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As I said in my intervention, I understand that what is being proposed is that the 2013 budget will be higher, and will become the fixed 5% cash increase ceiling between 2014 and 2020. However, it is said the total amount of the budget as a share of EU gross income will fall from 1.12% to 1.05%. I support what the Government are saying, but let us be fair about what is happening. There will be a cash increase ceiling, and the budget will fall in real terms as a share of overall EU income.

Stephen Williams (Bristol West) (LD): Will the hon. Gentleman recognise that one reason for that fall as a proportion of total European income is that some elements that are currently within the budget are being taken out of it and accounted for in a different way?

Geraint Davies: No, I do not accept that, but I do accept that there need to be structural changes in the budget, such as a reduction in common agricultural policy funding and more focus on growth, investment and tooling up Europe to compete with emerging markets. All those factors are important. Government Members who think this is all a complete waste of money and that we would be better off spending it at home on chip shops miss the point of having a commonality in research and innovation, and of making Europe more successful for the future. The Government seem to be completely ignorant of any strategic undertakings or documentation that come out of Europe on how to push smart, sustainable and inclusive growth. That is missing from the Government’s armoury—they focus always on cuts and never on growth, and they are missing the wood for the trees.

On the Tobin tax, I clearly do not support a tax when 80% of it would fall on Britain and when it would undermine Europe’s competitiveness. I share the view of the shadow Minister, my hon. Friend the Member for Nottingham East (Chris Leslie), that we should look for an international basis for such a measure. That said, we need to understand that an international Tobin tax would fall primarily on the US and the UK.

My understanding is that the rebate has been frozen at £3.2 billion a year for the next seven years, but we need to realise that if the gross contribution is increasing, our rebate is going down proportionately. The Prime Minister should argue harder for the rebate to increase at least at the same rate as the increase in our gross contribution. Without further ado, I shall come to a conclusion, because I know that many hon. Members wish to speak.

4.35 pm

Mr William Cash (Stone) (Con): First, I should like to demonstrate the extent of the documents that I will discuss in the next five minutes, just to give some indication of what is going on.

Secondly, as Chairman of the European Scrutiny Committee, I had the opportunity to go, on behalf of our national Parliament, to a conference on the multi-annual financial framework. It was a complete farce. Mr Barroso, our Minister for Europe, Ministers from other countries and their permanent secretaries and so on were all there. I was completely staggered by their inability to have the faintest idea of what was going on. I said to them, “You are living on another planet!” Somewhat unusually, I ended up being congratulated by our UKRep

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representatives on at least spelling that out. It is devastating how far removed those people are from the realities of life, as my hon. Friend the Member for Northampton South (Mr Binley) said.

On the structural questions, the proposals—the financial transactions tax and the change to greater own resources—are fundamental changes. The chairman of the European parliamentary committee, Mr Alain Lamassoure, who gave us the benefit of his many speeches, and who has written a huge pamphlet on the subject, is living on another planet. In the meantime, a meteor has hit planet Europe and huge chunks are falling off it, but it is still spinning, even when the whole thing is disintegrating in front of our eyes. These people are astonishing.

With respect to the Minister, I look to the future with some concern, if only because we could end up with another increase in spending despite the blandishments of the motion. Delighted as I am that right hon. and hon. Friends have signed the motion, I issue that cautionary note.

Mrs Main: I would like to test the resilience of the proposal about whether we have to pay more, and say, “No more will we pay,” and see what happens. We for ever capitulate when we are pressed to the point. I would like to say, “This is the will of this sovereign Parliament, and we will not pay any more”. We should test that

Mr Cash: I, too, take that view. My hon. Friend is completely right. I note that the motion states that the House

“supports the Government’s ongoing efforts to reduce the Commission’s proposed budget”.

I would hope to go further, but we shall see.

Mr Peter Bone (Wellingborough) (Con): The Prime Minister said at the Dispatch Box that he wanted to gain more reductions, but seemed to imply that he was held back by qualified majority voting. Does my hon. Friend believe that the Prime Minister has a veto, or is it down to QMV?

Mr Cash: I have already quoted article 312. There is no doubt that the whole process can be blocked by unanimity, but once the European Council has made a decision to go ahead, the decision reverts to qualified majority vote. I think that is right, but the Minister will correct me if I am wrong.

I want to deal with one fundamental question that came up over and over again. That conference was regarded as important because it supposedly carried the national Parliaments with it. That was partly the case, although it did not apply to the United Kingdom Parliament—certainly not to me in my capacity there. Growth is the key question, but, over that too, they are living on another planet, because their idea of growth simply means more investment of public money. I had to ask them, “Where is the money coming from?” There were about 300 people there—I was a little bit in the lions’ den, but it was worth doing simply to see the unreality. As T. S. Elliot said:

“humankind cannot bear very much reality”.

When I asked, “Where’s it coming from?”, they said, “The taxpayers”, but it is not coming from the taxpayers; it is coming from small business men all over Europe, who, when running their businesses profitably, can then

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be taxed. But what if they cannot run them profitably? Here we have the problem with social employment laws, and I had the temerity to mention to them things such as paternity and maternity leave, the working time directive, the temporary agency directives and the rest. I told them about the scale of redundancy payments. We saw the Channel 4 programme the day before yesterday on pensions in Greece. Apparently, when people leave work, those pensions remain, for the rest of their lives, equivalent to what they had earned per year when working.

The growth must come from the small and medium-sized businesses. I have here another of these documents—none of them ever see the light of day, but I have the pleasure of being able to tell the House about it today. This one is entitled, “Towards a European Consensus on Growth”, but it, too, is completely and utterly unrealistic. There is no serious understanding of where the money comes from or of the fact that the result of having no growth in Europe is that there is no growth here either, because 40% of our economy is tied in to Europe. But these people will not change the structural system or the labour laws.

The EU representatives are talking and talking, but they are doing and doing nothing, and as a result, this black hole, whether Greece, Italy, Spain or wherever else in the EU, is condemned to getting deeper and blacker, simply because there is no realisation of where the money comes from in the first place. That is the problem at the root of this multi-annual financial framework. The whole project is based on a con trick of monumental proportions. They believe that they simply need to spend money on infrastructure and bridges—I would like to know where the contracts are going and how they are composed—but that does not solve the problem of the small businesses that simply cannot operate in the kind of environment that Europe now represents. That is all I need to say. This is a dead parrot.

4.42 pm

Mr Nigel Dodds (Belfast North) (DUP): It is always a pleasure to follow the hon. Member for Stone (Mr Cash). I well recall when the House, not that long ago, passed an amendment in his name under which there was to be no annual increase in the EU budget. It was a wise amendment, and I was delighted that the House supported it.

I want to reflect on what happened last year—the Financial Secretary mentioned this—when the proposal was for a 6.2% increase in the annual budget. Despite all the tough talk, we ended up with an increase of 2.9%—at a time when budgets are being slashed in many areas vital to our constituents—and people were mystified about why, after all the tough talk, we had agreed to an increase. Today the Financial Secretary has spoken those dreaded words—“qualified majority voting”—and I am worried that we will end up in a similar position this year, despite all the tough talk. I am particularly concerned because I recall the tough talk not just on last year’s increase, but when the question of the European External Action Service came before the House and we were told that it would mean no increase in the budget. It transpired, however, that there would be a £400 million spike increase in the budget for that.

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I was also worried when I saw that, after the European Parliament debated the matter on 26 October in Strasbourg, 52 of the 120 MEPs who voted against the annual increase were UK Members. It does not augur well for gathering together a coalition of those who are prepared to stand against this increase, when more than 420 MEPs voted for it.

I am glad to say that the Democratic Unionist party Member of the European Parliament was among those who voted against, and I am delighted that, on this occasion, every single member of the UK delegation to the European Parliament who actually voted, voted against. I have to note, however, that five Lib Dems, one Plaid Cymru Member and two Greens abstained, which I think is amazing on a vote that attracts such consensus in this House. I am sure that their colleagues here will want to ask their European colleagues exactly why they decided to abstain rather than vote against.

The proposal for an increase of £834 million in the UK contribution, which would bring our overall contribution to more than £14 billion indicates just how out of touch are the Eurocrats and many in the European Parliament. It also illustrates why we need a referendum on our relationship with the European Union. We have a situation in this House today where we are going to agree to what I think is an excellent motion signed by many excellent Members and it will be passed unanimously. People in the country will think, “That’s it, then. The sovereign Parliament of the United Kingdom has declared its position.” Yet, there have been hints, and the Financial Secretary is already paving the way for a further statement at some point, about some increase because we are subject to a qualified majority voting process. We are not masters of our destiny in respect of something as vital as the spending of almost £1 billion of taxpayers’ money.

That goes to the heart of the debate about our relationship with Europe: the incapacity of this House, of Members on all sides, even when they agree, to implement something on which the vast majority agree —virtually everyone apart from a few Lib Dem and Green MEPs, it appears—and yet we cannot do anything about it. This illustrates far more eloquently than anything any of us could say why we need this referendum sooner rather than later, so that we can address these fundamental inadequacies in the entire process, which leaves us sitting here today, talking about an issue, passing resolutions but powerless in this sovereign Parliament to do anything about it. I hope that the Government and all Members will take that on board.

4.47 pm

Richard Drax (South Dorset) (Con): What a pleasure it is to follow the right hon. Member for Belfast North (Mr Dodds). It is an honour, indeed, and I entirely agree with everything he said.

It is encouraging to hear our Front-Bench team mention words such as “resolve”—a word that seems to have disappeared from the English dictionary for a while. I wish they would follow up their words with action. What further evidence do we—the Government, the country, the world—need to see to show that this whole federalist nightmare is not working? It is undemocratic and corrupt.

I have people in my constituency who are trying to borrow £10,000, £20,000 or £30,000 to keep their businesses and jobs going. They simply cannot get it. Yet we are

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prepared to give Greece—and, I suspect, Italy—billions and billions of euros to a cause that is lost. It is quite beyond me, quite beyond my constituents and quite beyond most people in this country.

Both motions being debated today will, in their own ways, grant further powers and resources to the EU —despite our best intentions. We have heard that the Government have succeeded in reducing the annual budget increase from 2011 from 6% or thereabouts to 2.9%. I welcome that. Like my hon. Friend the Member for Stone (Mr Cash), I hope that it will remain at that level.

As to the multi-annual financial framework, these words are marvellous, are they not? The MFF—a slip of the tongue could get one into all kinds of trouble—now commands our attention. I am relieved that the European Scrutiny Committee has recommended that these documents are seen in this House. Only here can such decisions be taken. The absence of precise details about the Commission’s proposal is concerning, and I note that because of that absence, the European Scrutiny Committee has suggested that we focus on the Commission’s expenditure ambitions and revenue proposals.

The Government estimate that the overall MFF budget represents an average increase of £13.5 billion a year over the period. The UK contribution to the MFF between 2014 and 2020 is provisionally estimated to be 14.5% pre-rebate and 11.5% post-rebate. I agree with the Government that such extravagance is completely unacceptable, particularly when the level of public debt in member states will be 50% more than it was in 2007. The Commission argues that much of the increased expenditure is already committed to EU-wide projects, and suggests that there will be no increases in administration costs. That is hard to believe, given that the Government identified £1.1 billion of administration costs in this year’s budget alone. I am glad to hear that there is no possibility of the UK’s agreeing to the level of expenditure contained in these documents.

