“Europe is strongest when it grows through willing co-operation and practical measures, not compulsion or bureaucratic dreams.”—[Official Report, 22 November 1990; Vol. 181, c. 451.]

The Prime Minister: I am very grateful for my hon. Friend’s support. The point I made in my statement about Europe being a network, not a bloc, is completely consistent with that. We should not be shy about its developing as a network, with some networks we want to be in and others we do not.

Frank Dobson (Holborn and St Pancras) (Lab): Will the Prime Minister confirm that British banks and finance houses hold about £75 billion of bonds issued by eurozone Governments and that in the event of a default, with nobody representing Britain, he will still be expected to get the British taxpayer to bail some of them out?

The Prime Minister: The exposure of the British banks to European countries is published by the Bank of England—quite right, too—and obviously we want to avoid a collapse of the eurozone and to ensure that it takes the necessary steps to prevent that from happening.

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This Government will obviously always do whatever is necessary to safeguard our financial system and the economy.

Jo Swinson (East Dunbartonshire) (LD): Against the odds, an excellent deal on climate change was agreed in Durban this weekend, with the UK playing a leading role alongside our EU counterparts. Would the Prime Minister reflect on whether such constructive and positive diplomacy might be a better approach to securing British interests than rushing for the exit?

The Prime Minister: I certainly agree that the Durban outcome is worth while and it is a staging post towards another global deal, which is very worth while. I am afraid I do not see any contradiction between being incredibly positive and constructive and having a bottom line. When you have a bottom line, it is quite important that you stick to it.

Hugh Bayley (York Central) (Lab): Over the years to come, as a result of the Prime Minister’s decisions, economic and financial power will inevitably drain away from London to Frankfurt. How is that in the interests of British manufacturing or British financial services?

The Prime Minister: This is exactly the argument that was made about the euro. I remember it very well. People said that if we did not join the euro, Frankfurt would be the major financial centre of Europe and not Britain. Frankly, it was scaremongering then and is scaremongering now—from the same people.

Mr David Evennett (Bexleyheath and Crayford) (Con): I welcome the Prime Minister’s statement and his standing up for British interests, which I am sure will be widely supported across the whole country. Does my right hon. Friend remember the words of the former Prime Minister, Tony Blair, after a confrontation with Europe, when he said:

“If we are isolated and we are in the right, then that’s the correct position”

to be in? Would he not agree?

The Prime Minister: Yes.

Malcolm Wicks (Croydon North) (Lab): Is this the first case in recorded history of a proud premiership team relegating itself to a second division, cheered on by the new English Tea party?

The Prime Minister: Again, this is the same argument that we had at the time of the debate about whether Britain should join the euro and it is largely the same people making it. They were in favour of it and felt that not joining the euro meant relegating oneself to the second division. Frankly, I am glad that Britain is out of the euro. We are able to set our own interest rates and make our own decisions for the benefit of our economy here in Britain and we are better off because of it. It is the same arguments from the same people; they were wrong then and they are wrong now.

Philip Davies (Shipley) (Con): The Prime Minister should be in no doubt that he did the right thing last week. Will he confirm that he will not make any further

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policy concessions to the lickspittle Eurofanatics on the Lib Dem Benches as a result of doing the right thing for Britain last week?

The Prime Minister: I am always grateful for my hon. Friend’s support but he tends to take it just a little too far. The coalition is right for Britain and I want it to go on working for the good of Britain. We have to recognise that that sometimes means we cannot get the things we want.

Clive Efford (Eltham) (Lab): Will the Prime Minister explain specifically what safeguards are in place today for the City of London and British interests that were not in place last week?

The Prime Minister: Clearly, if we had been able to achieve the protocol on financial services there would have been greater safeguards, but the safeguard we do have is that we are not signing up to a treaty that could have put that industry in danger.

Henry Smith (Crawley) (Con): I congratulate my right hon. Friend on his bold and courageous stance in the early hours of the morning last Friday and I should like to pass on the thanks that many of my constituents have expressed to me over the weekend. Will he confirm that of the nations at the European Council that did sign up to an agreement, the Parliaments of Bulgaria, Poland, Denmark, Sweden, Latvia, Lithuania and others such as Hungary still need to approve and ratify it?

The Prime Minister: My hon. Friend makes a very good point. We do not yet know exactly how the new organisation and treaty will develop or how many countries will sign up to it. There will then be a huge process involving very detailed scrutiny by and punishment from the European Commission if Governments draw up inappropriate budgets or have a structural deficit of greater than 0.5%. Labour left us a structural deficit of—what was it?—7% or 8%? There are big processes to go through before the treaty is either finalised in March or implemented, for which it will again have to be put to Parliaments and, possibly, even to referendums as well. There are many hoops to go through.

Austin Mitchell (Great Grimsby) (Lab): I am not going to criticise the Prime Minister for using his veto because that job can safely be left to his Liberal Democrat colleagues who are hawking their consciences around the media. Surely, however, he would have done better to use the big bazooka later when the undemocratic and deflationary consequences of this Merkozy diktat became clear, because at that stage he would have had lots of allies, which he should have had now and used now.

The Prime Minister: The hon. Gentleman makes an interesting argument. There are big questions to answer for the countries that are signing this. I think you have to have that sort of fiscal co-ordination with a single currency—he and I probably agree that that is one of many reasons why we should not join a single currency. My job at that European Council was to stand up for Britain’s interests and that is what I did.

Mr David Nuttall (Bury North) (Con): I welcome the stance taken by the Prime Minister. Given that the other members of the European Union refused to agree

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even to the very modest proposals that he put forward, what chance is there of their ever agreeing to allow this country to regain control over such matters as those covered by, for example, the working time directive?

The Prime Minister: I am grateful for my hon. Friend’s question, but I am not as pessimistic as he is that there is no prospect of rebalancing powers within the European Union. There are possibilities and opportunities. We did that in terms of the bail-out fund and I think there will be opportunities in future.

