Annual Growth Survey

The Committee consisted of the following Members:

Chair: †Mr Peter Bone 

Cryer, John (Leyton and Wanstead) (Lab) 

† Goodwill, Mr Robert (Scarborough and Whitby) (Con) 

† Greening, Justine (Economic Secretary to the Treasury)  

† Hemming, John (Birmingham, Yardley) (LD) 

Hopkins, Kelvin (Luton North) (Lab) 

† Leadsom, Andrea (South Northamptonshire) (Con) 

† McCarthy, Kerry (Bristol East) (Lab) 

† McCartney, Karl (Lincoln) (Con) 

† Mills, Nigel (Amber Valley) (Con) 

† Smith, Angela (Penistone and Stocksbridge) (Lab) 

† Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab) 

† Whittaker, Craig (Calder Valley) (Con) 

† Wilson, Sammy (East Antrim) (DUP) 

Alison Groves, Committee Clerk

† attended the Committee

European Committee B 

Tuesday 29 March 2011  

[Mr Peter Bone in the Chair] 

Annual Growth Survey 

[Relevant Documents: European Scrutiny Committee, 18th report of Session 2010-11, HC 428-xvi, chapter 2.]  

4.30 pm 

The Chair:  At this stage I would normally call a member of the European Scrutiny Committee to make an opening statement. Unfortunately, the hon. Member for Luton North is unavailable and has given his apologies, and the business managers did not appoint two members of the European Scrutiny Committee as they should have done, so we will have to omit that part and go straight to the Minister. 

4.31 pm 

The Economic Secretary to the Treasury (Justine Greening):  Thank you, Mr Bone, and it is a particular pleasure to serve under your chairmanship for the first time. I am sorry to hear that we do not have a representative from the European Scrutiny Committee; nevertheless I welcome the Committee’s comments and its suggestion that this important document be referred to this Committee for debate. 

The European Scrutiny Committee rightly suggested in its report that the Commission’s annual growth survey is an important document, both intrinsically since it deals with growth, and more specifically given its role in getting the new European semester under way. I therefore welcome the chance to debate it in this Committee. Let me say how timely this debate is, coming just days after the Chancellor set out the Budget and the Government’s “Plan for Growth”, and following even more closely on the heels of the spring European Council last Thursday and Friday, where EU Heads of State and Government discussed some of the toughest issues that we collectively face. 

Ensuring lasting stability and fiscal sustainability in the eurozone and in the EU as a whole is essential if we are to prevent another crisis as serious as this one. The scale of the challenge is huge, and it is in all our interests to ensure that a lasting solution can be found. While that is essential, without economic growth we will not be able to secure a lasting recovery from the crisis. The recovery in the EU is fragile and, as the Commission said, “rather uneven” across member states. The Commission forecasts gross domestic product growth in 2012 of 4.2% in Poland, 2.5% in the UK, 2% in Germany, 1.8% in France, 1.4% in Italy and 0.8% in Portugal. The Commission also estimates that aggregate unemployment is 9.6% across the EU. More alarmingly still, in some member states youth unemployment can be as high as 40%. 

The annual growth survey reports that the state of structural reforms across the EU is also somewhat uneven, pointing to what the Commission considers to be a lack of ambition on the part of member states. This is disappointing, particularly in light of the

Commission’s own stark warnings that failure to reform our economies would mean average potential growth of only 1.5% over the coming decade, coupled with a permanent loss of output. It is therefore up to the EU and its member states to take decisive action to promote growth. Of course, that is exactly what we sought to do in last week’s Budget. 

Alongside fiscal consolidation and a more competitive financial sector, we need a targeted structural reform programme to unleash enterprise and make our whole economies more competitive. A joint letter calling for targeted action at the EU level to promote growth was sent on 18 March to President Van Rompuy and President Barroso, with the support of nine member states, including the UK, which took the lead. That set out that at the EU level we must, first, deliver the full potential of the single market with an approach to liberalisation focusing on sectors with the highest growth potential such as services, digital and energy; link European and global markets to improve trade, including by concluding the Doha round this year; support business and unleash enterprise by removing regulatory burdens; and create the conditions for innovation to flourish. These are the areas that will make the greatest difference to growth: completing the single market, including by breaking down borders to online trade and by liberalising service provision across the EU. Together they could add up to €800 billion for the EU economy. 

Reducing the burden of regulation on our businesses is also vital to help unleash creativity and innovation. The average cost of starting a business in the EU is a massive €2,285, compared with just €644 in the United States. The Government recently announced a one-in, one-out policy for new regulations, and we are pressing for the EU to take the same approach. In parallel, it is important that there be strong action at member state level. We need to open up product markets, liberalise labour markets, promote enterprise and reform welfare. Those must be our priorities. 

In the UK, the June 2010 Budget and last year’s spending review took a bold range of measures to address the exceptional conditions facing the UK economy and to tackle the UK’s record deficit. That action was essential to create the necessary conditions to boost the UK’s long-term economic potential and help to create jobs. 

In the 2011 Budget released last week, the Chancellor announced further action that supports a new model of private sector-led, sustainable and balanced growth, while keeping the plan to tackle the deficit on track. The Government’s “Plan for Growth”, issued alongside the Budget, has four overarching ambitions: to create the most competitive tax system; to make the UK the best place in Europe to start, finance and grow a business; to encourage investments and exports as a route to a more balanced economy; and to create a more educated work force that is the most flexible in Europe. Major measures were also announced that will contribute to those goals, including reducing the main corporation tax rate again, introducing new controlled foreign company rules, fundamentally reforming the way the planning system works, and reducing the burden of regulation with which businesses have to comply. 