The revenue proposals are equally serious. For obvious reasons, the EU’s ultimate aim is to finance the budget entirely from so-called “own resources”—which are, of course, nothing of the sort, and will become so only after the EU has levied a series of new duties, taxes and tariffs on member countries for its own benefit. The documents suggest a financial transaction tax, a financial activities tax, the auctioning of revenue from the EU emissions trading scheme, an air transport tax, a new VAT, an energy tax, and an EU corporate income tax. That is utter madness. It is for us in this House to decide issues of national sovereignty. The European Commission deludes itself in stating that such measures do not affect our right to rule ourselves. Document 12478/11 states:

“It should also be stressed the proposals for new ‘own resource’ have no impact on national sovereignty.”

I strenuously disagree.

Finally, there is the question of the rebate. Perhaps most important is the suggestion that the current financing system must

“simplify the existing correction mechanisms”.

In plain English, that means the UK rebate, which is now in the Commission’s sights. Our relative prosperity is held against us, as is the open-ended nature of the rebate, but without it our net contribution to the EU as a percentage of national income would be twice as large as France’s contribution and 50% larger than that of Germany.

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In these dying seconds, I urge the Government please, please to begin to stand up for our country and our future.

4.52 pm

Mr Denis MacShane (Rotherham) (Lab): I stand as a resolute Thatcherite on this question. In 1940, Polish pilots came and grappled with the enemy, getting much closer than our pilots while risking their lives, and shooting down proportionally many more planes. Forty years later, Polish Solidarity helped to dig the grave of European Communism. What is our response? Today Poland is the fourth larger contributor to the UK rebate, despite being a much, much poorer country.

That is why, in the 1980s, the Prime Minister—now Lady Thatcher—was happy to see Britain’s contribution to the European Community budget, as it was then, rise from £656 million in 1984 to £2.54 billion in 1990. During the same period, the EC budget grew threefold. When taxed by Labour Members of Parliament—including my right hon. and good Friend the Member for Blackburn (Mr Straw), who said, “She has come back from Brussels, hauled down the Union flag and hauled up the white flag of surrender to Europe”—the Prime Minister said “No, no, no: we must help our new friends and encourage growth in the economies of the countries that are joining Europe.” Well, we are a different Britain now. We do not like the Poles, and we do not like Poland. We are saying to the Poles, “Keep signing a very large cheque for our rebate.”

There has been much talk about unaccountable transfers of money. May I draw the House’s attention to one very unaccountable and huge transfer of money? I refer to the £40 billion that it is proposed that we should give to the International Monetary Fund, which is unaccountable and secretive and whose staff salaries make the average EU salary look like pauper’s pay. That sum—£40 billion—is more than the entire amount raised in corporation tax in Britain each year. It is bigger than the combined budgets of the Foreign and Commonwealth Office, the Ministry of Defence, the Department for International Development, the Department for Culture, Media and Sport, and all Departments except for the big spenders who have responsibility for costly areas such as the NHS and social security. We are happy to send that £40 billion to Washington with barely a nod or a debate in this House, but it is a far bigger sum than any amount being imposed in respect of Europe.

I agree with the points about maintaining budget discipline, but I ask the Minister to confirm in his winding-up speech that from 2014 to 2020 the EU budget is due to increase by 11%, which is a rise of well under 2% per year—far below current inflation rates in this country. I have every sympathy with the Minister, because I have done some of this work in Europe myself and, frankly, dealing with EU budget questions makes the Rosetta stone translation look like child’s play.

The bottom line is that the EU budget will not go above 1% of Europe’s gross national income because it cannot do so. There are debates to be had about how this money should be spent, and 85% of it comes straight back to nation states, including Britain, to spend on agriculture subsidies and structural and regional funds. If we did not have a common agricultural policy, we would have to have a British agricultural policy, and

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I can assure colleagues that our farmers’ lobby would extract a far bigger share of taxpayers’ money than it does under the CAP.

Martin Horwood (Cheltenham) (LD): Will the right hon. Gentleman give way?

Mr MacShane: No, because I want to conclude.

This is not just a European question. The signal we are sending around the world is that we are open to business but are closed to foreigners, and that we want inward investment but want to disconnect from Europe. We are sending a very negative and dangerous signal that we do not like the biggest single market in the world and we do not want to be full partners with the rest of the 500 million people living under the rule of law and democracy.

I understand Front-Bench colleagues’ interpretation of the Robin Hood tax—the fair trade tax—but I feel a lot happier in the current economic crisis standing with the spirit of St Paul’s rather than the spirit of bean counters.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Many Members still wish to speak, so I ask Members to be as brief as possible.

4.57 pm

Mr Peter Bone (Wellingborough) (Con): It is a great pleasure to follow the right hon. Member for Rotherham (Mr MacShane), although I did not agree with a single word he said.

I rise to support the motion in the name of the Financial Secretary to the Treasury, which is signed by me, my hon. Friends the Members for Kettering (Mr Hollobone), for Bury North (Mr Nuttall), for Basildon and Billericay (Mr Baron), for Worthing West (Sir Peter Bottomley), for Brigg and Goole (Andrew Percy) and for Harlow (Robert Halfon), and my right hon. Friend the Member for Wokingham (Mr Redwood). It is disappointing that no Member from Her Majesty’s official Opposition or any Liberal Democrat felt able to sign the motion. How can anyone disagree with a motion that says that the EU budget proposed by the Commission is

“completely unacceptable and an unwelcome distraction from the pressing issues that the EU needs to address”,

that declares it

“supports the Government’s ongoing efforts to reduce the Commission’s proposed budget”,

and that states that

“the Commission’s proposal for very substantial spending increases compared with current spend is unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK and in countries across Europe”?

Martin Horwood: Will my hon. Friend give way?

Mr Bone: No, I am not giving way.

How can anyone disagree with a motion that states that the

“proposed changes to the UK abatement and new taxes to fund the EU budget”

are “totally unacceptable”?

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Why on earth did Opposition Members and our Liberal Democrat coalition colleagues not support the motion? May I suggest that Labour did not do so because of embarrassment, as—

Martin Horwood: Will my hon. Friend give way?

Mr Bone: I am not giving way to anyone, because I want other hon. Members to have a chance to speak later.

Martin Horwood rose—

Mr Bone: I must go back to talking about Labour, and I suggest that its approach arises from embarrassment, because in its 13 years in power it rolled over to each and every command put to it by the European Union. The lack of Members on its Benches just goes to increase Labour’s embarrassment. Labour does not understand how a Government could put British interests first and stand up to the European political elite. I suggest that the approach of our Liberal Democrat partners does not arise out of embarrassment; it arises because they love European bureaucrats spending British money without any proper democratic accountability to the British people. If the Lib Dems had their way, we would be in the euro and in a complete financial mess. Of course they represent 8% of the British electorate, but they are likely soon to be overtaken by the United Kingdom Independence party, which is at 6% in the polls.

We have a British bulldog of a Prime Minster who is taking the fight to Europe and putting British interests first, second and third. At least on the Conservative Benches there is unity on wishing the Prime Minister success in reducing the budget. We have a superb Minister, and we want the message to go out that our Prime Minister is going to Europe to get a reduction in the budget and to explain to the Europeans that they cannot spend and spend and spend. My speech goes on to say that “the Deputy Prime Minster thinks”—well, actually that is where it ends.

5.1 pm

Stephen Williams (Bristol West) (LD): I am glad to have the opportunity to speak, especially after that generous build-up. We are having a curious discussion. We have had many European Union discussions in the past few months, and I cannot recall my hon. Friend the Financial Secretary being received with such warm accolade on every occasion as he has been on this one. I am sure that must have cheered him. We saw the curious alliance of Conservative Eurosceptics and Labour Eurosceptics when there was discussion of the possible demise of the eurozone. However, on this issue we might actually have tri-party agreement. May I assure my hon. Friend the Member for Wellingborough (Mr Bone), even though I am a Europhile within the Liberal Democrats—that phrase must make him shudder—that my party has usually been at the forefront of calling for reform from within the European Union? We do that because we want the European Union to work. We want it to be a success and we are certainly not blind to its shortcomings.

Chris Leslie: Will the hon. Gentleman therefore confirm that Fiona Hall, the leader of the UK Lib Dems in the European Parliament, posted an article on 15 July that said:

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“It’s time to consign the UK rebate to history, along with the rest of Thatcherism”?

Stephen Williams: That is not a position of this coalition Government at Westminster. As a good democrat, the hon. Gentleman will recognise that decisions that we make in local councils or in the European Parliament, where people have their own electoral mandates, do not bind parliamentarians in this House. That is the way in which our democracy works and we take a different stance on the matter here.

The European Commission has asked for a 5% budget increase, from €966 billion to just over €1 trillion, for the second half of this decade. Most of our constituents would find it extraordinary that a request is being made for the EU budget to wax while people in every member state are having to endure the waning of their budgets. It was right that last December five large net contributors to the EU budget—the UK, Germany, France, the Netherlands and Finland—called for a freeze in the EU budget for the second half of this decade. I would like the Minister to tell us whether the Government are seeking a cash freeze or a real-terms freeze.

Whatever the level of the budget, it certainly is a budget in drastic need of reform. The common agricultural policy still accounts for more than 45% of the European Union’s spending, whereas research and development accounts for only 6.7%. The Commission is actually proposing a switch between those budgets, but that switch is made possible only by the Commission’s call for a larger budget. It is simply ludicrous for the European Union to continue to have agriculture as its largest area of expenditure, rather than the industries of the future—industries where the UK is well placed. We are currently the largest recipient of EU funds for research and development, and that is the budget that should be expanded. The priority for the United Kingdom coalition Government should be to negotiate a major shift within the EU budget and certainly within the existing level of resources. To clarify the issue for the hon. Member for Nottingham East (Chris Leslie), I say that our budget rebate should remain while the EU budget remains in its current unreformed and out-of-date state.

On sources of revenue for the European Union, I share the sentiments expressed by the Opposition Front-Bench team that it would not be right for the EU to take on the personality of a federal state and have taxes paid directly to it, whether that be VAT or the proposed financial transactions tax. There is a very good case for a financial transactions tax being levied once we can have international agreement among the global financial centres, many of which lie outside the European Union, but there is no case at all for the European Union itself to pinch that money, which the people who have campaigned for the Robin Hood tax have earmarked for other purposes. May I reassure my colleagues that the Government are right to call for a freeze in existing EU budgets? However, they should also vigorously press the case for reform.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. There are three speakers and eight minutes.

5.6 pm

Jacob Rees-Mogg (North East Somerset) (Con): It is a great pleasure to follow my hon. Friend the Member

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for Bristol West (Stephen Williams). I am tempted to say that there is more rejoicing in heaven over one sinner who repenteth than over the 99 who are not in need of repentance.

I have very little time, so I shall address the veto briefly. It is crucial to be clear that there is a veto on the multi-annual financial framework, which applies from 2014, but not on the annual budgets between then and now. The Government are therefore in a very strong negotiating position for that framework but not necessarily for the annual budgets. They are also in a very strong negotiating position regarding the own resources issue, which is also subject to the veto.

I must confess that I rejoiced at the Minister’s speech because we have been hearing for the first time since 1997 a proper and solid view on how we should interact with our European friends and neighbours. However, there is one issue to which I should like to alert Her Majesty’s Government. The budget is drawn up in euros and we have to be careful about what currency that might actually be in the lifetime of the budget. It is of concern to me that the euro might collapse between now and the end of the budget, and that if it were to be a German euro it could be substantially higher in sterling terms than the current euro. We ought therefore to get some acknowledgement of the currency risk in any budget negotiations so that we can protect our position in sterling. That really is a crucial point.

I want to mention own resources, because, as my hon. Friend the Member for South Dorset (Richard Drax) said, they are not own resources. As Margaret Thatcher once said, it is our money, and we must not let the EU get at our money if we need it for our own purposes.