Stewart Hosie (Dundee East) (SNP): The concordat on the co-ordination of European Union policy is very clear—it requires the UK Government to engage with the devolved Governments in the formulation of UK policy, but that clearly did not happen on this occasion. How will the Prime Minister now explain to Cardiff, Belfast and Edinburgh that adopting an isolationist policy and abdicating all leadership is anything other than damaging and dangerous?

The Prime Minister: I do not accept that. In the final analysis, our relations with the European Union are a reserved issue for the UK Parliament and the UK Government. To be fair to this Government, we have gone further than any previous Government on the issues that really matter to people in Scotland—about the single market, fisheries and decisions taken within the European Union—to work very constructively with the other Administrations.

Elizabeth Truss (South West Norfolk) (Con): Does the Prime Minister agree that Britain’s influence in the world is dependent on our economic strength, our productivity and our competitiveness, and that we should not trade away these valuable assets?

The Prime Minister: My hon. Friend makes an important point. Every country in Europe is challenged at present in relation to its economy, and it is very important to make sure that we are safeguarding Britain’s interest, staying in the single market, seeking extra safeguards for finance and other industry, and making sure we can grow out of this crisis.

Kate Hoey (Vauxhall) (Lab): The Prime Minister must know that right across the UK, the majority of the public and—dare I say it on the Opposition Benches?—the majority of Labour voters support what the Prime Minister has done. He knows that that is the reality. Does he agree that instead of seeing ourselves isolated in Europe, what the public want to see now is our looking to be much more internationalist and less little Europeanist?

The Prime Minister: I have great sympathy with what the hon. Lady says. What it requires is both action within Europe on issues that matter to us, such as the single market, and a recognition that we should be refreshing and restoring our links with other parts of the world, whether it is the Gulf, the Commonwealth or the fast-growing countries of south-east Asia. This Government are committed to doing all those things.

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Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): In Aberdeen in the north-east of Scotland and in Norway, there is considerable concern that the draft regulations on offshore drilling for oil and gas threaten the gold safety standard achieved in the North sea. Will what happened last week make it easier or more difficult to get the qualified minority necessary to make sure that those regulations are withdrawn and a directive is used as a means of implementing them?

The Prime Minister: I do not think what happened last week will have any impact on that decision because these issues are dealt with properly in the single market, and an organisation set up outside the EU cannot cut across existing treaties or existing legislation. We should work very hard to make sure we get a good deal for the North sea.

Kelvin Hopkins (Luton North) (Lab): The great former Labour politicians Peter Shore and Bryan Gould both said that the single currency would fail, and they have been proved absolutely right. Does the Prime Minister accept that the choice is between a controlled deconstruction of the euro or an uncontrolled crash, and will he make this point to his European colleagues?

The Prime Minister: What I would say to the hon. Gentleman is that “I told you so” is not an economic policy. I have every sympathy with what he says. I have never supported Britain joining the euro because a single currency implies a single economic policy and a single fiscal policy, and trying to run those things across different democracies is so incredibly difficult. That is what they are struggling with, but if I am asked what is Britain’s interest today, I would say that it is for the eurozone to sort out its problems. A break-up of the eurozone would have very severe consequences for banks across Europe and also for banks here in Britain, and could trigger some very, very difficult economic times. In spite of what the hon. Gentleman says, we should be working constructively to encourage eurozone countries to do what is necessary, particularly in the short term, to stabilise a difficult situation.

Andrew Selous (South West Bedfordshire) (Con): May I warmly congratulate the Prime Minister on standing up for British interests last week and on refusing to take the approach of Labour, who signed away £7 billion of British rebate for nothing in return?

The Prime Minister: I thank my hon. Friend for his support. What we do not know is what the Opposition’s approach is to this issue. Despite all the fury we have heard from those on the Opposition Benches, they cannot tell us whether they support the treaty proposal or not.

Stephen Timms (East Ham) (Lab): Britain will continue to be subject to EU single market financial services regulation. Do we not now have a major problem in that we will be absent when many of those rules are drawn up?

The Prime Minister: That is absolutely not the case because this new organisation cannot draw up or pass proposals that cut across EU treaties or EU legislation. The right hon. Gentleman knows this well. It is the case

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that Britain has suffered from some of the regulation that has come out of Brussels on financial services, and that we need greater safeguards. If we cannot get those safeguards within a treaty, it is better that those countries are in a separate treaty. That is a better safeguard than the alternative, and that is the point that he needs to understand.

Gavin Barwell (Croydon Central) (Con): The Leader of the Opposition’s argument that one should never leave an empty seat at the table is surely a criticism of the previous Government’s failure to join the euro. [Hon. Members: “What?”] There has been an empty seat at the table ever since we did not join the euro. Does my right hon. Friend agree that somebody who is never prepared to disagree with our European friends, even when that is in British interests, is not fit to hold the office of Prime Minister?

The Prime Minister: I am grateful for my hon. Friend’s support. His point about the creation of the euro being the fundamental moment that created these tensions in Europe is entirely right. The previous Government’s position was that they wanted to get us into the euro, but they realised that that was not possible. I think that that is still their policy. It was the creation of the euro that fundamentally changed the relationship in Europe, but even they decided that it was okay for eurozone countries to meet on their own. That is not being isolated; it is recognising the reality that Britain does not want to be in the euro, so we cannot stop the meeting going ahead.

Mr Kevin Barron (Rother Valley) (Lab): Given that last Thursday was not about joining the euro but about protecting the interests of the euro as a currency and, therefore, the interests of our national economy, as the Prime Minister has said this afternoon and on several occasions over the past few weeks, why has he walked away from such a responsible position and allowed our economy potentially to be attacked if there is no success in looking after the interests of the euro? We did it with Ireland, and rightly so, so why are we not looking at taking action more widely to protect the interests of this country?

The Prime Minister: What we did with Ireland, as a very close neighbour, long-standing friend and integrated economy, was give it a bilateral loan, which was the right thing to do. I do not accept that the proposal put forward on Thursday night and Friday morning is the most important part of delivering a successful euro. We need to spend more time on the single market, on competitiveness and on short-term measures to stabilise the eurozone. I simple do not believe that whether a treaty is within or without the EU will make a huge difference to the future of the euro.