The Budget also sets out the next steps toward realising the Government’s vision of a fair, simple and efficient tax, benefit and pension system—one that rewards work

and personal responsibility and, at the same time, enables social mobility. It reduces the tax burden on low and middle-income workers and helps with the pressure of high fuel prices. Much work lies ahead of us, which is precisely the reason why the Government support a strong and effective European semester. The European Commission has promised an integrated approach to reforms and surveillance, which should help to join up better macro-economic stability and structural reforms between EU and member state levels and between the various Council formations that take an interest in the growth agenda. Overall, robust surveillance and ruthless prioritisation are essential for a successful European semester, and the Council’s 10 priorities highlighted in the annual growth survey appear to be broadly the right ones. 

I end by highlighting the fact that, despite the improvements brought about by the European semester, the Europe 2020 strategy and the broader growth agenda are still dependent on political will for their implementation. The Government will therefore use their interventions in Council to shore up the resolve of our European partners. We have taken a leadership role in conducting the spending review, in the emergency Budget and in last week’s Budget, and I trust that the Committee will support us in our endeavours. 

The Chair:  Thank you, Minister, for staying within the time guidelines. We now have until 5.30 for questions to the Minister. I remind Members that questions should be brief, but if I agree, supplementary questions may be put as well, and obviously you can ask more than one question. 

Kerry McCarthy (Bristol East) (Lab):  It is a pleasure to serve under your chairmanship, Mr Bone. 

I have several questions on the various sections of the annual growth survey, starting with priority 1, which is about implementing rigorous fiscal consolidation. Of course, we agree with the European Commission that public expenditure must be put on a sustainable track, but does the Minister not agree that we are failing to do that when, as result of weaker than expected growth, Office for Budget Responsibility borrowing forecasts to 2015 have already been raised by some £46 billion? If the Government’s fiscal strategy results in recession and a wider fiscal deficit, do they have a plan B for putting the public finances on a sustainable track, so that we are in tune with the Commission’s request? 

The Commission says that tax rises may be necessary and that indirect taxes are more growth friendly than direct taxes. Does the Minister not accept, however, that the former are more regressive, with the poorest having to pay the most? Although it is not necessarily evident in their actions, I am sure the Government would in theory say that it should not be the poorest who pay the most, so how do we square that with the stance on taxes set out by the Commission? 

Justine Greening:  I understand the hon. Lady’s question and why she asks it. We are on the right course—that is backed up by a number of independent commentators. First, she will be aware that the OBR, whose change in forecasts she mentioned, still says that we are on course to achieve our mandate to get rid of the structural

deficit by the end of this Parliament. I should also point out that, in its employment projections, it expects to see a net 900,000 jobs created, over and above those that are lost in the private sector. 

I also draw attention to the people outside the UK. We are talking about the European Union today, and President Barroso stated on 17 June last year: 

“I want to pay tribute to the efforts the UK coalition government is taking. We believe they are exactly taking the right medicine for the situation.” 

As the hon. Lady will be aware, the OECD Secretary General Angel Gurria stated, only this January, that the UK “should stay the course”, and added that 

“the fiscal situation absolutely requires this approach.” 

The IMF stated last year: 

“The consolidation plan and implementation of early measures to tackle the deficit—one of the highest in the world in 2010—greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy.” 

We are on the right track, and it is not only the coalition Government who think that; a number of other agencies agree. 

In answer to the hon. Lady’s question about tax changes and how to stimulate growth, she is right to say that one of the points made in the annual growth survey was a criticism of taxing labour. That is one thing that would hold back growth across Europe. That is one reason we got rid of the proposed national insurance rise—the so-called jobs tax. That was absolutely a tax on labour. In response to the question whether that might mean a swing towards indirect taxes, and whether that would be regressive, it is interesting that the Institute for Fiscal Studies is now saying that looking at household spend in relation to total expenditure is a more valid way of understanding whether tax changes are regressive. I also point out to the hon. Lady that taking action on taxes on labour—for example, in raising the personal allowance twice, both in the emergency Budget and in last week’s Budget—is a direct tax measure, but it clearly helps those on the lowest incomes because it takes them out of tax altogether. There is not necessarily a correlation between whether taxes are progressive or regressive and whether they are direct or indirect. 

Karl McCartney (Lincoln) (Con):  It is a pleasure to be called by you, Mr Bone. To counter what the hon. Member for Bristol East said, will the Minister comment on the fact that the GDP figures have been revised back upwards recently, which is to be welcomed? 

Justine Greening:  My hon. Friend is right. Today we got the final estimate for the quarter 4 growth figures from last year. They were revised slightly upwards. As he will know, they were disappointing figures, but we had an incredibly challenging month in terms of the weather and we have ended up broadly where we started, with the Office for National Statistics saying that growth was flattish. What is important is the measures in the Budget last week, which aim to stimulate growth, enterprise and jobs over the coming months and years. As I said in response to the hon. Lady, the OBR says that we are on course to do that. Our strategy will achieve that. We are not the only people who think that: the European Commission, the IMF and the OECD agree. We are in good company in hoping that we are getting our economy back on track. 

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab):  It is a long time since I have been on European Committee B. Is it in order for me to wrap three questions into one, Mr Bone, or would you like me to ask them separately? 