Finally, as time is short and you want me to wind up, Mr Deputy Speaker, let me mention the financial transactions tax. This is the work of the devil and it must be opposed. We have heard a lot of wishy-washy stuff about “If we get global agreement.” Well, thank God for Lee Kuan Yew, because I think we can be confident that the good people of Singapore will say no to this awful nonsense. A financial transactions tax would not tax invisible, non-existent people: it would fall on the citizens and subjects of the United Kingdom. We must oppose it. We must be robust in opposing it and we must not let the European Union get its grubby little hands on it.

5.8 pm

Andrew Percy (Brigg and Goole) (Con): It is a pleasure to follow my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who made a fantastic speech. I wanted to address the dangerously pro-European speech of the right hon. Member for Rotherham (Mr MacShane), but sadly he has left the Chamber. We heard from him the usual nonsense about how anybody who opposes the European Union in some way hates foreigners, which is not the case at all. I was going to say to him that he should ask the people of Rotherham what they want their money to be used for and put that to a referendum. They might keep re-electing him out of some sort of strange fondness, but I strongly suspect that they do not agree in the slightest with his views on the European Union.

I was intrigued by the words of the hon. Member for Nottingham East (Chris Leslie). Obviously, we on the Government Benches are most grateful for his support

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for the motion. I was not quite sure whether he was suggesting that, had he been here during the previous Parliament, he would have made sure that the rebate that the previous Government gave away without any reform would not have been given away. He certainly seemed to be making a pitch for a better job, if nothing else.

I was happy to sign this motion for the simple reason that I listen to the constituents of Brigg and Goole. I am not the brightest individual, as anyone who has heard my speeches will confirm, and I have not read through all the relevant documents. However, when I speak to my constituents about what they want to have done with their money, they tell me that the last thing they want is for it to be sent off to an institution with massive bureaucracy whose accounts have not been signed off for 16 years, only for large parts of it to be spent elsewhere. I am a passionate advocate of our withdrawal from the European Union, and I have listened to my constituents. Following the recent vote, I received hundreds of messages telling me that I had done the right thing, and only one from an individual telling me that I had done the wrong thing—

Mr Bone: That was a Whip!

Andrew Percy: No, it was a constituent who informed me that we could not have a referendum on the European Union because the people do not understand the arguments—the usual patronising guff that comes from pro-Europeans.

I fully support the motion, which is why I put my name to it, but we should be going much further. Apart from leaving the European Union, we should be going much further while we are in it to ensure that our budget contribution is substantially reduced. My constituents simply cannot understand why an ever-increasing amount of their hard-earned money is being sent off and spent by that institution.

Andrew Bingham (High Peak) (Con): Does my hon. Friend agree with my constituents who have written to ask me why the European Commission just does not get it? They point out that, when they are keeping their own budgets under close control, the Commission should be doing the same, instead of proposing these continual increases.

Andrew Percy: Yes, I do.

5.11 pm

Mr David Nuttall (Bury North) (Con): As ever, it is a great pleasure to follow my hon. Friend the Member for Brigg and Goole (Andrew Percy), who speaks straightforward common sense. I also rise to support the motion. We have had a good debate, and I want to make some brief points.

First, we must not lose sight of the fact that, under the proposed new EU budget, there remain very few net contributors to the budget. Perhaps if more EU nations contributed to it, the EU might become a more prudent organisation. Secondly, I agree with the wording of the motion that states that the Commission’s proposal for an increase is

“unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK”.

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Those words would be a good candidate for the winner of the understatement of the year competition.

The Government state, in paragraph 97 of their explanatory memorandum on the EU budget, that their provisional estimate of the UK contribution to the next EU financial framework is 11.5%, after the UK rebate has been taken into account. The Commission’s proposed ceiling for EU payments within the financial framework over the period from 2014 to 2020 is €972 billion, so a UK contribution of 11.5% on that level of EU payments would see this country paying in almost €112 billion, which is about £96 billion at an exchange rate of £1 to €1.6.

Mr Cash: Is my hon. Friend aware that, according to the European Commission’s proposal for the lump sums “adjusted for relative prosperity”—the annual lump sums relating to the period from 2014 to 2020—Germany’s would be adjusted to €2.5 billion and the United Kingdom’s to €3.6 billion, which is more than Germany’s?

Mr Nuttall: No, I was not aware of that, and I am grateful to my hon. Friend for bringing it to the attention of the House.

This country will need to contribute about £70 billion to the EU budget during the Parliament that will run from 2015 to 2020. Finally, the EU is proposing a substantial extension of its ability to collect its own revenues by introducing new, EU-wide taxes—the so-called own resources decision. It is also proposing a new, dedicated EU VAT and a new financial tax. And, just to rub it in, it is proposing to end the UK’s rebate.

EU officials should spend more of their time ensuring that eurozone nations start to live within their means and less time devising new ways to tax my constituents. The EU wants to spend more and wants the UK to pay more. The EU wants to scrap the UK rebate, and the UK wants to bring in new Euro-taxes. To each of these, and to echo the words of Baroness Thatcher, it is absolutely right that our Government should say no, no, no.

5.15 pm

Mr Hoban: This has been a helpful debate. It is good to see that harmony has broken out on the EU budget—something that some of us thought was unlikely. There has been a clear expression of view across the House that the EU Commission’s proposals for increases, not just in the 2012 budget but in the multi-annual framework, are excessive and need to be curbed. I welcome the support for the Government’s approach to building a coalition of allies to curb the increases and seek to restrict the increase in budget to no more than a freeze in real terms.

I want to correct the misconceptions of one or two Labour Members. The hon. Member for Nottingham East (Chris Leslie) lectured us on the need to stay firm on the rebate. That was an extraordinary position, given what happened under the previous Government. He said that the UK rebate had gone up in cash terms since the 2005 deal, but let me tell him that the OBR’s forecast says that, thanks to the giveaway by the previous Government, our rebate falls from £4.2 billion in 2009-10 to £2.7 billion in 2010-11. That is the cost of having a Labour Government in office when these debates are being held in Europe.

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The right hon. Member for Rotherham (Mr MacShane), who I notice is not in his place, said that Poland was the fourth largest contributor to the UK abatement. Well, he should get his facts right; it is actually the sixth largest. But of course Poland is the largest net recipient of funds from the EU, and our support for developing the Polish economy far exceeds its contribution to our rebate.

In this settlement, we are looking for a rebalancing of funds to help economic development in those accession countries to give a spur to the economy, and that is in the long-term interest of the UK economy. The right hon. Member for Rotherham said that the EU budget was capped at 1% of EU gross national income. It is not. If one looks at what is on and off-budget, one sees that on average, over the course of the financial framework, EU spending is 1.11% of European GNI, in breach of that condition. He and the hon. Member for Swansea West (Geraint Davies) were also misled by the presentation of the numbers. It is clear, and the information in our report demonstrates clearly, that the EU Commission proposes a real-terms increase in spending, and that is simply unacceptable when countries across the EU are trying to curb their deficits and tackle their public spending.

We will take a tough line in the negotiations on the budget and the financial framework. We want to ensure that Europe lives within its means rather than seeking to expand its means with new taxes and expanding its own resources. Europe should spend the money it has wisely and well. I hope that the House will support the motion before it today.

Question put and agreed to.


That this House takes note of European Union Documents Nos. 12478/11 and Addenda 1 and 2, 12474/11, 12480/11, 12483/11, 12475/11 and Addenda 1 to 3, and 12484/11, relating to the Commission’s proposal on the next Multiannual Financial Framework (MFF), 2014-20; agrees with the Government, that at a time of ongoing economic fragility in Europe and tight constraints on domestic public spending, the Commission’s proposal for very substantial spending increases compared with current spend is unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK and in countries across Europe to bring deficits under control and stimulate economic growth, that the next MFF must see significant improvements in the financial management of EU resources by the Commission and by Member States and in the value for money of spend and that the proposed changes to the UK abatement and new taxes to fund the EU budget are completely unacceptable and an unwelcome distraction from the pressing issues that the EU needs to address; and supports the Government’s ongoing efforts to reduce the Commission’s proposed budget.

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Credit Institutions and Investment Firms

5.18 pm

The Financial Secretary to the Treasury (Mr Mark Hoban): I beg to move,

That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.

I am pleased to have the opportunity to discuss the European Union’s proposals on prudential requirements for the financial sector, and I welcome the Scrutiny Committee’s thorough report on the issue. I find myself in a slightly odd position today, in that the motion before us today, which stands in my name, was tabled by the Committee. The Committee has done a fantastic job in identifying this issue around subsidiarity, and we shall be supporting the motion.

Mr William Cash (Stone) (Con): Will my hon. Friend give way?

Mr Hoban: I am one minute in to my speech and my hon. Friend wishes to intervene. I am happy to give way.

Mr Cash: My hon. Friend would need to be only half a minute in for the point that I am about to make. There are some recommendations sculling around in the Procedure Committee and the Liaison Committee that the Minister would not necessarily have to reply to the questions put forward by the European Scrutiny Committee and by the Chairman. Is my hon. Friend aware of that?

Mr Hoban: I am indeed aware of that and I think it is a good thing. Although my hon. Friends and I see eye to eye on many of these issues, there may be an occasion when a reasoned opinion is put forward which the Government do not quite agree with. That would put the Government and the Committee in a strange position.

I agree with the Committee that the Commission’s co-proposals on prudential requirements raise serious concerns over subsidiarity and, as drafted, the proposals seriously undermine the efficacy of the Basel reforms in the EU. As argued in the Committee’s report, the proposals for maximum harmonisation will severely restrict the ability of member states to conduct macro-prudential policy. They limit the ability of member states to respond to the unique characteristics and risks of their market, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdiction.

We cannot risk being straitjacketed into a one-size-fits-all approach in setting prudential levels. Across Europe, no two financial systems are the same, and in a system where euro area banks face the same centrally set interest rate, it is even more important that member states retain the flexibility to use other tools for financial stability. Let me deal with these issues in a little more detail.

As hon. Members are aware, the Commission’s proposal on prudential requirements is the mechanism by which the EU will implement the Basel III agreement to strengthen

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capital requirements and introduce minimum liquidity and leverage standards, changes that are absolutely necessary to correct the failures that preceded the latest crisis. Basel III is an ambitious agreement, a strong demonstration of collective endeavour and ambition, and an agreement that will fundamentally reform the global financial system. As we agreed with our international counterparts at the G20:

“We are committed to adopt and implement fully these standards”.

There are those who would seek to use current economic circumstances to row back from full implementation of Basel III—those who argue that full implementation would undermine growth at a time when we need to do everything we can to support a global recovery. We disagree. At a time of instability and at a time when bank balance sheets are under intense scrutiny and pressure, now is not the time to row back from strengthening those balance sheets. Stability is in itself a vital precondition for growth, and Basel III sets out the vital reforms that we need to increase stability in the banking sector.

Earlier this year the Commission published its draft regulation on prudential requirements for the financial sector. Despite the G20 commitment to implementing Basel III in full, the draft regulation deviates from that agreement in crucial areas. In doing so, the proposals significantly dilute the minimum standards agreed internationally for global banks and increase the taxpayer’s potential exposure to future losses. As the Scrutiny Committee highlights, the draft regulation also seeks to embed maximum harmonisation of prudential requirements.

I share the Committee’s concern that the draft regulation will severely limit the ability of member states to conduct macro-prudential policy, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdictions. We believe that it remains the case that member states are best placed to identify risks to financial stability in their jurisdiction. This is particularly the case when it comes to taking action concerning their own financial stability. Given the considerable experience, expertise, information and knowledge available to member states, it is difficult to see how the Commission can be considered to be better placed to assess macro-prudential conditions, systemic risks and appropriate policies for each member state than the member states themselves.