Several hon. Members rose

Mr Speaker: Order. Short, single-sentence questions and the Prime Minister’s characteristically pithy replies would enable me to get in all Members who are still standing. I ask them to help me to help them.

Mr Peter Bone (Wellingborough) (Con): I have received an important message to pass on to the Prime Minister: “The efforts of the Prime Minister on Thursday night gave me great pleasure. Yours ever, Mrs Bone.”

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The Prime Minister: As ever, I am grateful for her support.

Mr Wayne David (Caerphilly) (Lab): Is it correct that the Deputy Prime Minister said that he is not here because he does not want to be a distraction?

The Prime Minister: The point is that the Deputy Prime Minister and I agreed the negotiating strategy for the European Council, and that is important because it was the whole Government who were doing it at the Council.

Greg Mulholland (Leeds North West) (LD): The Prime Minister was negotiating as the Prime Minister of the coalition Government. Does he agree that now is not the time to listen to either those who say that we should leave the EU, or those who say that we should push into political and fiscal union, and can he tell the British people that he will stick to the coalition policies and get the economy back on its feet?

The Prime Minister: I am grateful to the hon. Gentleman and absolutely confirm that that is the case. The coalition is united in wanting to have growth policies across Europe and in promoting the single market in a very active way, and I can guarantee that we will continue to do that.

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): The Prime Minister had the opportunity to visit Feltham and Heston last week and arrived late at the European summit. How many leaders of the 26 other EU member states did he speak with in the fortnight before the summit?

The Prime Minister: First, I went to Feltham and Heston because I do not believe in the normal chicken theory that Prime Ministers should stay away from by-elections, so I am proud to have gone. I spoke to a wide audience of DHL employees who live in the constituency and encouraged them to vote Conservative before Christmas. After that, I popped in to see my son’s nativity play, which was also a rare joy. I got to the European Council some time before it started and met the Italian Prime Minister, the French President and the German Prime Minister. In addition, I had had a series of telephone calls with the Dutch Prime Minister, the Swedish Prime Minister and many others besides. I am sure that the hon. Lady understands—it is called multi-tasking.

Geoffrey Clifton-Brown (The Cotswolds) (Con): My right hon. Friend had no option but to use his veto, if British interests were to be protected. Does he agree that the euro sovereign debt crisis is still the most important threat to us all and that that is what our eurozone partners ought to be concentrating on, rather than unwanted treaty changes?

The Prime Minister: My hon. Friend makes a very good point. I quite understand why particularly the Germans want this fiscal union and want tougher rules because they do not want to see irresponsible behaviour repeat itself. One can debate whether that actually requires change in the treaty or not, but we have to spend more

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time on the other parts of solving the crisis, which are to do with short-term changes and longer-term competitiveness.

Mr Barry Sheerman (Huddersfield) (Lab/Co-op): The Prime Minister is aware that this situation represents one of the most fundamental changes in our national politics and in European politics. Will he assure the House that in all his future negotiations he will be mindful to look after not just financial services but the manufacturing sector and other service industries that do not have a part to play in the City of London?

The Prime Minister: I completely agree with the hon. Gentleman. I do not see financial services on their own, because they obviously have a role in supporting the rest of the economy. The key in terms of Europe for the rest of the economy is the single market, and that is what we are determined to safeguard.

Chris Heaton-Harris (Daventry) (Con): The UK wields its influence in the EU in many different ways, and our net contribution to the EU in 2010-11 was £9.2 billion. We are the second largest net contributor, so perhaps we could become a little more like the unions with Labour and demand a little more influence for our money.

The Prime Minister: My hon. Friend makes a good point, which is that we are a major player in the European Union, not least because we are the second largest net contributor, which gives us a huge amount of influence. We have safeguarded the European Union and its treaties—not allowing them to be changed if we were not able to get the safeguards that we needed.

Chris Ruane (Vale of Clwyd) (Lab): Does the Prime Minister know the whereabouts of the Deputy Prime Minister; and will their tiff lead to separation and divorce?

The Prime Minister: No.

David Rutley (Macclesfield) (Con): I should like to pass on the hugs, best wishes and kisses from people in Macclesfield, who are very grateful for the stance that the Prime Minister took last week. Under the previous Government, from 2005 the burden of EU regulation cost British businesses billions of pounds each year. What steps is my right hon. Friend taking to reduce, rather than increase, the burden of EU regulation?

The Prime Minister: I am grateful for that question. We are working extremely hard, particularly in the area of the single market, to encourage the Commission, which is now looking at reducing the burden of the regulation that it passes and, specifically, the burden of regulation on businesses that employ fewer than 10 people. We have for the first time secured the idea of a moratorium: there will not be more regulations on them in the coming years.

Pat Glass (North West Durham) (Lab): May I remind the Prime Minister that it is the jobs of not just the banks and the City of London which matter here? Millions of jobs throughout the country and in constituencies such as mine rely directly on the EU and

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on Britain being at the centre of the EU. Now that we are no longer at the table, who is going to stand up for those jobs?

The Prime Minister: I say to the hon. Lady, first, that the RBS report reminds us of the terrible effect on the rest of the economy when the banking system goes wrong because it is not regulated properly, so there is a very important connection. Secondly, other businesses require us to safeguard the single market, and that is exactly what I did.

Mike Weatherley (Hove) (Con): Given that we are the second largest contributor to Europe, does the Prime Minister agree that without our contribution Europe would fail?

The Prime Minister: It does mean that we have a huge amount of influence in the EU, and that we do drive, particularly in the area of single-market policies. My hon. Friend makes the point that we have to ensure that we get value for money, however, and that is why I am so keen that we manage to achieve a freeze in the EU budget this year.

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): There is great concern throughout the business community about the implications of the Prime Minister’s walk-out from the European summit. Will he reassure the House that the uncertainty caused by that decision will not impact upon real jobs in the real economy of the United Kingdom?

The Prime Minister: I can certainly give the hon. Gentleman that assurance, because we can say to international investors, to businesses looking at Britain, “You have all the advantages of the single market—access to Europe’s markets—but we are not in the eurozone. Of course, we are affected by what happens in the eurozone, but our interests are just over 2%, whereas countries in the eurozone with budget deficits like ours have interest rates more like 5%, 6%, 7%.”