The Chair:  I think it would be better if we took them one by one. We will get to them all. 

Ms Stuart:  Thank you. My question is specifically about the report, because it is always a bit futile to argue domestic points on the back of European issues. The report states on page 2: 

“Europe 2020 is the agenda that the EU and its Member States have decided to ‘help Europe recover from the crisis and come out stronger, both internally and at the international level’.” 

What reason does the hon. Lady have to believe that the 2020 statement will be any more successful than the 2010 Lisbon agenda, by which definition we would now be the world’s leading competitive and innovative European economy? 

Justine Greening:  In many respects, although we welcome the annual growth survey, the hon. Lady is right to have healthy scepticism. Publishing a strategy called “Europe 2020” will not be enough. We shared her disappointment about the lack of traction and impact that the Lisbon strategy ultimately had. We can see its lack of impact by looking around Europe’s economies. 

It is important to ensure that “Europe 2020” makes a difference on the ground. There is a better chance of that today because one criticism of the Lisbon strategy, as the hon. Lady knows, is that it was too broad. It was not specific enough, but we believe that the 10 priorities set out in the annual growth survey is a better list. There is a risk that the list will grow, however, and we must ensure that it remains targeted. The hon. Lady will be aware that some of those priorities are there to tackle economic imbalances and the deficit; they are not long-term things that need to be in the growth strategy. 

Alongside that, what is different this time is the idea of having a European semester. It is not just about the “Europe 2020” strategy. We know that action is being taken to tackle fiscal consolidation measures and European imbalances. The strategy is part of a broader package that is happening at the EU level to ensure that it makes a difference. I would also say that the strategy is a good challenge to the EU. It is good that we have a document that says that regulation too often holds back business, and that taxes on labour hold back companies from recruiting more workers. The Government need to ensure that those messages in the annual growth survey are not lost. 

Ms Stuart:  Secondly, I went through the graphs and was trying to work out the difference between European member states and non-European member states. They are on forecasts, growth rates and structural deficits, and it seems to me that there is little differentiation between EU member states. The graphs on page 20 show net external financial liabilities for euro area states and non-euro states, but it states: 

“Data are not available for Cyprus, United Kingdom, Malta and Luxembourg.” 

Does the Minister have any idea why UK data were not available? 

Justine Greening:  It may be better if I write to the hon. Lady separately about that. One problem we have with the annual growth survey is that it wants many countries to bring forward a number of different targets. We declined to enter targets for parts of the annual growth survey because we believe that it is about action on the ground; I suspect that it may be part and parcel of that. 

Ms Stuart:  Finally, I was glad to hear the Minister talk about the completion of the single market by including services. The Prime Minister said something similar yesterday. However, I have yet to receive an answer from the Secretary of State for Health or the Prime Minister, and I hope that the Minister will give me an answer today. Following the legislation that we are putting through on the NHS and GP fundholding and commissioning, will all our NHS transactions be subject to internal services competition law? 

Justine Greening:  As we make progress on having a more liberalised market for services, I suspect that we will need to consider how it affects the NHS. Again, I am happy to write to the hon. Lady on that point. 

A further point on the services agenda is the plethora of professional services, and professionals who are less able to move around the EU as a result of what is effectively a less free market in that area than we have on products. We are keen to move ahead with that agenda, too. 

Nigel Mills (Amber Valley) (Con):  May I ask the Minister to give us the Government’s response to comments in the report of threats to modernise the VAT system? I know she has received various representations in recent days on potential changes to the VAT system. Indeed, Mr Bone, I know that you are keen to make suggestions on how to modernise it. 

The Chair:  Order. As Chairman, I have no view whatever on what is going on. 

Nigel Mills:  I am sorry, Mr Bone. 

The recent OECD report suggested that we ought to modernise our VAT system by reducing the number of zero-rated or reduced rate items. Will the Minister assure us that no pressure is coming from the EU or, if there is, that there is no chance of the Government’s going down that route? 

Justine Greening:  First, we are committed as a Government to retaining our zero-rated VAT products and services. As my hon. Friend knows, the process for changing the list of products and services that are exempt from VAT, at zero rate, reduced rate or standard rate is long drawn out. It is one reason why the suggestion of the shadow Chancellor and other Opposition Members of reducing VAT on fuel is simply illegal at the moment and almost certainly unworkable. The previous time, it took nearly seven years to revise the list—indeed, the process concluded only in 2009. At the time, the then Labour Government did not try to make VAT on fuel anything other than standard rate. I can also reassure my hon. Friend that part of the process—one reason why it takes so long and is so difficult—is agreement by

unanimity. If one country disagrees, no deal can be done. That is another reason why the Labour party’s proposal for reducing VAT on fuel is unworkable. 

Nigel Mills:  As a supplementary, for complete clarity, will the Minister assure my constituents that the current lower rates on children’s clothes, food and so on are therefore perfectly safe and that there are no plans to change them in this Parliament? 

Justine Greening:  I can give my hon. Friend that commitment. We want to maintain all our zero-rated goods and services. 

Sammy Wilson (East Antrim) (DUP):  It is a pleasure, Mr Bone, to serve under your chairmanship. 

Priority 10 in the document talks about access to cost-efficient energy and outlines the reason for that: 

“Energy is a key variable for growth. For business, energy prices are a key cost element.” 