Furthermore, it is not clear that the Commission would be able to respond faster than the competent authorities of member states to risks as they arise. Therefore, I share the Scrutiny Committee’s concern that the inclusion of article 443, which contains a delegated power for the Commission to adopt delegated acts to impose stricter prudential requirements on member states, is entirely inappropriate. Not only is subsidiarity a matter of economic principle, but it is a matter of past experience. The financial crisis taught us that it is vital that national authorities retain discretion to react decisively and speedily to economic developments. It is vital that member states retain their flexibility to adjust prudential requirements to respond to emerging systemic risks and cyclical variations in economic activity, which, as we have seen in the build-up to the eurozone crisis, can be very large.

The crisis also taught us that we were not alert to those systemic risks, and not just at the firm level. It is

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vital that we are not caught out again. National authorities must retain the tools and flexibility to tackle those risks. Therefore, although Basel III provides an historic and coherent set of minimum standards, the ability to go beyond them if necessary and deploy macro-prudential policy to tailor our response to idiosyncratic macro-financial risks is in our vital economic interest.

We are not alone in making that judgment. The previous head of the European Central Bank, Jean-Claude Trichet, has said that

“the Basel requirements are minimum, and they have to be considered as minimum.”

Likewise, the IMF argued in its UK spillover report:

“UK financial stability will be weakened (with adverse spillovers) if EU rules constrain UK financial regulations at insufficiently ambitious levels or if they limit the ability to use macro-prudential instruments to address emerging risks.”

Retaining that flexibility will not, as the Commission has suggested, undermine our commitment to the single rule book. Of course, a single rule book helps to reduce the burdens on cross-border firms, but that cannot come at the expense of a member state’s ability to implement higher prudential regulations. Instead, a single rule book that establishes harmonised definitions and minimum requirements would protect the flexibility to allow member states to adjust their prudential requirements as necessary, while at the same time helping to reduce burdens on cross-border firms.

Indeed, recommendation No. 10 of the Larosière report on financial supervision states that

“a Member State should be able to adopt more stringent national regulatory measures considered to be domestically appropriate for safeguarding financial stability as long as the principles of the internal market and agreed minimum core standards are respected.”

It is interesting that we have an agreement here. My hon. Friend the Member for Stone (Mr Cash), Jacques de Larosière, who is the architect of the financial regulation, and the Government all agree with that we must have the flexibility to go further if that is appropriate.

I believe that we have a once-in-a-lifetime opportunity to reform financial services and ensure that we embed a system that works in the interests of consumers and underpins stable and sustainable economies. The Government have neither dithered, nor delayed in implementing fundamental reform of our financial sector and our system of regulation. We are reforming the failed tripartite system, leading the debate on the future of the financial sector through the Independent Commission on Banking and leading the international agenda for full and fundamental reform across the global financial system.

At a time of instability, the European Commission will inevitably come under pressure to delay, obfuscate and pander to vested interests across the EU that want to soften standards. It is critical that the Commission stands firm against those pressures and, with respect to the prudential requirements legislation, implements the Basel agreement in full. We must ensure that the Basel requirements are implemented as harmonised definitions and minimum requirements, not a maximum, that member states have the flexibility to respond to the unique risks and characteristics of their own markets, and that we implement regulations that are effective, credible and consistent. I commend the motion to the House.

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5.28 pm

Chris Leslie (Nottingham East) (Lab/Co-op): The capital requirements directives have sought to translate the proposals of the Basel Committee on Banking Supervision and apply them across the EU. Today’s proposal, CRD IV—another acronym that is familiar to many of our constituents—attempts to update those arrangements so that they fit the circumstances of today’s banking system and learn the lessons of the global financial crisis. As the Minister said, no one disagrees that the quality and quantity of capital that banks hold in order to absorb losses should be increased, and there is broad consensus on that.

CRD IV will make four changes. It will, first, introduce sanctions to ensure that all EU banks comply; secondly, prevent over-reliance on credit rating agencies, which should not substitute for proper internal due diligence; thirdly, improve corporate governance in the banking sector; and fourthly, address the pro-cyclicality of lending, which can accelerate the expansionary tendencies of an economic cycle. The difficulty comes when the Commission proposes “maximum harmonisation” in order to achieve a single EU rule book for banking, preventing member states from setting higher standards beyond the levels proposed in the directive.

I am aware that many City institutions also favour a harmonised international approach to regulation, but such an approach could render many of the recommendations of the Vickers commission, for example, redundant as we would simply be unable to introduce tougher standards here in the UK. The EU says that the directive is to prevent a race to the top, but we need to ensure that our financial services industry—by far the largest and most systemically important of any EU country—has a regulatory system that can protect UK taxpayers and UK consumers. After all, when domestic banks fail, domestic taxpayers have to come to the rescue, so we need domestic regulation that has the room and flexibility to go beyond any internationally agreed minimum standards.

Mr Cash: The hon. Gentleman acknowledges, I am sure, that the real reason why we are in the situation we are in—I shall make a short statement about it later on behalf of the European Scrutiny Committee—is that we have transferred such jurisdiction to the European Union. As I said in a letter to the Financial Times the other day, we are fighting back against the background not only of the City having moved against the proposals, but of our having opened the sluice gates and allowed it to happen.

Chris Leslie: The hon. Gentleman’s work on the European Scrutiny Committee has been useful in respect of the proposals before us, and it would have been helpful if the Minister had clarified where we stand in terms of qualified majority voting versus any veto options that we might have. I would be grateful if the Minister could set them out.

Mr Hoban: The regulation and the directive would come in through QMV.

Chris Leslie: Which proves the point that we need to ensure that we negotiate firmly.

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The motion before us is worded correctly. It focuses very much on subsidiarity, and on article 443 and the proposals that would give the Commission the right to vary national regulations, even though it would prevent member states from changing their own rules beyond the maximum harmonisation arrangements—a step, I believe, too far. I agree with the draft reasoned opinion and, therefore, with the motion that the Clerk of the House forward this view to the presidents of the European institutions.

Article 443 does indeed go too far, and it would not be appropriate. Paragraph 18 of the European Scrutiny Committee’s report sums that up well, stating there is no evidence to prove that

“the Commission is better placed than the competent authorities of Member States to address national prudential concerns. Indeed, there is a strong argument to say that national authorities are not only better placed, but can react more quickly than the Commission can by means of delegated legislation, thereby enhancing financial stability.”

Graham Stringer (Blackley and Broughton) (Lab): Does my hon. Friend agree that the Commission almost certainly knows that it would not be better at that than the regulatory authorities, and that what is behind this regulation is an attack on the City in order to up the game of Frankfurt and Paris? It must be resisted at all costs. It is much more malevolent than just a bureaucratic mistake.

Chris Leslie: It is difficult to ascribe motives to the Commission in all circumstances. My hon. Friend may well be right, but then again I have also talked to some of the City’s large banking institutions, which have in some ways argued in favour of harmonisation, so it is a mixed picture. I agree with the Government on the point before us, however, and it is important that we stand firm and retain the flexibility of higher standards if we possibly can.

Kelvin Hopkins (Luton North) (Lab): Is it possible that those banks that seem to favour harmonisation think that they might have an easier time under Europe-wide regulations than under more stringent regulations from the British Government?

Chris Leslie: My hon. Friend may well be correct. “Who knows?” is the ultimate question, but his cynicism has been proved right in the past and may well be right today.

The motion is a sensible assessment, and asking the Clerk to send a reasoned opinion to the presidents of the European institutions is absolutely right, but what happens next? Will the Minister set out in a little more detail the consequences of today’s motion, and whether we would have any prospect of shaping our own financial regulatory agenda if, indeed, many of the changes in the directive went through regardless of the opinion that we sent? The mismatch between the Commission’s view and the UK’s position is only the tip of the iceberg or, to use a better metaphor, only the beginning of the story.

I am afraid to say that the Government’s proposals for financial regulation have not been properly thought through and clash so much with European regulatory arrangements that they just will not be able to stand up adequately to their strength and power. Ministers knew very well that the EU supervisory institutions would be

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split across thematic groups around banking, pensions and insurance, and markets. Yet according to the Minister’s legislation, we are choosing to split our arrangements between prudential and conduct regulation.

I agree completely that we need a greater focus on prudential regulation, but there is a growing risk and increasing evidence that our UK institutions may leave us in a tangled mess unable to engage effectively with those very powerful EU structures. That concern is shared not only by Opposition Members, but across the City and other financial service sectors. If our voice is not adequately heard, we may be unable to be represented properly in the right meetings at the right time.

It is not just the Opposition who are saying that. Last year, the Financial Services Consumer Panel said that

“the current European structure under the ESMA would be a poor fit with the proposed new UK arrangements and that this could potentially weaken the UK’s voice in the European Union.”

In September, the British Bankers Association said that

“little has been related on how the regulators will go about ensuring…that UK representation around the European table is second to none. There has not, for example, been acceptance of the suggestion made by the industry that consideration be given to maintaining a single international secretariat across the relevant authorities as a common shared service and the establishment of cross-authority teams to ensure that UK representatives at the three European Supervisory Authorities and other European and international committees are in a position to draw upon all relevant expertise and knowledge.”

The Association of Independent Financial Advisers—incidentally, I am attending its annual dinner this evening—said in September:

“The AIFA is concerned that the twin peak approach to UK regulation is not consistent with the developing European sectoral approach. We must ensure that the UK system is able to efficiently interact with the European system and does not lead to significant confusion for regulated firms and cost inefficiencies, or damage the competitiveness of the UK.”

Indeed, two weeks ago, the Chairman of the Treasury Committee, the hon. Member for Chichester (Mr Tyrie), said in a letter to the right hon. Member for Hitchin and Harpenden (Mr Lilley):

“How will the PRA and the FCA co-ordinate their interaction with the new European Supervisory Authorities which do not neatly match the twin-peaks model—particularly where both financial stability and consumer protection outcomes may be considered together at an EU level? With an enormous amount of EU legislation under way, how will the EU regulatory authorities ensure that UK interests are represented with one voice?”

So there has been a barrage of anxiety about the Government’s proposals and how the design of their domestic regulatory arrangements will fit with those European supervisory structures. The Minister has time to think about those matters before introducing the Bill. If we try to persuade EU regulators to comply with our approach to financial regulation retrospectively, it will genuinely be like shutting the stable door after the horse has bolted.

Mr Cash: The shadow Minister is perhaps being rather disingenuous when he says that the Minister may have time to think before the Bill comes through. I am sure the hon. Gentleman understands that, under the arrangements for the European Union, where a qualified majority vote is being applied and the measure becomes

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part of our law, we implement it under section 2 of the European Communities Act 1972. There is absolutely nothing we can do on the Floor of the House to reverse that unless we apply the provisions of my sovereignty arrangements notwithstanding the 1972 Act. It is about time we started to do so.

Chris Leslie: I am simply highlighting the anxieties felt across the City, the financial service sector and by many hon. Members, who are worried that we are stepping into a new set of financial service regulation structures domestically within the UK that are far away from those bodies we need to be influencing, steering and having our voices heard by. It may well be that we are stepping in the wrong direction. That is the anxiety I am voicing today.

Jacob Rees-Mogg (North East Somerset) (Con): I am very grateful to the hon. Gentleman for allowing me to interrupt his characteristically thoughtful speech. Given what he is saying, does he think that this would be a very good, if not ideal, area in which to repatriate powers?

Chris Leslie: I do not think it is wrong to try to have some level of co-ordination on financial services regulation across the EU. This is a global industry, and that is broadly sensible. However, we now know very well how those supervisory institutions of the EU are to be structured, and yet we are designing new arrangements for the post-Financial Services Authority world that do not match very suitably with those. There may be different approaches to how we can make the fit more effective and improve Britain’s voice. However, there is genuine concern that even though we knew about these arrangements 18 months ago, the Government have not yet provided the capability to adapt the regulatory reforms to ensure that we do not lose influence—and, in fact, build our influence.