Margot James (Stourbridge) (Con): Is my right hon. Friend aware of the words this morning of Chancellor Merkel’s spokesperson on last week’s vote? He said that

“this changes absolutely nothing of the fact that Britain is one of our closest partners and one of our most important allies and friends… We want to make the single market a joint success, and that is something for which we have Britain on our side… Britain thus remains a very important partner for Germany.”

Does my right hon. Friend not share my surprise that, if the German Chancellor can accept that it is perfectly possible to stand up for one’s national interest and be a good European, that fact should elude the Opposition?

The Prime Minister: My hon. Friend makes a very good point. That leads to something else, which is that the countries that are like-minded on single-market issues—Holland, Germany, Sweden, the Baltic states—want Britain to be there when we are discussing single-market issues. That is another reason I do not believe that this separate treaty and separate organisation will cut across the single market.

Kevin Brennan (Cardiff West) (Lab): For the sake of clarity, can the Prime Minister tell the House where the

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Deputy Prime Minister is and why he is not here for this extremely important statement?

The Prime Minister: The Deputy Prime Minister agreed to the negotiating strategy. I am not responsible for his whereabouts, but I am sure he is working extremely hard.

Mr John Baron (Basildon and Billericay) (Con): The Prime Minister’s veto has rightly struck a chord with the nation. May I suggest that instead of this being the end of the affair, it should be the start of a process to recalibrate our relationship with the EU based on free trade and growth and not on political union and regulation, which has cost this country so much?

The Prime Minister: I am grateful for my hon. Friend’s support. Our position is that we want to get the best out of Europe for Britain. That means a focus, yes, on the single market, but it is not purely about a focus on trade—it is about recognising that that market is not just open for our goods but that we have a say in setting the rules. That is absolutely key to our national interest.

Paul Blomfield (Sheffield Central) (Lab): What will the Prime Minister say to those leaders of the manufacturing sector who believe that his actions have deeply undermined their interests? They include Ian Rodgers, the director of UK Steel, who said today that

“we are going to become less relevant in political decision-making”.

The Prime Minister: I do not agree with that. A lot of these arguments were made when Britain did not join the euro. A number of organisations, media outlets and, indeed, political parties and political leaders said, “If you stay out of the euro, you’ll marginalise Britain and it’ll be bad for our economy.” That was not the case. They were wrong then, and I think they are wrong now.

Dan Byles (North Warwickshire) (Con): Most post-treaty analysis has focused on the use of the veto, but can the Prime Minister confirm that the detail of the fiscal union proposed by the rest of the European Union would, quite remarkably, render the Opposition party’s entire economic policy illegal?

The Prime Minister: That is a very good point. We know that the leader of the Labour party is committed to joining the euro, if he is Prime Minister for long enough. At the same time, if he supported this treaty—but frankly we have not heard today whether he is for it or against it—and joined this treaty he would make his own policy illegal and he would be fined by the European Commission for the policies that the shadow Chancellor, who I see is now not here either, has signed him up to.

Graham Stringer (Blackley and Broughton) (Lab) rose— [ Interruption. ]

Mr Speaker: Order. The House will want, without exception, I hope, to hear Mr Graham Stringer.

Graham Stringer: Thank you, Mr Speaker.

Europe would not be in the economic and political mess that it is in now if we had not had to wait nearly 40 years before a British Prime Minister came back and

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said that he or she had used the veto. Can the Prime Minister tell us how, and when, he is going to repatriate some of the powers that have been so carelessly given away?

The Prime Minister: I am grateful for the hon. Gentleman’s support. As I said, we have brought back the bail-out power. We have prevented Britain from joining this treaty without the safeguards. I believe there will be opportunities in the future. There are areas, particularly in terms of costly regulation, where Britain has paid a high price for European regulation, and we should use future opportunities to act on that.

Bob Russell (Colchester) (LD): I bring some grandfatherly advice to the proceedings. I urge the Prime Minister to let the dust settle, keep calm and carry on carefully, but please to abandon the Carlos Tevez approach to Europe. Bridges need to be built, and the first bridge the Prime Minister can build is to get Tory MEPs to rejoin the group of mainstream European conservatives.

The Prime Minister: I am very grateful for the grandfatherly advice. I remember the advice that the hon. Gentleman used to give me when we both cycled in to the House of Commons many years ago, so I will take it carefully on board. I will also take away the Carlos Tevez reference and give it a bit of thought.

Karl Turner (Kingston upon Hull East) (Lab): It is becoming increasingly obvious to everyone that the Lib Dem partners in this coalition are completely pointless. As the Prime Minister does not know the whereabouts of his deputy, will he assure the House and Mrs Clegg that he will send out a search party to look for him?

The Prime Minister: Did the hon. Gentleman really wait one hour and 34 minutes for that? I am keen to hold on to the rebate and I think that his constituents might want a rebate as well.

Mr Sam Gyimah (East Surrey) (Con): We are hearing from outside the House an answer that the Leader of the Opposition would not give on whether he would have signed the treaty last Thursday. His aides are saying that he would not have signed it. Will the Prime Minister press him further to give us an answer on whether he would have signed the treaty?

The Prime Minister: I am very grateful to my hon. Friend for looking at Twitter or whatever else it is that the Leader of the Opposition now uses. I gather that it is possible for the Leader of the Opposition to come back on that. Perhaps he can confirm whether he would have signed the treaty. I am happy to give him a few more minutes if we get a bit of clarity.

Mr Speaker: I think that the sensible approach, in conformity with convention, is to stick to questions to and answers from the Prime Minister in this Chamber.

Bill Esterson (Sefton Central) (Lab): In the words of one business leader today,

“Margaret Thatcher was a constant thorn in the side of European leaders, but she never vacated the negotiating table; I am anxious by the implications of what the prime minister has done.”

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When will the Prime Minister give business in this country the reassurance that it needs about the impact that his walking away will have on jobs and the economy?