Will the Minister outline how she sees that priority fitting in with many of the European directives to which the Government are responding? For example, in the Budget, we are setting a carbon floor price of £30 per tonne, which will add £1.4 billion to the cost of industry in year four of the Budget. There are also the targets for renewable energy, which will be much more expensive than some of the traditional forms of generating energy. What is the Government’s assessment of the impact of all those energy changes from Europe on firms’ ability to grow? 

Justine Greening:  One of the good challenges of the annual growth survey is driving that conversation more frequently. The carbon floor price that was announced in the Budget is part of a range of tools that the Government are introducing to help our economy transition from its current higher carbon base to a lower carbon base. That is ultimately in all our interests because it means that we will spend less on our energy than we would if we did not go through that transition. 

Given some of the challenges that a high oil price poses to our economy, last week, as hon. Members pointed out, we took the opportunity to reduce fuel duty rather than allow what would have been a 5p rise. Apart from the carbon emissions agenda, which is important, trying to get our economy more off the oil hook clearly has a broader benefit to business. 

The hon. Gentleman is right that, in the short term, we need to be careful that we work with business to understand how the transition will affect not only energy security, but costs for businesses. One reason why we announced the extension of climate change agreements was that we were conscious of how the transition would affect energy-intensive industries. We need to ensure that we put in place the right investment to get us to a low-carbon economy, while at the same time showing awareness of the risks of doing that and the need to help companies that will need to change their investment profile as they go through the transition. We are aware of the risk, and we pay close attention to EU work to achieve that. 

I should also tell the hon. Gentleman that we have pushed against discussions about an EU carbon tax. Aside from the fact that we think that tax is a matter for

member states—for the UK Government here—various EU economies are in different positions on the low-carbon agenda, so we should decide how we want to manage the transition. The emissions trading scheme operates at an EU level, and we think that that is the appropriate tool. 

John Hemming (Birmingham, Yardley) (LD):  I was pleased to hear the Minister’s answer to the hon. Member for Amber Valley about VAT being a progressive tax according to expenditure deciles, but I would welcome her assurance that the Government would oppose any proposals on VAT that would stop it being progressive and make it regressive. 

Justine Greening:  We want taxation to be broadly progressive. Although this has been the subject of debate by the House, when we take together the emergency Budget, the spending review and last week’s Budget, that shows that we have managed to put in place a plan that tackles the fiscal deficit but means that those with the broadest shoulders bear the most. We will take that ethos into any debate in Europe about such a change. 

John Hemming:  I thank the Minister for that answer. I hope that she will recognise that although people on means-tested benefits get an increase to cover indirect costs, we need to protect those on low incomes by maintaining the tax-free nature of essential day-to-day goods. 

Justine Greening:  That point reflects the comments that I made in response to my hon. Friend the Member for Amber Valley. It is important that we give a commitment that zero-rated products will remain as such. Many goods are zero-rated for precisely the reason that, like previous Governments, we understand the importance of their not creating an extra tax burden for those who have less flexibility with their consumption. 

John Hemming:  My second question relates to the point raised by the hon. Member for East Antrim. The problems of growth that we face and the loss of production in the European economy have arisen due to a number of factors: banking, the incompetence of the previous Government—that is, of this country—and a spike in the oil price. I, like several hon. Members, feel that geological constraints such as peak oil will cause difficulties. Beyond the 20% reduction in energy usage over the next 10 years that is cited in the report, do the Government think that Europe has a role in trying to keep down day-to-day fuel prices? 

Justine Greening:  Broadly, we see ourselves as able to take decisions at domestic level. There are a number of levers we can pull, in terms of tax, as we demonstrated last week in the Budget by reducing fuel duty, and in domestic policies on spend; for example, the warm homes discount. Let us not forget that next year we shall be launching the green deal, to address the underlying problem and to help people not to waste energy and to make their homes more energy-efficient. Whenever VAT is discussed at European level, countries have different opinions about how they would like the regime to change, but there are a number of levers that the

Government can use, and are using, to make sure that we address fuel poverty. As the hon. Gentleman is aware, Professor Hills will be conducting a review on it on the Government’s behalf. 

Andrea Leadsom (South Northamptonshire) (Con):  On that point, can my hon. Friend talk about the binding renewable energy target we have with the EU? From my research, it seems that wind technology accounts for enormous rises in fuel prices and in electricity prices for households. If the Government could renegotiate the renewable target so that it was not a switch into renewable usage but a net reduction target, we could focus on spending the money on insulation and reducing our thirst for energy instead of on generating highly expensive sources of renewable electricity. That might actually help households during this very pressured time, but in fact the target is forcing us to spend more money on potentially less valuable technologies. 

Justine Greening:  I absolutely understand the point my hon. Friend has made. We are committed to our share of the renewables obligation, but she is right to flag up the fact that if we are putting a certain amount of public money against the transition, we need to be clear what the bang for our buck is, and where we think we can make the most difference in reducing emissions for every pound of taxpayers’ money that is being put in. 

We have to recognise that different technologies are developing at the same time, and although at this point wind may be more or less effective than other renewables, we are keen to make sure that the market itself can develop, so that over time a greater variety of renewable technologies help to generate energy. The final piece is the Budget announcement about the green investment bank, which will initially be capitalised with £3 billion. That will leverage in private sector capital, hopefully, to help stimulate investments for other technologies—and indeed offshore wind—that have been held back and have not developed as fast as they otherwise would. 