As regards the capital requirements directive, it is clear that for the time being we need to resist the Commission’s challenge to proper subsidiarity and give our reasons for retaining national discretion to have safer and higher standards for financial regulation here in the UK.

We support the motion but hope that Ministers will take the opportunity to think more strategically about how best to address the structural mismatch between their proposed reforms and the European arrangements, because that risks marginalising the UK’s voice time and again.

5.41 pm

Mr William Cash (Stone) (Con): Before I go into the question of subsidiarity, I want to raise some matters that relate to what the shadow Minister said. He made some extremely important remarks. I am sorry that our own Front Benchers did not address those questions, because they know that they are very much on my mind and have been for a very long time.

The Minister said I would be glad to know that he and Commissioner de Larosière were ad idem as regards the de Larosière report. I have to say that I have been anything but ad idem with Mr de Larosière and his report for three or four years. The moment I saw the report, I wrote a letter to the Financial Times in which I

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pointed out that it was a very dangerous move and that its consequences would lead to jurisdiction over the City of London being transferred to the European Union. With all due respect to the shadow Minister, his Government were in power at the time this was under discussion. He has been issuing strictures about negotiations, but I am not interested in negotiations when 20% of our GDP is at risk in relation to a legislative system that will completely and totally undermine and annihilate our ability to maintain that strength in the financial services sector. I directly blame the previous Government for their total failure to do anything about this.

I will go further. I also blame those on our side of the equation who allowed this to happen, because it is, at the very least, acquiescence in a system. Before the general election, my hon. Friend the Member for Ludlow (Mr Dunne)—my own Member of Parliament—convened a meeting in the Grand Committee Room relating to these matters. Some very distinguished people were present. There were people from the City of London, the City institutions and the City of London Corporation, as well as the rapporteur, or lady in charge, of the financial services arrangements for the European Commission. It was a very high-powered conference. Despite the fact that I put up a very strong case for ensuring that this nonsense, from our point of view, did not continue, I found—not unusually, I have to say—that I was completely and utterly outvoted. At least, I was out-manoeuvred by a number of people, not on the quality of their arguments but on the sheer force of their attitudes, which amounted to saying, “This is a global marketplace, this is what we have to do, we must engage in a situation where the rest of the world works together.” We now hear the same talk about the dreadful proposal for a financial transactions tax.

The reality is that the City has woken up. The hon. Member for Nottingham East (Chris Leslie) mentioned the British Bankers Association. I have not examined every document that has come from these great and august bodies, but I fear that they did not do the right thing at the right time and that they allowed this situation to happen. The Government and the Opposition of the time went along with the idea that it would somehow be beneficial to the United Kingdom for it to be put in this peril—and peril this is. The House is fairly thinly attended this afternoon, but I venture to suggest that these documents, which are six inches high on just the one issue of European Union prudential requirements, are a dagger pointing at the heart of the City of London.

The Minister rightly said that the proposal severely undermines Basel. He said that we will negotiate firmly. However, as I asked the Prime Minister yesterday, how will the Government be able to do anything about it in the context of the fiscal union that they propose, which must include voting solidarity among the members of the eurozone, who have long wanted to take the City of London away from us, when this issue is governed by a qualified majority vote? I have taken the trouble to look this up and my best recollection is that there are 231 votes for the 17 members of the eurozone compared with 130 votes for the rest. We are in a permanent massive minority. That is what is going on. It is a kind of economic warfare. This is not just about Euroscepticism; this is an issue that goes to the heart of our capacity to deliver revenues and prosperity in this country.

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There may well be cases for reform. I have great sympathy for those who think that the City has gone off beam recently in many respects, including on salaries, pay and remuneration. Some of those points are exaggerated, but some are justified. I think that we should go back to a system of regulation that is more along the old Quaker lines, whereby one knew what one’s capital was and how to use it properly, and through self-regulation people who were out of line were put back into line by common consent. That is for another day, but I am deeply worried.

My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) raised the question of repatriation. Why is it that I have argued consistently for the repatriation of powers, not just in social and employment legislation, which again is for another day, but in the kind of powers we are discussing? If the City of London goes down or is severely diminished, it will do nobody any good. Those who vote for the Labour party would also be affected because we need that money. For three and a half centuries, the City of London has been at the heart of our financial system and our revenue base. We cannot afford to have that money redistributed, like so much chaff, among the other member states.

Graham Stringer: The hon. Gentleman is making the powerful case, with which I agree, that this is malevolent legislation that is directed at undermining the City of London. I suspect he will agree with me that the Government should use the fundamental crisis at the heart of the European Union to be as brutal and as determined as possible in bringing back as many powers as they can, because the European Union is not a benevolent body when it comes to the UK’s interests.

Mr Cash: I very much agree with the hon. Gentleman. The more I have heard from him over the past few years, the more I have admired his determination to speak the truth. That is the position. This is not a party game; this is serious and it is deadly. This move is determined and deliberate. That is what people need to know.

Roland Vaubel, the famous economist from Mannheim university, talks about the use of the qualified majority voting system in the Council of Ministers as a form of “regulatory collusion”, and mentions the strategy of deliberately raising rivals’ costs. Particular groups of countries—there are no prizes for guessing which—enter into arrangements behind the scenes, and vote accordingly. Both France and Germany use that system to their advantage, and as I said in the Financial Times the other day, we are being outmanoeuvred.

Despite all the time, money and effort being put into the Vickers report, there are, as the shadow Minister made clear, serious worries that Vickers may yet be undermined by the very proposals that we are discussing. The problem goes much further, but I do not need to enlarge upon all that any more.

Some people tend to sneer at the idea, which I occasionally put forward, that our sovereignty is the most important issue of all. I say that for one reason and one reason alone—it is only by exercising the sovereignty of this House on behalf of the British people that we have any chance of being able to return and repatriate powers if the other member states are not prepared to negotiate.

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I am prepared to listen to the Prime Minister telling me that he will fight hard, or whatever answer he gave me yesterday, but I remain totally unconvinced. We are at risk as a result of proposals such as these, so it is absolutely essential that we get things right. When I wrote a pamphlet for him—in fact, for the general public—called “It’s the EU, Stupid”, I set all that out, so I do not need to enlarge on it any further.

I have got out of the way the general points that I believe are necessary to put the whole matter in context. I see the Foreign Secretary laughing a little. I do not hold that against him, but I have to say that this is no laughing matter; it is a very serious question. We are reduced to having to argue about reasoned opinions and subsidiarity. Important though those are, as I have said, there is a dagger pointing at the City of London. Not just this particular draft regulation but an accumulated vast array of weaponry is being aimed at the heart of our economic system.

Mr Andrew Turner (Isle of Wight) (Con): Could my hon. Friend help by reminding me how much is owed to the City of London as a proportion of national income?

Mr Cash: It has been declining, and that is another reason for concern, but the latest figure is something of the order of 15% to 20% of our gross domestic product. Take that away, and where would we be? The draft regulation is a deliberate attempt to do that, and it is only one document of many.

The aim of the Basel Committee on Banking Supervision is to

“enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.”

I hope that it succeeds. However, the various directives in question relate to the taking up and pursuit of the business of credit institutions and to capital adequacy, and they are collectively known as the capital requirement directive or CRD. They introduce a supervisory framework within the EU, designed, it is stated, to

“ensure the financial soundness of credit institutions (banks and building societies) and certain investment firms.”

I take a slight interest in that, because my family founded the Abbey National building society back in the 19th century and the National Provident Institution in 1835. Those institutions were run on sound grounds and lasted until very recently, but have unfortunately now been mopped up as a result of some of the international goings-on in the financial sphere.

In 2011, the European Commission proposed a draft regulation—the document referred to in the motion—and a draft directive, known together as CRD IV. They would incorporate the Basel III agreement on prudential requirements for credit institutions and investment firms into EU law. How often have I said that the danger is that when a matter is transferred to EU jurisdiction, we lose control? Because of section 2 of the European Communities Act 1972, we cease to be able to control it. We hand over control of the drafting, method and interpretation of the law, and its effect on our own institutions, our own initiative and our own ability to be innovative and succeed.

The proposals are still before the European Scrutiny Committee, pending the receipt of further information

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from the Government. Meanwhile, the Committee has recommended that the House submit a reasoned opinion on the draft regulation to the European Commission, the Council of Ministers and the European Parliament. A draft is annexed to the Committee’s report. I mention that because if enough member states issue a reasoned opinion, we will be able to stop the proposals. I strongly urge the Government to get as many member states as possible together, and I am sure they are doing that, if only to retrieve the situation as best they can.

Of course, as we all know, other member states will know what we are up to, and they will not enter into an arrangement to submit a reasoned opinion. We have seen that in the past—we do not get the requisite number of member states, and the proposal goes through. This is a test not just of the Government but of the integrity of the system. If a reasoned opinion is required because the Commission has exceeded its powers in relation to subsidiarity, nothing should prevent that from going ahead on an objective basis. I am not trying to pre-empt the decision, but I am anxious, on the grounds that I am about to mention, for other member states to understand that a reasoned opinion is necessary. It is in their hands to prevent the proposals from going through.

I turn now to the argument about the objectivity of a reasoned opinion. When the Commission makes a proposal for legislation, it is now required under the European treaties to produce a “detailed statement” that makes it possible to appraise the proposal’s compliance with the principles of subsidiarity. I do not for a minute demur from what I said during the Maastricht debates—that subsidiarity was a con trick intended to establish hierarchies, not true subsidiarity. We shall see.

That detailed statement is not just a bureaucratic procedure for its own sake, although one might be forgiven for thinking that some in Brussels think it is. It is the principal means left whereby national Parliaments and electorates can assess the basis on which the Commission considers legislation to be necessary at supranational rather than national level. The presumption underpinning subsidiarity is that decisions are best taken as close to the citizen as possible. Amen to that, providing that it happens.

It is not sufficient to underline the importance of those detailed statements. I remind, or inform, the House that no piece of European legislation has ever successfully been challenged in the Court of Justice of the EU on the grounds that it breached subsidiarity. Not one. That sends a very powerful message. There is not a little suspicion, therefore, that subsidiarity is just something to which lip service is paid. It strikes the democratic gong, but is not followed by any lunch. One of the jobs of national Parliaments—that is us here in the Chamber—is to try to change that position.

Kelvin Hopkins: I suggested yesterday in European Committee A that, as the hon. Gentleman suggests, subsidiarity has not functioned well. In fact, I do not really understand it myself. I suggested that it was a political decoration, to overcome a difficulty. The reality that I would understand is opt-outs and opt-ins, with member states having the independence to do what they thought was right for their interests.

Mr Cash: I very much agree. All that I can say is that on this occasion, there will be a very good test of whether subsidiarity can win the day. Let us see.

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Given the importance of the detailed statement, the treaty makes several stipulations about what it should contain, which include an

“assessment of the proposal’s financial impact…in the case of a Directive, some assessment of the proposal’s implications for national and, where necessary, regional legislation; and…qualitative and, wherever possible, quantitative substantiation of the reasons for concluding that an EU objective can be better achieved at EU level.”

When the European Scrutiny Committee looked at the draft regulation, it found—not by any means for the first time—that neither the Commission’s explanatory memorandum nor its impact assessment contained a detailed statement to make possible an assessment of its compliance with subsidiarity. Hon. Members should bear it in mind that the draft regulation, which is of immense importance, amends the capital requirements directive by removing the discretion previously given to member states to impose stricter prudential requirements where national circumstances require that. That is a significant change. Indeed, the Government argue that it could lead to greater financial instability and, as the Minister said, could severely undermine Basel. It will be seen from the draft reasoned opinion that the Committee concluded that the Commission failed to discharge the treaty obligation placed upon it to provide quantitative and qualitative reasons for that change in the form of a detailed statement.