The Prime Minister: I think that business does understand that we must be in the European Union for trade, growth and jobs, and that our membership of the single market is key. However, there is a lot of damaging regulation coming from Brussels and we need to stand up to that. When new treaties are suggested that involve huge fiscal changes and other changes in the European Union, it is right that Britain should seek safeguards. I am not hearing the same message from business that the hon. Gentleman is hearing.

Karen Bradley (Staffordshire Moorlands) (Con): We have heard much this afternoon about the number of people who are employed in financial services. More than 2,000 of those jobs are located in my constituency. Can the Prime Minister reassure those employees that the action that he took last week was in their interests and that it will safeguard their jobs and not put them at unnecessary risk?

The Prime Minister: I can certainly do that. My hon. Friend makes the important point that this is an industry that is based around the country and not just in London. However, the protections of the single market go far beyond the financial services industry.

Nia Griffith (Llanelli) (Lab): The Prime Minister has likened his experience of EU negotiations to playing chess against 26 different people. Will he therefore tell us what attempts he has made to build alliances with countries that have similar views to the UK, which could have played with him rather than against him?

The Prime Minister: Year after year, Ministers have had to stand at this Dispatch Box and apologise as the EU budget has gone up by 3%, 4%, 5% or more, because it is decided by qualified majority voting. I put together a qualified majority bloc so that we could get a real-terms freeze in the budget. There was help from Germany, France, Sweden and Holland. That is exactly the sort of constructive role that we play.

Mrs Anne Main (St Albans) (Con): I am pleased that we have a Chancellor who understands that we need to take tight control of the fiscal reins of this country and that we have a Prime Minister who understands the difficult questions that need to be asked. I am surprised that we have a Leader of the Opposition who does not understand any of that and who cannot make his mind up. May I ask, with all humility, when the great British public will have the chance to have a say on Europe?

The Prime Minister: I am grateful to my hon. Friend for her support. I have given my answer on a referendum. I think that there is a role for referendums in a parliamentary democracy, but that comes at the moment when a Government or a Parliament proposes to give up power, rather than at other times.

Mr Ronnie Campbell (Blyth Valley) (Lab): How many countries outside the European Union have free trade agreements with it?

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The Prime Minister: There is a growing number, with countries such as Mexico, and now we have the Korea free trade agreement. I am very keen to try to finalise the Japan free trade agreement. Huge effort should be made to have such treaties, because they are good for both sides.

Alun Cairns (Vale of Glamorgan) (Con): May I pay tribute to the Prime Minister for his practical approach to the negotiations last week? May I also say that his practical, obvious negotiating style now seems to be supported by the Leader of the Opposition, whose aides are briefing the press that he would not have signed the agreement, in the same way that the Prime Minister did not?

The Prime Minister: Ah. Either the Leader of the Opposition has no control over his aides, who are randomly briefing the press about his position, or he failed to tell the House, in his minutes and minutes of speaking, that he would not have signed the treaty. If he would have signed it, he can say I made the wrong decision, but if he would not, he will have to accept that I made the right decision. He either has to have the courage of his convictions or give an answer.

Jonathan Ashworth (Leicester South) (Lab): Will the Prime Minister confirm that his veto does nothing to strengthen financial services in the way that he would want? Now that he has adopted a position of isolation, does he think he is more or less likely to win those safeguards in the future?

The Prime Minister: The key safeguard that we did get was against a treaty without proper protections and safeguards for the single market. It was in Britain’s interest to do that, and that is what the hon. Gentleman needs to understand.

Simon Hughes (Bermondsey and Old Southwark) (LD): After last week’s isolation, can the Prime Minister confirm that he still agrees fully with the words of the coalition agreement that

“Britain should play a leading role”

and be

“a positive participant in the European Union”,

and that in that way we will help solve the economic crisis and bring growth and jobs to the United Kingdom?

The Prime Minister: I completely agree with that. We are members of the European Union, and that membership has not changed; nor have the treaties that govern the single market.

Alex Cunningham (Stockton North) (Lab): We all know that an ill-prepared Prime Minister failed to build the alliances and friendships to ensure that Britain’s best interests were protected in Europe last week. What will he be doing on his days off, when the leaders of the other 26 EU nations are sitting around a table, working hard and discussing economics that affect countries both inside and outside the eurozone?

The Prime Minister: What I will be doing is sorting out the mess that the hon. Gentleman’s party left when it left office.

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Chris Kelly (Dudley South) (Con): My right hon. Friend might be interested to hear that I have recently visited businesses in Dudley South that are now exporting to markets such as Mexico, Brazil and the far east. Given the decline of the European Union’s share of world GDP and world trade over the past decade, does he agree that we need to ensure that we have robust relationships with the rising powers in Asia and south America as much as with the declining powers in the EU?

The Prime Minister: My hon. Friend is right. What we want is the best of both worlds. We want to have the single market in Europe and use it to drive free trade deals with countries in south and central America and the far east, so that we maximise trade for Britain, Europe and the world.

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): Is it not more likely than not that the 26 member states other than Britain will increasingly agree among themselves courses of action on financial services, the single market and other matters, and that even if Britain still has the right to oppose them in the full EU, it will not be able to stand out against 26 countries that have effectively agreed a position among themselves?

The Prime Minister: The new organisation outside the EU cannot draw up or implement agreements on financial services or other things that have an impact on the single market. Those things have to be done through the Single Market Council. Of course there will always be difficulties at that Council, where frankly my right hon. Friend the Chancellor has to fight Britain’s corner very hard, but the danger for us was allowing the treaty of the 17 to come into the EU without proper safeguards. That is why we behaved as we did.

Christopher Pincher (Tamworth) (Con): Is my right hon. Friend aware that François Hollande, the front-runner for the French presidency in next year’s elections, has said that if elected he will tear up the accord because it is not right for France? Does that not suggest that there are socialists who appreciate it when Britain stands up for herself? Sadly, they are not our socialists.

The Prime Minister: I do not want to get drawn into the French election campaign, because despite reports to the contrary I am still on extremely good terms with my friend Nicolas Sarkozy, as the Libya campaign proved. I will say one thing: at least the Opposition leader in France has told us what he thinks. I can see the Opposition Front Benchers tweeting, blogging and poking for all they are worth, but they still do not have a policy.