Andrea Leadsom:  I absolutely accept all that my hon. Friend says and I completely welcome the Government’s initiatives. Denmark has the most expensive domestic electricity in Europe and the Danes are the biggest users of onshore wind. Their experience has been that more people went into fuel poverty as a result of the high cost of generating wind power. It still concerns me that the binding target means that we are spending taxpayer money on renewable obligation certificates, putting up the cost of domestic electricity for private households, instead of spending the money where we should be—on getting people to reduce their need for electricity. 

Justine Greening:  I probably cannot add too much to what my hon. Friend says. Her comments demonstrate why we need a broader approach to tackling not only the switch to renewables but also energy efficiency in homes and businesses. As she says, the switch can be part of the action plan, but it is not enough on its own, and I agree. 

Nigel Mills:  I have a couple of questions about the corporation tax issues raised in the document. The first is about the threat to move towards introducing a common consolidated corporate tax base, which would be an entertaining situation given the wide disparity in corporation tax regimes across the EU. At a time when we are trying to enhance our competitiveness by reducing our corporation tax and reforming our corporate tax base, does the Minister agree that a common consolidated corporate tax base would not be a great idea for this country? 

Justine Greening:  I agree. All tax matters are best dealt with by member states. In the UK, our plan is to have corporation tax for large companies on the main rate, but for the rate for small companies to go down. We announced a further reduction in corporation tax last week, so we know what we want to achieve on corporation tax and we do not necessarily need direction from the EU to help us. We think it should be our decision. 

Nigel Mills:  There is what seems a welcome comment in the document about taking away the tax treatments that disadvantage cross-border trade. Many of us would be attracted to that, but there is a risk: one way of taking away that disadvantage is to introduce it on trade within a territory, which happened when transfer of pricing rules were extended to same-territory transactions. That adds a huge burden to companies and businesses. If we rightly take out disadvantages, may I urge the Minister to ensure that we do not do it by extending unnecessary burdens to domestic transactions? 

Justine Greening:  I completely agree with my hon. Friend. The annual growth survey challenges member states to ascertain what they can do to support business and to remove bureaucracy, regulation and red tape, not load on more tax. Indeed, it encourages them to do the exact opposite. We recognise that, in the United Kingdom, areas such as Northern Ireland may need additional flexibility on corporation tax to compete more effectively. We launched our paper on rebalancing the Northern Ireland economy last week, and we particularly recognise the need for Northern Ireland to make its own decisions about corporation tax so that it can compete effectively. 

Craig Whittaker (Calder Valley) (Con):  Interestingly, on balancing security and flexibility in the work force, the document states that member states’ employment protection has created great rigidity in the labour force. It says that we need reform to reduce overprotection of workers, particularly those with permanent contracts. Will the Minister give an opinion on whether she feels that the UK labour market is over-regulated with regard to protectionism for employees? Will she give us a clue about the Government’s direction on reducing the rigidity that arises through overprotection? 

Justine Greening:  My hon. Friend is right. We need to challenge the plethora of regulations that employers face. He will know that one of the aims of “The Plan for Growth” is having a more skilled but flexible work force in the UK. I welcome the European Union’s saying that legislation should be reformed to reduce overprotection of workers. I agree with the observation that we are

right to ensure that workplaces have regulations to protect workers, but that sometimes we can gold-plate. It is in nobody’s interest for those regulations to go beyond what they need to achieve and harm businesses, thus preventing them from operating efficiently, growing and taking on more workers. We are keen to address that domestically. As my hon. Friend knows, we announced last week that we will have our own domestic regulatory review. That will not just be about regulation in the workplace, but will apply across the board. We will, perhaps for the first time, take a new look at all our regulations across Government to challenge ourselves and the stakeholders whom they affect on whether they are absolutely necessary or whether we should take a second look at them. 

The Chair:  Everyone in Committee who is allowed to speak has spoken, but I am minded, if we get close to 5.30, to extend the time. 

Ms Stuart:  Thank you, Mr Bone. I want to ask a very specific question. The Minister and I will probably not agree about the need for workers’ protection, because I happen to believe that it is a good thing. However, I sometimes wonder about the consumer’s protection. Will the Government specifically examine some of the provisions on free movement of labour, mutual recognition of workers and our inability to insist on English language tests for doctors who come and work here? Surely we should insist on professional standards, which include the ability to speak the language. As I understand it, we currently cannot do that. 

Justine Greening:  The hon. Lady raises some serious, thorny issues, which arise through our being in the EU and the free movement of labour aspect. I know that Ministers in the Department of Health are considering the matter because we must ensure that free movement of labour rights are balanced with others—for example, that of patients to be able to communicate effectively with a doctor who is there to treat them. So I think we do want to see a better balance, and I and the rest of the Government believe in making sure that we have rights for workers and rights in the workplace. We are saying that that needs to be done in a way that does not ultimately harm employees by making it more likely that companies will feel unable to employ people, because the regulations go above and beyond what any of us think necessary to ensure we strike that right balance. 

Kerry McCarthy:  On labour flexibility, the UK already has weaker employment protection than many other EU states, which is frequently cited as a reason why companies choose to locate here, and is frequently criticised by, for example, the trade union movement, which says that it is easier to make employees redundant here. Has the Minister done an analysis comparing employment legislation and the flexibility of labour, for example, across EU countries? To my way of thinking, the section of the document in question is aimed not at the UK but at countries that have more rigid labour markets, and we should not be seeking to act on it to the extent that the Minister seems to be suggesting. 