Putting the procedural failures to one side, the House will gather from the draft reasoned opinion that, on the substance, the Committee agrees with the Government that the objectives of the regulation were not better achieved by precluding member states from imposing stricter prudential requirements when they considered that necessary. The Committee came to that conclusion because it was clear from the Government’s explanatory memorandum that there continued to be a need for a flexible approach to address prudential concerns at a national level. That reality was reflected in the fact that the Commission proposes in article 443 of the draft regulation that it should be able to adopt delegated Acts to impose stricter prudential requirements for member states where necessary. The Committee could not find sufficient evidence to demonstrate that the Commission was better placed than member states to address national prudential risks that suddenly arise. Indeed, there was a strong argument for saying that national authorities were not only better placed, but could react more quickly than the Commission by means of delegated legislation, thereby enhancing financial stability.

I also have grave misgivings about the Commission having such powers delegated to it—ever. EU delegated legislation is not unlike our own: it affords considerable Executive power with far less oversight.

Finally, the Commission’s approach to the consideration of subsidiarity is a matter of concern not only to the European Scrutiny Committee, but to every national Parliament of every member state. I hope that they take note and do something about it, because a great deal is at risk. At its last meeting, COSAC—the bi-annual conference of the EU Committees of national Parliaments, which I attended—concluded that the Commission was not complying with the treaty obligations placed upon it to provide sufficiently detailed statements. That was on the motion that I proposed, which was accepted by COSAC. This was good news, because the Committee had been

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pushing for it. We await a response from the Commission, but we need support from other member states.

I repeat: I urge the Government to use all their diplomatic and persuasive powers, because we are put at a significant disadvantage as a result of the transfer of functions to the European Union. If there is sufficient opposition from enough member states, we can defeat this proposal.

6.3 pm

Harriett Baldwin (West Worcestershire) (Con): I shall be brief in following my hon. Friend the Member for Stone (Mr Cash) and in supporting the reasoned opinion. I also hope to strengthen and add to some of the arguments made by the Minister and the Opposition spokesman from the Dispatch Box in favour of subsidiarity in banking regulation.

If there is one over-arching lesson that we learned from the financial crisis of the past few years, it is the importance of having the primary banking regulator close to the financial market. I welcome the direction of travel on financial regulation in our national life, which will place much more importance on the role of the Bank of England, because the Bank follows what is happening in this country’s financial markets on a day-to-day basis.

It is instructive that the United States—a country that has had monetary union for the past century—is also caught up in the financial crisis. That subsidiarity in banking regulation continues to apply in the US in that each state is responsible for banking licences and supervision in its jurisdiction.

Mr Cash: I am fascinated by my hon. Friend’s line of argument, because she has raised the question of commercial states’ rights, which are embedded in the American constitution—they are inviolable. Countries in the EU have no such rights. When legislation at EU level goes through—this is why I so strongly attack and resist the idea of transfer of jurisdiction to that level—we are required under the 1972 Act to implement the law. We do not have commercial states’ rights.

Harriett Baldwin: Indeed, and to continue with my example, the US Federal Reserve is very much a system of individual reserve banks—the Federal Reserve Bank of New York and the Federal Reserve Bank of San Francisco all play important and distinct roles, recognising that different banking markets have different characteristics, and recognising how vital subsidiarity is in banking regulation.

My heart sank when I asked at the Vote Office for papers relevant to today’s motion and was handed this 1,200-page document. We discussed earlier how the EU could save money on its budget, but the document is a prime example of where money could be saved. It is completely unnecessary.

I opened the document at random and found that one proposal is to start dictating quotas for women on the boards of financial institutions in the EU. Page 1,132, which I am sure my hon. Friend the Member for Stone will want to read in detail, is on quota laws for the number of women who sit on the boards of financial institutions in different countries. I noted that in the table of a survey of governance arrangements, Iceland

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and Norway are included, but the last time I checked, they were not even member states. I put myself firmly in the camp of people who think that the more diverse range of views one has on boards, the better, but I certainly do not think that that should be laid down in 1,200 pages of EU guidance.

Mr Cash: To give another example, article 218 refers—incomprehensibly—to the so-called financial collateral comprehensive method. To illustrate how far away we have moved from the notion of running a capitalist and financial system sensibly, we are now down to formulas. I shall try to quote it. The document states:

“Institutions shall calculate the volatility-adjusted value of the collateral (CVA) they need to take into account as follows …CVA = C (1 - HC - Hfx)…where…C = the value of the collateral”.

That is absolute gobbledegook, but that is the manner in which our system is run. It is completely mad.

Harriett Baldwin: I can see that if I carry on giving examples, I will only encourage my hon. Friend to find more passages of gobbledegook to read into the record, but it is indeed the most appalling document.

Mr Nigel Dodds (Belfast North) (DUP): The hon. Lady makes powerful points on subsidiarity. We have had some fun at the expense of the document, which is long, convoluted gobbledegook, as the hon. Member for Stone (Mr Cash) said. However, the reality—this makes my heart sink too—is that unless we get enough countries in Europe to agree with us, the document will become directly applicable law in the UK. That is how serious the matter is. When one considers the amount of scrutiny that we rightly give to legislation in the House, one realises that the amount of scrutiny given to the document is appallingly low.

Harriett Baldwin: What adds to the power of the right hon. Gentleman’s argument is the fact that this week, of all weeks, we have seen how completely inadequately the euro countries have managed the governance of their budgetary arrangements and affairs over a matter that is causing serious problems for the world economy.

I wish to conclude by making one further point. I was completely gobsmacked by the chutzpah—if that is a parliamentary word, Mr Deputy Speaker—of the Opposition spokesman, the hon. Member for Nottingham East (Chris Leslie). Although I welcome the fact that he agrees with the motion, I noted that he did not refer to the previous Labour Government’s role in signing us up to the Lisbon treaty without a referendum. It displayed a stark lack of acknowledgement of his party’s role in getting us to this position.

I have spoken briefly because there is important business to follow, but I want to reiterate how important it is that the Financial Secretary be armed with the maximum political support for his trip to argue our case against this ridiculous 1,200-page document.

6.11 pm

Jacob Rees-Mogg (North East Somerset) (Con): It is a pleasure to follow my hon. Friend the Member for

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West Worcestershire (Harriett Baldwin). I agreed with practically every word she said.

I want to focus on subsidiarity in relation to the bank capital requirements. It seems to me that those capital requirements must rest with the lender of last resort, because the organisation that will be best informed about the requirements of banks within its system will be the bank to which they report. This regulation might therefore be an area where it is suitable for the eurozone to have a single regulation, but where those outside the eurozone ought to have regulations referring to their own currencies and central banks.

That works both ways. There has been much concentration on the need to raise bank capital rates when an economy is booming, as part of efforts to calm down an economic expansion, and that is obviously true: had bank capitalisation rates been raised during the last boom, the effects would have been lessened, the degree of gearing, particularly in the Royal Bank of Scotland, would have been lower and the problems that followed would have been fewer. However, it is equally important, when an economy is turning down, that bank capital requirements might need to be lowered, and that might well be the case now.

When banks face large amounts of bad loans and write-offs, we might need our central bank to say, “Well, at this point, we cannot enforce a high bank capital adequacy ratio because, if we do, our banks will not be able to continue in business, or they will not be able to make loans to good-quality borrowers now coming forward.” The key argument of subsidiarity, therefore, is that bank capital adequacy regulations have to relate to the currency at issue, and that comes back to the central bank at issue—in our case, of course, the Bank of England. Those ratios must be flexible beyond international agreement, because if the lender of last resort is willing to lend to a bank with low capitalisation in a time of crisis, that is a decision for that central bank and its risk-taking decision makers; it does not need to be decided at an international level.

My final point is the one made by my hon. Friend the Member for Stone (Mr Cash): there is a danger, under the qualified majority voting system, of regulations entirely suitable for the eurozone being passed through for the whole of the EU. Her Majesty’s Government need to be alert to that and to make every effort to prevent such regulations from being forced upon us. I hope, therefore, that this motion, when passed, will be taken seriously by the EU, and that we will be allowed to regulate our banks in our way, as appropriate.

6.14 pm

Mr Hoban: This has been a helpful and thoughtful debate, and it will give the Government immense support in making the arguments over the coming months about the need to get CRD IV right; about recognising that it should be the responsibility of competent authorities in member states to set appropriate levels of bank capital beyond high minimum standards; and about the fact that we need the flexibility to do so in order to protect the stability of our financial system. That recognises the fact that banking structures and systems vary between member states. The complexity of those banking systems manifests itself in the extraordinary length of the document before us. These are complex issues that we need to tackle.

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I want to make a point about engagement with Europe, picking up on the comments made by the hon. Member for Nottingham East (Chris Leslie) about trade bodies. The same comments were made to the Treasury Select Committee today. There is nothing new about regulators co-ordinating the views of others when representing the UK on regulatory bodies. At the moment, the Financial Services Authority is our representative on the European Securities and Markets Authority, and in its representative role, the FSA must also reflect the views of other regulatory bodies not represented on ESMA. For example, it must take into account and reflect the views of the Financial Reporting Council and, on takeovers and mergers, the Takeover Panel.

Furthermore, the European Insurance and Occupational Pensions Authority has to represent the views of the Pensions Regulator. If I am right, at one point, the UK’s representative on EIOPA’s predecessor body, the Committee of European Insurance and Occupational Pensions Supervisors, was not the FSA, but the Pensions Regulator itself. There is nothing new, therefore, about one body representing the views of other regulators in the UK on these European bodies, and it would be wrong to suggest that this is something novel or different.

We need to ensure that, under the new regulatory architecture, we are clear about who speaks for the UK on these matters. On the European Banking Authority and EIOPA, the Prudential Regulation Authority speaks for the UK, so it will want to gather the views of the Pensions Regulator and the Financial Conduct Authority on insurance issues, for example. It is clear that the FCA will represent the UK on the board of ESMA, and it will have to gather the views not only of the FRC and the Takeover Panel, as it does now, but of the Bank of England, on clearing houses, and the PRA on prudential issues relating to securities firms.

I do not therefore see this as some great novelty or innovation. It needs to work. However, surely no one in the House is suggesting that UK regulatory bodies should be driven by what is happening in Europe, rather than meeting the needs of businesses and consumers in the UK. I do not think that anyone is seriously suggesting that we have sectoral regulation in the UK, rather than functional regulation. If the Opposition want to go down the former route, let them say so, but we should find a way of ensuring that the current system works.

Chris Leslie: What is the Financial Secretary’s assessment of the British Bankers Association’s suggestion for a

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properly resourced international secretariat to ensure a better single interface with those European institutions? He might be right that we should not necessarily follow those European arrangements, but surely he accepts that a complex existing arrangement could be made even more complex by the proliferation of financial regulatory bodies that he is proposing.

Mr Hoban: The hon. Gentleman has just recommended such a proliferation of bodies—with this co-ordinating secretariat. The PRA and the FCA are more than capable of talking to each other about these matters. We need to ensure that they gather people’s views and that the interests of the FRC and the Pensions Regulator are reflected. However, I do not consider it to be the huge problem that he is inflating it to be.

It is also the case, of course, that the negotiation of level 1 instruments, such as the directive before us today, is the responsibility not of the PRA, the FCA or the Bank of England, but of Her Majesty’s Government and, in particular, the Treasury. It is very clear where the focus is; we do not seem to have any problem at all in co-ordinating the views of others for that process.