Gordon Banks (Ochil and South Perthshire) (Lab): The Prime Minister has referred to today’s Financial Services Authority announcement, and I have to say that he has selective memory loss, because it was he who was calling for less and lighter-touch regulation of our financial services when he was in opposition.

May I ask the Prime Minister why it was better to placate his Back Benchers than stay in the room, stand up and fight for British interests?

The Prime Minister: There are two points. First, the FSA mentions only three politicians, one of whom is

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the shadow Chancellor. On placating people, if the hon. Gentleman casts his mind back to last Wednesday, he will find that I was not particularly placating anybody with the moderate and reasonable requests I was making of the European Union. It was leadership on behalf of Britain, not any one part of it.

Martin Vickers (Cleethorpes) (Con): My right hon. Friend will be aware that he has the overwhelming support of my constituents from across the political spectrum. If we are to safeguard jobs and expand the economy, we must be equally robust in all our EU negotiations. He will know that the common fisheries policy adversely affects my constituency. Will he assure my constituents that his colleagues will follow his lead when negotiating on that matter?

The Prime Minister: I know how important the cod issue is to my hon. Friend’s constituents and people right across that region. I will ensure that Ministers in the coalition Government stand up for our fishermen.

Gavin Shuker (Luton South) (Lab/Co-op): The Prime Minister has stated that he wanted to deal at the level of 27 nations. Why, then, did he end up having bilateral discussions with just three?

The Prime Minister: The point is that it is quite clear that when it came to the issue of wanting a change to the treaty—[Hon. Members: “Answer!”] I am answering the question very directly. It was clear that the Germans and the French were leading the charge on wanting a change to the treaty, so it was very important to have discussions with them, but I also had discussions with the Dutch, the Swedish, the Irish and many others.

Nadhim Zahawi (Stratford-on-Avon) (Con): May I add my support to the Prime Minister and to the coalition Government for taking a tough decision under difficult circumstances? Will he confirm that over and above our contribution to the EU, we buy more from Europe than we export to it? The difference is about £100 billion in product, which the eurozone will need at the moment to help it out of its crisis.

The Prime Minister: My hon. Friend makes an important point. We have a large trade deficit with Europe, apart from in one area: financial services. Frankly, I wish our economy was more rebalanced. We are aiming to rebalance it, but it is important in the meantime that we recognise realities.

Mr William Bain (Glasgow North East) (Lab): Successful completion of the single market could add 7% to UK gross domestic product. After Thursday’s summit and the Prime Minister’s policy of isolation, does he believe that he has more or fewer allies in Europe for something that is vital to our national interest?

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The Prime Minister: We have huge amounts of allies and support for action on the single market. If the hon. Gentleman looks at what has happened in the past 18 months, he will see that there have been more positive steps taken by the European Commission on the single market than there have been for the past 10 yeas or more. If we look at what is happening on the services directive, energy, small business, we see that the penny has finally dropped that Europe has a role, but it needs to be about deregulation. That is no coincidence. One reason is that of the 27 countries sitting around the table, only four are run by socialists.

Dr Thérèse Coffey (Suffolk Coastal) (Con): Many jobs in Suffolk rely on a fair, level playing field in the single market. If last Friday morning was not the time to stand up for British interests, when is?

The Prime Minister: My hon. Friend is right. Institutional arrangements and treaty arrangements in the EU must be agreed by unanimity. If anyone is not content with what is being put forward, it is perfectly acceptable to do what I did and say, “I am not happy to go ahead with the treaty without these safeguards.”

Toby Perkins (Chesterfield) (Lab): The Prime Minister has heard from Members on both sides of the House about the worries of manufacturing industry. Will he say specifically which exporting firms think that his actions last week will make exports easier rather than harder—which ones have come out and supported his move?

The Prime Minister: Frankly, I have found huge support from the business community for what I have said—and that spans a huge number of different industries. Many industries are asking what we will do about the problem of excessive regulation. That should be dealt with through the single market, which we will continue to do.

Mr Robert Buckland (South Swindon) (Con): As someone who has long advocated a positive role for Britain in Europe, may I welcome my right hon. Friend’s decision on Friday as the right one for this country? Will he further commit the Government to carry on engaging strongly with our European partners to ensure more jobs and growth in the single market?

The Prime Minister: I am grateful for my hon. Friend’s support. I have spoken to a number of people over the last few days, in my party and others, who have a long history of supporting Britain’s membership of the EU and who think that what I did was right. Of course we need to engage, and in terms of the single market we need to make that engagement even more powerful in the weeks and months ahead. But it was right, on this occasion, to say no to this treaty.

Ian Austin (Dudley North) (Lab): There is one member of the Government who does not seem to share his colleagues’ antipathy for all things European, but after sitting through and paying for a dinner at which guests toasted the Third Reich and chanted “Hitler, Hitler, Hitler”—[ Interruption. ] Members on the other side of the House may not take this seriously, but why has the Prime Minister not sacked—

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Mr Speaker: Order. I simply say—[ Interruption. ] Order. I am perfectly capable of handling these matters myself. If I wanted help, I certainly would not ask Back Benchers of any party, or anybody else for that matter.

I simply say to the hon. Gentleman that he asked his question earlier, and it was perfectly in order for him to do so, but we are here discussing the European summit and the Prime Minister’s statement on it. The hon. Gentleman is an ingenious fellow—

Ian Austin rose—

Mr Speaker: Order. I am being helpful to the hon. Gentleman. I have known him since we were at university together 29 years ago, and I have probably forgotten more about him than he knew in the first place. I am being kind to him and he has said enough for today. He can use other methods to get his point across, and I am sure that he will.

Stephen Mosley (City of Chester) (Con): It is only the tough action taken by my right hon. Friend’s Government to tackle our own deficit that has made us a safe haven in Europe and given us a choice last week. Is it not the case that if we had followed the economic policies advocated by the Opposition, it would not be the eurozone asking us for help, but us going to beg Europe to bail us out?