Justine Greening:  The reason why this area of the document has formed such a large part of today’s debate perhaps has more to do with the fact that Members have taken a particular interest in it. I direct the hon. Lady to “The Plan for Growth”, published last week,

which goes into some detail about how we think regulations ought to be challenged in order to free up the labour market. 

The Government agree on priority 6—on getting unemployed people back into work—which makes the point that unemployment benefits should not trap people into dependency. Of course, we introduced the universal credit to ensure that the right incentives exist for people to get back into work. What is also important—although the document does not particularly flag it up—is that people who are out of work understand what benefits they are entitled to, and that they are not faced with the current, incredibly confusing benefits system as they come out of the work force and spend some time unemployed. This is a particularly important issue. Of course, “The Plan for Growth” was about not only growth, but jobs as well. 

Kerry McCarthy:  I shall return in a moment to priority 6 and the benefits system, but I want first to pursue the employment protection issue. On “The Plan for Growth”, there is some confusion about, for example, the switching of paternity-maternity leave for employees and small companies, and the right to request flexible working. Some people are suggesting that small companies will be excused from current provisions; others are saying that this merely flags up that we will resist any future attempts by the European Union to impose further such requirements on small companies. Can the Minister clarify: are we simply saying that we will resist further protection for such workers, or do the Government plan to cut some of the existing measures? 

Justine Greening:  We said that we want a moratorium on the smallest companies being burdened by new regulation, but beyond that, we recognise, as the annual growth survey points out, that there is overprotection of workers in some cases and we need to look at issue, which the EU has flagged up. We went through “The Plan for Growth” with different companies and stakeholders and had some 1,000 meetings, and the consistent message was that, rather than cherry-picking individual regulations, we needed to have a look across the board. 

As all of us in this House know, we pass statutory instruments and other such regulations pretty much every week, but we have never stood back and said, “What’s there, and to what extent is some of it now out of date or not fit for purpose?” Perhaps the legislation in question is old-fashioned and refers to a Britain and a workplace from which we have simply moved on. The Government are saying that we need to look not only at new measures coming down the track, but at existing ones to make sure they are fit for purpose. That is in everybody’s interests. That debate will be helpful not only for business, but for workers who too often get frustrated by regulations around which they have to fit in the workplace, although they do not see how they especially help them. 

Kerry McCarthy:  The Minister has already touched on universal credit and protection for the unemployed, but the Commission says in priority 6: 

“Member States need to adapt their unemployment insurance systems to the economic cycle, so that protection is reinforced in times of economic down-turn.” 

Will she explain what she understands by that phrase? Perhaps the Commission is suggesting that when economic times are bad, benefits should be more generous to reflect the fact that people find it more difficult to find work. I know that some European countries have schemes whereby a percentage of people’s earnings in work are paid to them during a period of unemployment. Does the Minister think that the recent measures introduced by the Government, particularly in the past Budget, reflect the Commission’s point that protection should be reinforced during an economic downturn? 

Justine Greening:  My understanding is that that part of the annual growth survey relates to the conclusions adopted in March by the Employment, Social Policy, Health and Consumer Affairs Council, which talked about the need to review extensions to the duration of benefits that were introduced in some countries as a response to the economic crisis. As the hon. Lady is aware, this is a matter of broad debate throughout Europe, and it will be explored further this year under the European employment strategy. 

Kerry McCarthy:  In priority 3, which is titled “Ensuring stability of the financial sector”, the Commission calls for the accelerated restructuring of banks 

“and particularly those which received…state aid”. 

Will the Minister enlighten us about what the Government and United Kingdom Financial Investments Ltd intend to do about that? Do they think the process can be accelerated in the way the Commission suggests? 

Justine Greening:  We support the steps that are being taken to put financial services throughout the European Union back on a sustainable footing because that is in everyone’s interests. As the hon. Lady will be aware, we are doing that in the UK. The whole financial services industry was affected by the Basel III requirements, and we hope that, when those requirements are taken alongside the crisis management package, there will be support in place to enable financial services throughout Europe to get to a more sustainable position from which they will not require future taxpayer support. 

Sammy Wilson:  Although we all understand the importance of restructuring the banks, there is a worry that such restructuring—this is in the context of Northern Ireland but there are cross-border considerations—could result in the loss of at least two banks in Northern Ireland that are based in the Republic, perhaps due to the closure of their loss-making Northern Ireland operations. In addition, the increase in the capital base will reduce banks’ ability to lend. Given present concerns throughout the United Kingdom about bank lending, and especially given the possible impact of restructuring in Northern Ireland, how does the Minister think that the situation will fit with the Government’s stated aim of making finance more available to small and medium-sized enterprises? 

Justine Greening:  The hon. Gentleman is right to highlight the real challenge that at the very time when we want banks to be out there, lending to business, they

have been left in a weakened state because of the financial crisis. As he will be aware, we have managed domestically to reach an agreement with the banks, called Project Merlin, which absolutely got an assurance that they will lend 15% more than they otherwise would. However, there is no getting away from the fact that we must make sure that a better framework is in place at the European level to ensure that we help banks to get back on to a sustainable footing. I should emphasise, though, that we are absolutely adamant that day-to-day banking regulations should remain the prerogative of member states, and that is indeed what will happen. 