This has been a helpful debate. It will help strengthen the Government’s hand in negotiation with Brussels. It is very clear that it is not just the UK Government who believe that we should have the freedom to go further beyond minimum standards if necessary, and the freedom to set our own macro-prudential strategy. That is the view of the International Monetary Fund, the view of Jean-Claude Trichet and the view of Jacques de Larosière. There is a consensus around this. What is important, I think, is that the Commission listens to that consensus and takes the right action to enable member states to tackle financial stability. I am grateful for the support for this motion and commend it to the House.

Question put and agreed to .

Resolved ,

That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.

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Backbench Business

[Un-allotted Half Day]

Transport Committee Report (High Speed Rail)

Mr Deputy Speaker (Mr Nigel Evans): We now move on to the first of two items of Back-Bench business. I shall shortly call Louise Ellman to move the first motion—and, indeed, she will move the second. As I said to the House just over a year ago when we debated the first item under this relatively new procedure, the Chair of a Committee speaks for about 20 minutes, during which time interventions may be taken, but after he or she concludes there will be no separate speeches and we will move on to the next business.

6.21 pm

Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op): I beg to move,

That this House notes the publication of the Tenth Report from the Transport Committee on High Speed Rail, HC 1185.

I am grateful for the opportunity to present on the Floor of the House the Transport Select Committee’s report into high-speed rail. Our inquiry attracted widespread interest and considered strongly contested and diverse views on the Government’s proposal to build a dedicated, high-speed, Y-shape network, with trains running at up to 250 mph.

Phase 1 is proposed to run from London to Birmingham, opening in 2026. Phase 2 would add two legs to the line, with one going to Manchester and the other to Leeds, operating from 2032-33. The total projected costs are £32 billion, with £16.8 billion for phase 1. The former Secretary of State for Transport, the right hon. Member for Runnymede and Weybridge (Mr Hammond), told the Committee that, spread over 17 years, this was affordable and amounted to an average of £2 billion a year—very similar to the current costs of building Crossrail. Should this proceed, Parliament would consider a hybrid Bill from October 2013 to May 2015.

Our inquiry included consideration of more than 200 pieces of written evidence. We held five oral evidence sessions, with more than 40 witnesses. We travelled on high-speed rail in Frankfurt, Paris and Lille, and spoke to business and civic representatives there, so that we could make some assessment of the impact of high-speed rail on continental Europe. We commissioned a report on High Speed 2 from Oxera Consulting and asked for its analysis of the case put for High Speed 2. We appointed specialist advisers, Bob Linnard and Richard Goldson, to work with our excellent Committee staff. We took those steps because we recognised the importance of this inquiry and we wanted to listen to the greatest possible number of people with different views and different experience, and we wanted the highest level of advice and support in assisting us to analyse the validity of the project before us.

It is regrettable that people expressing sincere and legitimate concerns about what they fear would be the local impact of high-speed rail on their environment have been castigated as “nymbys”. People are entitled to express their views, and while a decision on a major investment of this nature should be taken in the national interest, people are fully entitled to express their concerns

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about what they believe might be the impact on them, their community and their local environment. Abuse does not help debate.

What are our conclusions? We conclude that there is a good case for proceeding with a high-speed rail network linking London and the major cities of the midlands, the north and Scotland, principally because it will provide a substantial and necessary step change in capacity and a dramatic shift in connectivity not offered by any of the alternatives proposed. This investment will assist passengers and freight. We reject a policy of ever-rising train fares in an attempt to suppress peak-time passenger demand. Current overcrowding is a consequence of a current failure to provide necessary capacity at a time when people want to travel and often need to travel.

The number of long-distance rail journeys more than doubled in the 15 years to 2009. Some of the highest growth has been on the west coast main line, where the number of journeys has increased by about 10% per annum for the past three years. The west coast main line passenger demand levels forecast by HS2 for 2021 have already been overtaken and are projected to increase.

Mr Andrew Turner (Isle of Wight) (Con): Will the hon. Lady help me by explaining how much money from the Government and how much from the customers or the users of the railway is involved? May I add that, as a representative of the Isle of Wight, there is no benefit whatever for me or my constituents if a lot of money is spent on a railway in the north of England?

Mrs Ellman: I thank the hon. Gentleman for his comments. Currently, the proportion paid by the traveller or fare payer is increasing and is now about half of the cost. That is very different from what applied in previous years.

We were told clearly that the west coast main line will be full by the end of this decade, which means that additional required routes and services for passengers and freight could not be made available. Our specialist advisers were clear that HS2 is needed for capacity reasons if the pattern of growth continues or if peak demand cannot be spread.

The step change that HS2 would bring does not apply only to people who would use the new line. It would enable expansion on the existing classic line for more local and regional services and for freight. Places such as Milton Keynes would benefit; freight on rail would expand—and demand for freight on rail is anticipated to double. When an assessment of the impact of High Speed 2 is made, it is important to look at what services could be made available on the existing classic line, as well as what would run on the new line.

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): As a Birmingham MP, it always strikes me that we focus on the benefits from London to Birmingham, but what about trade between Birmingham and cities in the north-east and north-west—another benefit that should not be ignored?

Mrs Ellman: I thank my hon. Friend for her comments. It is evident that the debate on High Speed 2 is often cast solely in terms of access to London, but this is also about access between major cities. For example, if and when the line is completed as planned, Manchester and

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Leeds would be brought within 80 minutes of London, travelling from Manchester to Birmingham would take 49 minutes, while Birmingham to Leeds would take one hour and five minutes. It is as much about the connectivity between the cities of the United Kingdom as it is between cities and their access solely to London. Indeed, a high-speed line offers a dramatic shift in connectivity between the UK’s major cities as well as improved access from the regions to Heathrow and, through linking with High Speed 1, to continental Europe.

A high-speed network could be a catalyst for economic growth, supporting jobs and investment. It could help to rebalance the economy and address the north-south divide.

Mr Andrew Turner: At present half the money comes from the Government, and a new railway costing about £18 billion is proposed. It is not clear whether people who can currently afford to travel would still enjoy the same benefits. Would the money that is being spent continue to be spent, or would the amount be reduced?

Mrs Ellman: Those are matters for Government policy. When we raised that specific issue with Ministers in the Select Committee, we were told that the current assessments were based on existing Government policy. That could, of course, change; it would be a matter for the Government of the day.

Many local authorities and business representatives, especially in the west midlands and the north, were extremely enthusiastic about the potential economic benefits of High Speed 2, and many referred to specially commissioned studies that showed what could be achieved. We do, however, have a number of concerns, which must be addressed during progress on High Speed 2 to ensure that the potential of a new high-speed rail network is realised and informs decision making. The Government must commit themselves to phase 2 before phase 1 is agreed.

Eric Ollerenshaw (Lancaster and Fleetwood) (Con): I congratulate the Select Committee on its exhaustive report. Would it not be useful if the Government found some technical way of including in the Bill provision for services to Manchester and Leeds, so that the north could give its full support to the railway?

Mrs Ellman: I agree with the hon. Gentleman. Indeed, if he reads our report, he will see that we suggested a specific form of words enabling the Government to do just that. I hope that the Government read the report very carefully, particularly the section to which I have referred.

The case for a high-speed line between London and the west midlands depends largely on the assumption that the Y-shape network will be completed. To provide a high-speed line that went solely from London to Birmingham would be to abandon the north, which I do not think many Members would want. Indeed, in the longer term the line could extend to Scotland, Wales and other parts of the United Kingdom.

It is important that local and regional economic strategies are drawn up and supported—that includes support from Government as well as the private sector—to maximise high-speed rail’s potential to rebalance the economy, but it is equally important that investment is maintained in the existing classic line, including initiatives

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such as the northern hub. Continued investment in the classic line is important for the purpose of local improvements, and people travelling on local lines must be able to benefit from the maximum possible access to the high-speed line.

Stuart Andrew (Pudsey) (Con): I congratulate the hon. Lady and the Committee on the report. She raised an important point about connectivity in the north. If people are to travel from London to the north and vice versa, once they have reached the north they will need to be able to travel effectively and efficiently, which they cannot do at present. I therefore believe that the northern hub is crucial to the success of High Speed 2.

Mrs Ellman: I agree with the hon. Gentleman. I hope that he will put his weight behind the views of the Select Committee, which is already working hard to ensure that the northern hub is delivered.

The Committee considered that further information was required to inform decisions on access to Heathrow and terminals in London. We felt that there was not enough information in the public sphere, particularly in relation to Heathrow. We also felt, strongly, that environmental concerns should be properly assessed in a revised business case. High-speed rail is likely to have substantial impacts on some local communities and areas along the route, and we need to be satisfied that full consideration has been given to an assessment of what those impacts might be.

Dan Byles (North Warwickshire) (Con): I join those who have welcomed the report, which contains a very thorough analysis. The Committee has entered a number of caveats alongside its support for High Speed 2. In the summary, the Committee calls on the Government

“to consider and clarify these matters before it reaches its decision”.

Does the Committee believe that the Government should not make a decision until all the points raised in the report have been clarified?

Mrs Ellman: If the Government decide to proceed, they should issue a statement of their intention to do so. We have already been told that more information will be made available before a statement is issued. Following that, intensive work should be done to deal with some of the issues that we have raised before the House considers a hybrid Bill in 2013. It is proposed that proceedings on the Bill should take place over 18 months, so if the Government decide to go ahead there will be plenty of time for consideration to be given and for more information to be produced before any final decision is made.

Ms Gisela Stuart: If the Government think it right to go ahead—and I agree with them—what will change between now and 2013? Surely the hybrid Bill can serve as a framework Bill, and it will not be necessary to wait until next year.

Mrs Ellman: While we are committed to the necessity for high-speed rail, we think it important for the detailed issues that we have raised to be considered fully.

Christopher Pincher (Tamworth) (Con): Will the hon. Lady give way?

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Mrs Ellman: I am running out of time, but I will give way once more.

Christopher Pincher: The hon. Lady says that the Committee’s report raises important points, and she says that the environmental impact has not been properly assessed. Does she believe that that impact will have a significant effect on the net cost-benefit ratio in the business case?

Mrs Ellman: That is an important point. I cannot anticipate what the impact would be, but we think that other factors, including the importance of reducing current overcrowding, should be assessed as well. Ultimately, any cost-benefit ratio would have to take account of the findings in regard to those factors, and possibly others as well.

The significance of the 250 mph maximum speed should be explained in relation to the choice of route, and the value of time-saving per individual should be reconsidered. The importance of reducing overcrowding should also be assessed. Much more progress must be made on decarbonising fuel before High Speed 2 can be seen as an essentially green project. Any reduction in carbon emissions that is attributable to high-speed rail should be determined by the extent to which the UK’s energy is decarbonised, although it is certainly true that travelling by high-speed rail is greener than travelling by car or plane. The information that we currently have does not make clear the extent to which high-speed rail would replace air travel, particularly in phase 1. We repeat our call to the Government to publish a transport strategy so that the role of rail and aviation, including high-speed rail, can be assessed in a national context.

Those are our major concerns. We believe that they must be addressed if the High Speed 2 legislation is to complete its passage through Parliament in what, as I have explained, would be a lengthy and detailed process. A decision to invest in a new dedicated high-speed rail network would be the single most important transport infrastructure investment for generations. Our report supports high-speed rail, and identifies important matters that must be addressed before final decisions are made on High Speed 2. I call on the Government to respond constructively.

Question put and agreed to.

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Cost of Motor Insurance

Mr Deputy Speaker (Mr Nigel Evans): The procedure for this motion will be as follows. Louise Ellman will speak for around 10 minutes. We will then move to full debate, which can last until 10 o’clock. Ministers will indicate when they wish to speak, which need not be at the beginning, and Louise Ellman will be afforded five minutes in which to wind-up at the end.