The Prime Minister: My hon. Friend makes an important point. At the last election, British and Greek interest rates were pretty much equivalent at about 4.5% and we had similar sized deficits. What has happened since is a huge increase in Greek interest rates and a decline in British interest rates, partly because we have a plan—and have shown that we have a plan—to deal with our debts and our deficit.

Esther McVey (Wirral West) (Con): The Populus poll reported today shows that only 14% of the public opposed the Prime Minister’s actions. Does that not show that Members on this side of the House are totally in touch with public opinion and the Opposition are not?

The Prime Minister: I am grateful to my hon. Friend for that point. What I also noticed from that poll, which says that more than 50% support what we have done and—as she says—14% are against, is that the leader of the Labour party does have a constituency of opinion among the people who have not made up their minds.

David Morris (Morecambe and Lunesdale) (Con): May I congratulate the Prime Minister on the strength he has shown in leading this country? The tabloid press says that £40 billion would have gone over to Europe, or £642 for every man, woman and child in this country. I thank the Prime Minister for stopping that happening, and will he point out to the Leader of the Opposition—who now says that he would not have signed the treaty—that instead of being cast adrift on the waves of the Atlantic, we are now the financial lifeboat of Europe?

The Prime Minister: I am grateful to my hon. Friend for his question. The point about the budget is important because, as a net contributor, every extra percentage

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point of budget increase does result in a big transfer from Britain to Brussels, so it is important that we have managed to achieve a freeze.

Simon Kirby (Brighton, Kemptown) (Con): May I congratulate the Prime Minister on his strong and decisive leadership and on doing not only what is best for Britain, but best for the 2,000 of my constituents who work in financial services?

The Prime Minister: I thank my hon. Friend, who has made a number of sacrifices on my behalf over the last 18 months, one of which is waiting to the very last in this marathon question session. I am delighted that he believes that we have done the right thing for Britain and for Brighton, and I praise him for his very hard work in his constituency.

Mr Speaker: I am extremely grateful to the Prime Minister and other colleagues, as 101 Back Benchers had the opportunity to question the Prime Minister in the 88 minutes of exclusively Back Bench time on this statement. I thank colleagues for their co-operation.

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Royal Bank of Scotland (FSA Report)

5.24 pm

The Financial Secretary to the Treasury (Mr Mark Hoban): With permission, Mr Speaker, I should like to make a statement.

Today the Financial Services Authority published its report on the failures that led to the near collapse of the Royal Bank of Scotland. It is a thoroughly detailed report, listing a catalogue of management and regulatory failures that almost felled one of the world’s largest banks. Given the billions of pounds of taxpayers’ money that was needed to bail out the bank, not once, but twice, and for a total sum of £45 billion, it is right that taxpayers are told the full story.

It is fair to say that the report makes for depressing reading. For the shadow Chancellor, it is as damning as it is depressing. The report lays bare the gross failures of the regulatory regime that was devised and driven by the shadow Chancellor and his party.

It is now well known that the tripartite system set up by the previous Government failed spectacularly in its mission to maintain stability. The decision to divide responsibility for assessing systemic financial risks between three institutions meant that in reality no one took responsibility. As the report laments, the FSA was solely responsible for the entire range of financial regulation issues, from the prudential soundness of major systemically important banks, to the conduct of some 25,000 financial intermediaries.

The failure of regulatory culture was equally significant as the failure of institutional design. The report says:

“What was wrong in the case of RBS was the FSA’s overall approach to prudential supervision, rather than the execution of this approach in relation to RBS.”

More than that, the report says that it was an approach that

“responded to political pressures for a ‘light touch’ regulatory regime.”

The report singles out the shadow Chancellor as one of the three senior Labour politicians who were responsible for this “sustained” pressure. It quotes his first speech as City Minister in which he said

“nothing should be done to put at risk a light-touch, risk-based regulatory regime.”

It was political dogma at the cost of prudential regulation, and it left us hamstrung with a complacent regulator, powerless against the risks in the financial system. It meant that the FSA failed sufficiently to challenge RBS management over its decisions, and was over-reliant on the firm’s own assessment of its position. Rather than exercising judgment and foresight, the FSA adopted a tick-box and reactive approach to regulation.

Left to its own devices, without proper regulatory oversight, RBS got away with some of the most shocking decisions taken by any bank in the years and months leading to the crisis in late 2008. Poor judgment was fostered by a style of management and governance that promoted a culture of aggressive risk-taking over prudence. That was most clearly demonstrated by RBS’s decision to grow its investment bank by aggressively expanding its structured credit and leveraged finance activities. That build-up of risk was compounded by RBS’s relentless pursuit and purchase of ABN AMRO. The current chairman of RBS said that the acquisition was

“the wrong price, the wrong way to pay, at the wrong time and the wrong deal.”

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As the House is aware, it was the losses in the RBS investment banking arm that crippled the entire bank. As the credit trading losses mounted, the bank’s excessive reliance on short-term wholesale funding and its weak capital position were brutally exposed, and led to its near collapse.

The British economy is still recovering from the near collapse of RBS and the wider financial system just three years ago. Recovering from that crisis is this Government’s No.1 priority. We simply cannot afford a repeat of it, which is why we have embarked on fundamental reform of our regulatory system. As the House is aware, the Government are legislating fundamentally to reform the failed tripartite system. We are establishing a permanent financial policy committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous interconnections and stop excessive levels of leverage before it is too late. It is exactly the kind of judgment and foresight that we needed in the years preceding the last crisis.

We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. Prudential regulation of banks will go back to where it belongs, under the auspices of the central bank, as a subsidiary of the Bank of England, bringing micro and macro-regulation under one roof.

The PRA will be a focused, expert regulator. Whereas the FSA was responsible for thousands of financial services firms, the PRA will focus exclusively on the prudential regulation of deposit-takers, insurers and investment banks. And when regulating banks, it will have the single statutory objective of promoting safety and soundness. Responsibility for the protection of consumers and the conduct of financial services firms will transfer to the new Financial Conduct Authority, leaving the PRA free to focus first and foremost on stability.

