? Will we see an agreement among our leaders that they will stop this competitive playing to the protectionist gallery, which simply encourages sentiments that will destroy jobs, and to which the Prime Minister himself is not immune?
The Prime Minister: The right hon. Gentleman is absolutely right. At the G20 we will receive a report from Mr. Lamy, the head of the World Trade Organisation, about any protectionist measures that have been taken by individual countries over the last few months. The WTO will continue to monitor that protection, and will report to us regularly. As for the promotion of trade, we are anxious to facilitate trade by making available what has been missing for many months: the level of export credits and trade support that is necessary for world trade to resume, and for us to secure the growth in world trade that is necessary for recovery.
The Prime Minister: If we were looking for job creation measures, that would not be at the top of the agenda. I remind Members that while the Conservatives are proposing public spending cuts in every other area, they are proposing to spend £2 billion on the estates of a very small number of people. I believe that they should think again.
Sir Patrick Cormack (South Staffordshire) (Con): What reassurance and hope can be offered to those who, 20 years ago, were citizens of the Warsaw pact and placed their hope and their trust in responsible capitalism, but who now feel that their world is falling about them, and feel totally disillusioned?
The Prime Minister: The hon. Gentleman is right. We have a huge problem in parts of eastern and central Europe, because German banks, Austrian banks, Italian banks, Belgian banks and even British banks are having to withdraw, or are withdrawing, to their own home bases. What we therefore need is an international effort to help individual countries that do not have resources of their own with which to rebuild their banking systems. That is why the European Union has raised its balance of payments assistance to those countries, and that is why when we meet at the G20 we will want the International Monetary Fund to have the additional resources that are necessary to deal with crises. But we do not want just to deal with crises; we want to prevent crises, so we will have to look at better mechanisms by which we can help those countries of central and eastern Europe that are being let down by the current financial crisis.
Mr. John Redwood (Wokingham) (Con): I strongly welcome the Prime Ministers belief in more transparency. In that spirit, can he now tell us how much taxpayers money is at risk in bank support and bank guarantees and in all the off-balance-sheet devices this Government have gone in for? The British public have a right to know how much of their money is at risk.
We see no need to continue to regulate the provision of mortgage finance.
This is the man who kept pressing us to deregulate more and more. The problem we have to face is that we have to intervene to save both the banks and the financial institutions so that peoples savings are safe, and I hope the right hon. Gentleman will agree that one thing is that, despite all the difficulties we have seen, peoples savings have been safe.
Mr. William Cash (Stone) (Con): The Prime Minister may know that today the hapless Lord Myners has signed off the European Commissions endorsement of the de Larosière report for the creation of a Europe-wide banking and financial rules framework, whichcontrary to the statement the Prime Minister has just madeinvolves in practice majority voting and European Court jurisdiction, thus eliminating national control and jurisdiction. The Government have welcomed this report; Lord Turner has welcomed this report. Will the Prime Minister come clean and ensure that Parliament, and not the European Union, controls our banking and financial services?
it would not have powers over national supervisors, for example to change supervisory decisions, and it would not prescribe detailed supervisory practices.
Mr. David Heathcoat-Amory (Wells) (Con): The published conclusions of the Council differ hardly at all from the conclusions circulated prior to the meeting, which were available on the Danish Parliament website, before the Prime Minister ever got to the meeting, but there is one matter that did change: the size of the bail-out to other EU economies, which has now risen to €50 billion. What is the potential exposure of the British Treasury and taxpayer to this size of bail-out?
The Prime Minister: First of all, I have a copy of the conclusions of the European summit and they did change substantially from the original draft provided by the Czech presidency, and I think the right hon. Gentleman must recognise that, even on the de Larosière report, the conclusions are different from what was originally put into the text. The balance of payments facility is a European Union loan of €50 billion that is to be made available. As far as the IMF loan is concerned, we will make up our mind what our contribution will be once we analyse what other countries are doing and what Europe as a whole will do, and we will make that known before the G20.
Alistair Burt (North-East Bedfordshire) (Con): But with such enormous debt chasing a finite capacity to lend, some commentators are now talking about what Steve Bundred of the Audit Commission has called the Armageddon scenario in which there is simply not enough money to provide for the borrowing that is being sought. Did the European Council consider this to be a serious possibility, and if so, what is Britains strategy to deal with it?
The Prime Minister: I have never heard an Opposition who want to talk the country down as much as this Opposition. During this whole exchange, we have had anti-European after anti-European speaking. Now, on this occasion, we have a pro-European who is now becoming anti-European as a result of things that are happening. When markets fail and banks are unable to do their job, Governments have got to step in. That is the philosophy under which we are working, and I wish it was the philosophy of the Conservative party, too.
Mr. Graham Brady (Altrincham and Sale, West) (Con): The Prime Minister has congratulated Switzerland and others on moving towards OECD standards of transparency. Will he confirm that British Crown dependencies and overseas territories already meet those standards?
Bob Spink (Castle Point) (Ind): We must all welcome the Prime Ministers positive programme of action to tackle the global economic crisis, but will he do more to reduce the subsidy that Britain gives other EU countries through the net cost of our EU membership and the £40 billion trade deficit between this country and other EU countries, which costs this country many jobs?