6.40 pm

Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op): I beg to move,

That this House expresses concern over the large increase in the cost of motor insurance in recent years, including in relation to young drivers; welcomes the report by the Transport Committee on the cost of motor insurance (HC 591) and its continuing inquiry into the reasons for this increase; notes that factors explaining the cost of motor insurance include the number and cost of personal injury claims arising from road accidents, assessment of risk, fraud, and uninsured driving; notes that the Government has taken some steps to deal with these issues, including a ban on referral fees in personal injury cases, but that more could be done; further notes that Ministerial responsibility for these issues is split across several departments; and calls on the Government to establish a cross-departmental Ministerial committee on reducing the cost of motor insurance and to publish a plan for dealing with the different aspects of this problem during this Parliament.

Members of the Transport Committee are signatories to the motion, and I thank the Backbench Business Committee for allowing me to move it.

Many Members will have received letters complaining about the rising cost of car insurance. People with clean records who have driven for years without incident have suddenly found themselves facing big increases in their premiums, and young drivers are now being asked to pay about £3,000 for insurance, effectively forcing them off the road.

The Committee started looking into this issue in November of last year, and we published a report in March. It generated massive interest. People are extremely concerned about their premiums, but serious questions about how the insurance industry works were also raised, and, unusually, we decided to reopen our inquiry.

It is, perhaps, fair to say that motor insurance was not the Minister’s highest priority before our inquiry began, but I hope it has become a higher priority now. Many Members have campaigned on the cost of motor insurance, and I single out for tribute my right hon. Friend the Member for Blackburn (Mr Straw), who has campaigned strenuously for the abolition of referral fees.

The AA’s regular survey of the cost of motor insurance shows that quoted premiums have more than doubled since 2006, reaching an average of £921 last month. The premiums faced by young people, and especially young males, are significantly higher—in many cases, about £3,000.

Jonathan Evans (Cardiff North) (Con): Did the Committee also look at the impact of the recent Test-Achats judgment on gender discrimination? At present, there is a significant disparity between insurance rates for young women and young men, but that case argues that the rates should, in fact, be the same.

Mrs Ellman: I thank the hon. Gentleman for his question. The Committee did not look specifically at that point, but I fear that if there is to be equity, it will be equity upwards, rather than lead to a lowering of premiums.

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High premiums have a major impact on the lives of our constituents. Motor insurance is rightly compulsory, but for many people driving a car is a necessity, perhaps for getting to work, to college or to hospitals for appointments, as well as for visiting friends and family, doing the shopping or taking children to school.

I and other Members have received a great deal of correspondence from people wanting to give examples of the problems they have experienced. I received a letter saying the following:

“My partner has just tried to insure me again on our vehicle which is not a sporty flash car, to be told that it would cost him an extra £1,370.”

A lady from Birmingham wrote:

“My car was involved in an accident where a lorry collided with my car. The driver accepted it was his responsibility…My renewal was due and my premium had increased from £700 to over £2,000.”

These stories illustrate why the Government must act.

Surprisingly, the recent increase in premiums has coincided with significant improvements in road safety, which is part of a welcome trend of falling numbers of deaths and serious injuries on the roads. Why have premiums risen so much, therefore?

There is better access to justice, with no win, no fee arrangements. Those arrangements are being changed, but we must not return to a situation in which justice is available only to the rich.

There is also cold calling, where claims management companies canvass for claims, often using personal information obtained from unknown sources. Where is the regulation of data protection that is supposed to be in place? Claims management firms deserve special scrutiny. They encourage people to claim, and to make multiple claims when they might not otherwise have done so. Premiums in the north-west are 50% higher than the national average, apparently because of the activities of these companies.

Referral fees have been in the news. They are paid to a number of players in the industry as a reward for passing on business, thereby encouraging claims and sometimes inflating bills. They are not paid to insurers alone; a number of bodies are involved, including insurance companies, solicitors, car hire firms, claims management companies, medical experts and vehicle repairers. Although the Government have started to act on referral fees, what they are doing does not encompass all those sectors of the industry, and neither does it take into account how companies might try to get around the abolition of referral fees. There are now alternative business structures, where non-lawyers can buy legal practices. How will the Government ensure that companies do not get around the ban on referral fees through taking such steps?

Fraud is a major concern, including the staging of accidents by criminal gangs. That adds £80 to the average premium.

Julian Sturdy (York Outer) (Con): The hon. Lady is making some powerful arguments on issues that the Transport Committee has addressed. Does she agree that we need greater transparency in the industry if we are to drive down the costs of motor insurance?

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Mrs Ellman: Yes, and the Committee has called for greater transparency, but the Government did not comment clearly on that point in their response to our report. As we did not get a clear answer then, I shall repeat the question now: what are the Government’s views on greater transparency?

Some criminal gangs commit fraud by staging accidents, but fraud can also include giving false information. We commissioned a survey with Young Marmalade, an insurance company specialising in young people, and a third of young drivers said they had considered giving inaccurate information to insurers in order to try to get a lower premium. There are plans to give insurers access to Driver and Vehicle Licensing Agency data, but when will that be implemented? Whiplash claims are another source of increased costs and premiums. We need to find a way of identifying when such injuries are genuine.

One of the reasons for the high premiums faced by young people, and in particular young males, is the high accident rates among them. The accident rates for young males are 10 times higher than those for older people. Some years ago, the Committee looked into this issue and made a number of recommendations, including changing attitudes and enforcing a graduated licence scheme, but we are still waiting for the Government to respond. We support the “black box” idea developed by some insurers to monitor and assess the driving standards of young people so that that information can, perhaps, be used to calculate their premiums.

I am glad that the Office of Fair Trading is looking into the industry, and that the Government have started to act by starting the legal process to ban referral fees, but do we truly have any confidence that premiums will come down? I do not believe we have seen any evidence of that.

A great deal more needs to be done and that involves a number of Departments: the Department for Transport; the Home Office; the Ministry of Justice; the Department for Education, which springs to mind immediately when one thinks about road safety and attitudes; and perhaps some others. Diverse Departments are involved and responsible for this area, so a cross-departmental working party is required, and that is why I have brought this motion to the House. I hope that the Government will be able to agree to setting up such a working party, so that insurance premiums can become affordable and the growing outrage of people forced to pay extortionate rates can be addressed.

6.50 pm

Karl McCartney (Lincoln) (Con): It is a pleasure to follow the hon. Member for Liverpool, Riverside (Mrs Ellman), who made many points with which I agree. I congratulate her and hon. Members across the House on securing this debate and putting forward this motion. May I declare an interest as both a justice of the peace and one of 32 million drivers who pays insurance for the family car? Like many, I am dismayed that the previous Labour Government did nothing to dissuade the estimated 1.5 million uninsured drivers still on our roads or to halt the rise in fraudulent claims and insurance scamming which plague drivers and our courts.

Like many colleagues, I am aware that it can often be the issues that never make the front pages, or those that receive little, if any, attention, that can irritate people

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the most and can undermine and shake their belief in the rule of law and a responsible society. Normally, this occurs when people have done the right thing yet their fellow citizens who have purposely done the wrong thing somehow get away with it and the law-abiding are left to pay the penalty. The menace of uninsured drivers is one such issue. If that and the so-called insurance scammers were effectively tackled, the costs of motor insurance would be significantly reduced for the law-abiding drivers of our country.

In September, I conducted an online survey regarding uninsured drivers, the fines and punishments currently handed down, and what respondents felt should be the punishment, given the rising costs of premiums that most law-abiding drivers have had to pay in recent years. There is a widely held view that there is a need for far harsher penalties for uninsured drivers and other people who, aided and abetted by the claims industry, lie about the extent of injuries caused to them and, in some cases, wilfully manufacture the circumstances in which accidents occur. There are also about 1,200 claims per day for whiplash, each case averaging a payout of £3,500, and hire car charges for replacement cars are also eye-wateringly high. That is not sustainable, or, I believe, a true representation of accidents on our roads.

My interest results not only from what my constituents or friends and family tell me, but from what I have seen with my own eyes and experienced personally. As a magistrate, I have found that our hands have for some time been tied by rules and by the ring-fencing of the level of fines and type of sentences we can impose on the same old faces that come before us, often three or four times in a few years. These people include those who drive without insurance, and often without tax and MOTs for their vehicles too. It is also a proven fact that many of those convicted of vehicle crime are involved in other law-breaking activities.

Moreover, my family and I have been the victim of three car insurance scams, and the police forces in both Kent and St Albans have shown no interest in following them up, despite judges and courts finding in favour of us and our insurance company. But they should, because how many fully insured drivers have the time and bullishness to see through such action, and challenge the system and the fraudsters? The system relies on this lack of willingness.

Kwasi Kwarteng (Spelthorne) (Con): How extensive does my hon. Friend think the problem of fraud is in relation to rising premiums?

Karl McCartney: It is very extensive, and I shall discuss it later in my speech. It is something we have to deal with.

The system relies on a lack of willingness to contest such fraudulent claims. After the judge’s decision in our most recent case, it was revealed in court that these scammers had tried it on—successfully—six times in the past five years from the same registered address of the vehicle. Unpunished, they are probably trying it on again as I speak. Not only do uninsured drivers increase the insurance premiums of law-abiding insured drivers, but we taxpayers are being fleeced a second time, as our courts are seeing similar claims cases taking

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up large amounts of court time, whereas 10 to 12 years ago that was not so. Typically, the courts, those working in them and the legal system suspect that the true number of fraudulent claims is at least 10 times that which reaches our courts.

To gauge whether my views were in tune with others—I feel that there is an appalling lack of appropriate punishments for uninsured drivers and accident scammers—I conducted an online survey, as I said. It was predominantly of local people in Lincoln and asked their views about uninsured drivers, given that the average fine for driving uninsured in the county of Lincolnshire was £213 in 2010, a reduction from £233 in 2008. I was not surprised to find that the vast majority felt the fine level was too low. It is especially galling for insured drivers to note that while their average insurance premiums have risen by up to 40% in recent years, the fines for uninsured drivers have decreased in the same period. We can see why this situation has occurred. The average comprehensive premium for the Lincoln postcode was just over £603 at the end of September 2011, which shows that someone has to be caught 2.8 times or more in a year for it to be more expensive than to drive with insurance.

However, as we have heard, insurance is about risk and age, and those key factors also matter. For example, the estimated cost for comprehensive insurance for a male in Lincoln aged between 17 and 20 is £2,733. It is £1,338 for a 21 to 25-year-old and £765 for a 25 to 30-year-old. That means that anyone from those age groups caught driving uninsured has respectively to be fined 12.8, 6.5 and 3.6 times per year before the fine exceeds the insurance cost.

Jonathan Evans: But this is not only about the financial penalty that may be imposed on uninsured drivers. If the uninsured driver is involved in an accident, the significant costs of personal injury have to be borne by all the people who are doing the right thing, and that then adds to the insurance costs to which my hon. Friend has referred.

Karl McCartney: My hon. Friend is correct, and that is something else that I will discuss later in my speech.

For many, the risk of driving without insurance is attractive. The “getting away with it” factor is too enticing. As hon. Members on both sides, and you, Mr Deputy Speaker, may know, I like being positive, and there have been many changes recently that I warmly welcome: the reported fall, by a claimed 25% in the past five years, in the number of people driving while uninsured; the recent clampdown on people owning uninsured cars; the seizure of uninsured vehicles; and the coming prevention of insurance companies and other agencies selling on personal data, which has fuelled insurance scamming. That move followed the welcome recent Motor Insurance Regulation Bill sponsored by the right hon. Member for Blackburn (Mr Straw). I hope that my ministerial colleagues will ensure that this applies to all referrals of personal data following vehicle accidents, and that the insurance industry and associated agencies will not look for any loopholes.