Nigel Mills:  Page 22 of the document states: 

“Based on recommendations from the Commission, the Council will issue country-specific policy guidance before the summer that Member States should take into account when preparing their budgets for 2012 and in implementing their growth policies.” 

Will the Minister confirm what she understands by “take into account”? I assume that we should read that to mean “consider, but happily ignore if we don’t agree with it.” 

Justine Greening:  Perhaps I would put it more diplomatically, but there is no doubt that the end of the process is that member states have to produce a national reform programme in April, after which the Commission, and indeed the Council, will debate whether those national reform programmes are fit for purpose. Of course, at that stage, we will get some recommendations, although —my hon. Friend is right—they are recommendations. We are therefore not duty bound to follow the recommendations or otherwise, but “The Plan for Growth”, which we published last week, is very much in line with what the annual growth survey says that member states need to do, so we are moving in absolutely the right direction. In many respects, however, I very much welcome the opportunity to see other member states’ national reform programmes, as well as the opportunity for us, as a country and a Government, to challenge them. We probably need such a healthy debate in Europe. The EU is a key export market for us, so it is in our interests to ensure that all economies, including our own, get back on their feet. 

The Chair:  If no more Members wish to ask questions, we will proceed to debate the motion. 

Motion made, and Question proposed,  

That the Committee takes note of European Union Document No. 18066/10 and Addenda 1, 2 and 3, relating to the Annual Growth Survey: Advancing the EU’s comprehensive response to the crisis; supports the Government’s objective of promoting strong, sustainable and balanced economic growth in the EU, with particular regard to EU-level actions aimed at strengthening the single market and trade, enhancing innovation and ensuring smarter EU regulation; welcomes the Commission’s new Annual Growth Survey and its focus on the urgent need for the EU and its Member States to promote economic growth and employment; and urges the EU to ensure that policies align with the need for EU growth and jobs and the need to reduce deficits.—(Justine Greening.)  

5.22 pm 

Kerry McCarthy:  The Opposition will not oppose this fairly broad-brush motion. We are happy that the process is part of an ongoing series of discussions about the direction of economic policy in the EU and the UK’s place within it. 

Although the priorities in the strategy might be necessary for growth, they are not in themselves sufficient to deliver growth. For example, while I accept the Minister’s argument about cutting red tape, each individual regulation might also be described as protection or someone’s enhanced terms and conditions, so we must keep an eye on the cumulative effect of such an approach, as we do in Delegated Legislation Committees. Cutting red tape in itself, however, will not deliver growth. While it might lead to an advantage in the longer term, it is not a growth strategy. We have considered that matter during the Budget debate—such consideration is probably going on in the Chamber at the moment—so I shall say no more about that point. However, I flag up the fact that there is a lot more to a growth strategy than what is in the document. 

The Commission’s paper is particularly silent about the need to invest in the UK’s infrastructure and skills base. It is also silent about the effect of rising unemployment and falling tax receipts on the public finances, and therefore the need to ensure that people stay in work. I am sure that the point is also being made in the more general debates about the UK’s Budget that it is not enough simply to give the private sector its head through taxes and regulations and say, “Here you are. Go off and create economic growth.” 

There are also issues about infrastructure, training and skills. That applies not only in the UK but on a Europe-wide basis. It is one thing to take the path of saying, “We’re going to make life easier for British business by cutting taxes and regulation”, but I am sure that the Minister accepts that, for Britain to compete in the European economy and worldwide, we need a skilled work force and investment in new technologies, industries and sectors. That is an essential part of a growth strategy. By and large, it cannot just be left to the market. 

The Commission is silent about the long-term effects of unemployment, particularly on young people. There was some talk about flexible working, but nothing addresses what to do when people are caught up in long-term unemployment. The longer they are unemployed, the more likely they are to be unemployable in future. That should be addressed. 

The Commission is concerned about macro-economic imbalances—the mismatch between highly indebted countries with current account deficits and those with current account surpluses. The UK’s public sector net debt is low by EU and G7 standards, and very low by historical standards. However, private sector and household debt is high, and many economists believe that de-leveraging that debt could hold back the UK’s economic recovery. The Commission’s document suggests that wage restraint and reconsidering indexation in wage-bargaining systems is the answer, but it seems unlikely that reduced earnings, which appear to be suggested, will help people or businesses pay off their debts. 

Wages in the UK are already restrained. Excluding bonuses, they are growing by only 1.8% at the moment while prices rise by 5.5% on the retail prices index. Will the Minister clarify the Government’s policies on indebtedness in the UK? Do they support the Commission’s suggestions on that? 

On some matters, the Government have gone further than the European Commission document. I have already mentioned employment legislation and linking benefit

systems to the economic cycle. The Government have reduced benefits—I will not go into detail about all the different changes—but, for example, changes are being pushed through to tax credits and child benefit when economic growth is low and even negative. 

Of course, we accept the need for a co-ordinated approach at European level to the economic situation, but Labour Members do not accept that simply cutting legislation and public spending is sufficient for a growth strategy. To put public finances on a sustainable footing, we need to support businesses and employment now. 

The UK’s particular situation should be taken into account in some matters. I appreciate that a document of this size, which is much smaller than the bundle of documents that we normally get in European Committee B meetings, will be fairly broad brush and general. However, on macro-economic imbalances, indebtedness and employment protection, policies that may support growth in other parts of the EU are either not needed or already being implemented in the UK. If I flagged up only one point, it would be that, in the context of trying to work at a European level, we must still fight Britain’s corner and ensure that aspects on which we have made progress and are doing better than the EU—particularly, for example, employment protection—do not go out the window in an attempt to standardise things. 

5.29 pm 

John Hemming:  I hold a minority view in my party, which is not that of the Government or the Opposition. I have concerns about constraints on the supply of fossil fuels. People call it the peak oil hypothesis, but at some stage global production of oil will obviously peak. It is important from an economic and a European point of view because one of the causes of the current financial problem is a spike in oil prices. When we look at the price sensitivity of demand, it is not actually that sensitive. People keep on buying the oil, because they have no real choice, even though the price rockets. Therefore, one of the difficulties is that if we end up in a period—as I think we are in now—where oil supply is constrained, we will see a number of price spikes occurring from time to time. Those spikes cause massive economic damage, and damage people’s lives because they have difficulty running their lives day to day. 

Although we talk about getting renewable energy, which is the sensible thing to do, one of the proposals on an international basis is for tradeable energy quotas. The objective is to have a quota for affordable energy and price stability, so that people can plan day to day; but it is only a quota, and the rest is effectively driven by market demands. The important point about that proposal is that the whole of the world’s wealth does not then go to the middle east while we pay a ludicrously high price for oil. 

My expectation is that the proposal will not be taken particularly seriously, although I have raised the issue with the international payment bodies, because they need to put into their protocols the facility to take such action. However, if we encounter price spike after price spike over time and the associated economic disruption, the quotas option will need to be looked at. I wanted to put that on the record. I accept that the Government do not support such quotas, but they need to be looked at

on an international level, because the alternative is to sell everything to the middle east to get our oil, which is not a sensible alternative. 

5.31 pm 

Justine Greening:  We have heard very interesting contributions from the hon. Member for Bristol East and of course from my hon. Friend the Member for Birmingham, Yardley. I thank the Committee for this afternoon’s constructive exchange of views. 

The hon. Lady is right that the “Europe 2020” strategy will not be enough on its own. We must ensure that that strategy translates into action on the ground. The annual growth survey is one way we can make sure that that happens. She also said that different countries are perhaps in different regulatory positions and have different labour markets, so they might want different degrees of regulation. She is right, and it is one of the reasons why we have been very keen to fight our country’s corner in Europe. However, it is also recognised that each member state has to produce its own individual national reform programme, which will then get a tailored response from the European Commission and the European Council. Therefore, part of the European semester process should ensure that we get a more thoughtful analysis, tailored to member states, of what needs to be done across Europe at EU level to drive growth than perhaps has been the case before. 

I heard the hon. Lady’s point about the need to ensure that there is more material on different sectors. I agree with her. Part of “The Plan for Growth” was about asking, “What can we do for several key sectors explicitly to help to drive growth?” Those sectors include manufacturing, which has halved during the last decade. That focus on different sectors is important. 

The private sector is one thing, but of course, the hon. Lady’s other point was that the public sector remains critically important. That is one of the reasons why we are engaged in so much reform of public services. We want to ensure that public services deliver for people in the 21st century and that they are fit for purpose for Britain today. 

I challenge the hon. Lady on one issue. She made some constructive and helpful comments about the annual growth survey, but here in the UK many people would be very keen to see her party’s plan for growth. We published a plan last week that was holistic and detailed, containing well over 100 individual measures to help stimulate companies, jobs and growth. It would be good to see her party’s plan for growth, and its plan for tackling the fiscal deficit. As we know, April is just a few days away. We are a few days away from the time

when Labour would have put in place £14 billion of cuts, had it remained in government, yet we still have no idea what those cuts would have been. 

The Chair:  Order. I think we are drifting away a little from European growth and on to Labour party plans. We should stick to European growth. 

Justine Greening:  That is a good idea, Mr Bone. There are no Labour party plans, so it is very easy for me to move back to the motion. 

The hon. Lady mentioned skills and young people, which is important. Interestingly, the youth unemployment rate in the UK is slightly lower than the European average, although it is still too high. It was going up under the previous Government and as we come out of recession we are particularly keen to make sure that we focus on getting young people into work. It is one of the reasons why, last week, we talked about 100,000 more work placements for young people and 50,000 extra apprenticeships. Focusing on getting our young people into work is key for this Government. 

The hon. Lady also talked about imbalances, and the fact that the growth survey refers to countries in surplus and those in deficit. I can assure her that we are one of the countries in deficit, which is why we are taking steps to tackle that problem. Making sure that we have the right incentives for people to get back into work is a key part of tackling that deficit. As the hon. Lady pointed out, people who are not in work are not only unproductive; there are associated benefits costs. She briefly mentioned the universal credit. It is interesting that many other countries are already studying our proposals on the universal credit to see whether it can be adapted to their own social models. 

It is probably premature of me to comment on the thoughts of my hon. Friend the Member for Birmingham, Yardley on peak oil. No doubt he will pursue them with vigour, as is his wont on matters that take his interest, and I am sure he will be very effective. We will all look with interest to see how those thoughts develop. 

I welcome the broad consensus we have shown today on the actions we need to take at EU level. The Government will therefore continue to press the case for reforms and we will continue to show leadership in the EU. In the next few days the Prime Minister will launch our EU growth paper, as part of our contribution to the debate about how we can drive growth across the European Union, and I believe that the Committee has given the Government a mandate to prioritise growth ruthlessly at the EU level. 

Question put and agreed to.  

5.37 pm 

Committee rose.