We are also working closely with the FSA and the Bank of England to ensure that the new PRA has the powers that it needs to ensure that banks do not take excessive risks and that directors who act improperly face appropriate penalties. We will consider carefully the further recommendations made in the report, particularly Lord Turner’s suggestion that it should be made easier for action to be brought against the directors of failed banks.

I share the frustration of many Members that it has not been possible to bring action against those responsible for the failures at RBS, but strengthening legal powers in this area would raise some complex issues, and we will want to reflect carefully and listen to a range of views before deciding on any action.

The report into the failure of RBS fully complements our analysis of the faults of the previous regime and supports our wider reforms to the banking system. We will respond to the recommendations of the Independent Commission on Banking next Monday. We have already said, though, that we support in principle not only a ring fence around better-capitalised high street banks to protect them against investment banking losses but, when things go wrong, a bail-in of private investors, not a bail-out by taxpayers. Together with recovery and resolution plans, that means that we are working to ensure that banks can fail in an orderly fashion without any recourse to taxpayers’ money.

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We will not make the same mistakes as the previous Government but will ensure that we have a system of regulation that secures our financial stability while protecting our competitiveness, and we have already made substantial progress in that ambition. I welcome the action already taken by the FSA to strengthen its supervisory capacity, to become a more intensive and intrusive regulator and to improve its ability to ensure that banks are well governed.

We continue to lead the international debate to impose higher capital requirements and tougher funding standards on banks across the globe, and we will resist any attempt to unpick Basel III in Europe. With the world focused on the strength of bank balance sheets, this is not the time to pander to vested interests. We will ensure that Basel III is implemented in full and that we can go further to impose higher capital standards where necessary to meet risks unique to our sector.

We know that the financial sector will continue to be a critical part of our economy and our recovery, and we are committed to supporting the sector and protecting the open and competitive markets that have allowed the sector to flourish in the UK, but that success cannot come at a cost to the wider economy. That means getting the structure and substance of regulation right and correcting the mistakes of the previous Government.

Today’s report reminds us of the gross failures of the previous regime and the previous Government. This Government will not repeat those mistakes. We will reform the regime to preserve the innovation that fuels the sector’s success without putting the wider economy at risk and to build a successful but stable financial services sector. I commend this statement to the House.

Chris Leslie (Nottingham East) (Lab/Co-op): The report confirms that there was institutionalised dysfunction at the heart of the Royal Bank of Scotland and confirms what we all know—that there was a collective failure of regulation not just in Britain but around the world, and that there were failures not just of one individual, institution, political party or Government but failures that allowed irresponsible bankers to take excessive risks and cause a global financial crisis.

Labour Members have accepted our responsibilities, and as my right hon. Friend the shadow Chancellor said, for the part that the previous Government played in that global regulatory failure, we are deeply sorry. Acknowledging our part in those global failings is the right approach to take, so let me ask the Minister: does he accept that the Conservatives got it wrong too? During the 2007 debates on Northern Rock, he beseeched the Treasury

“to counter the pressure for greater regulation”,

and talked of

“the strength of our regulatory regime”

and how it was

“vital that this crisis does not erode that standing”.—[Official Report, 12 December 2007; Vol. 469, c. 391.]

It would be unparliamentary to call the Minister a hypocrite but perhaps he needs some medical advice about his selective amnesia. Let us have some contrition from the Conservative party, which never once called for more regulation or criticised the FSA for not having enough powers. In fact, it argued precisely the opposite. The Chancellor of the Exchequer, who is sitting on the Front Bench, complained constantly of burdensome and complex regulations.

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The FSA is clear that there was a collective failure, but there was also clarity about how the regulator was at fault. Specifically, the report says that the monitoring of RBS’s capital position was “reactive”, and that “supervision of liquidity” was a “low priority”. The FSA did not scrutinise the trading book or loan impairments adequately, and the takeover of ABN AMRO was not questioned sufficiently. Can the Minister say, first, whether the FSA had the co-operation of all former RBS directors, and whether they were all interviewed? His statement was somewhat vague about action against those responsible—he says that he will reflect carefully. Can we take it then, reading between the lines of his statement, that the Government will not pursue action to disqualify former RBS directors from sitting on other company boards?

Secondly, the Minister says that he will “consider” tough action to ensure that bankers who jeopardise the solvency of our retail banks cannot escape responsibility. There should be a new strict liability requirement specifically for banking directors. If the Minister does not amend the draft Financial Services Bill to achieve that, we will table amendments to that effect. The report suggests that future bank takeovers should require formal approval by the regulator, which was not required when RBS took over ABN AMRO. That is sensible, so can the Minister say whether he will amend the draft Bill accordingly?

Thirdly, will the Government take steps to strengthen the corporate governance of large public companies, including banks? Regulators have to do a better job, but shareholders also need to be able to exert their authority. Fourthly, will the Minister agree to implement the legislation already approved in law to publish the pay deals of everyone working in the banking sector earning more than £l million? The Government have dragged their feet on this issue. A simple signature to a statutory instrument is all that is needed. Surely it is important to have transparency and accountability for all the high earners in the banks, not just the richest eight in each bank, as he has conceded so far.

Fifthly, the report highlights a culture of incentive fees for City advisers, whose rewards are greatest if large takeovers are completed. The report recommends ending that bias in the advisory fee structure. Why did the Minister ignore that recommendation in his statement? Does he agree that the proposal would make good sense? The FSA and the Government did not see the financial crisis coming, but neither did the Bank of England. Is the Minister certain that putting all the new regulatory powers in the hands of the Bank will work? Is there a risk that the accountability of the Bank of England—an important point—is substandard in his current proposals? Will he accept the suggestions from the Select Committee on the Treasury and others that those safeguards need to be significantly enhanced?

We of course support moves to enhance prudential regulation, but there is always a danger of fighting the last battle, especially when there could be a eurozone credit crunch just around the corner, so is the Minister not taking his eye off the ball? Will he acknowledge that the new European supervisory structures are incredibly powerful and that, by mishandling negotiations in Europe so badly, the Government have jeopardised our ability to influence and steer those European regulations, which can overrule the tougher capital buffers for our banks, as suggested by the FSA here in Britain?

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The regulators did not do enough, and we have to learn lessons. However, ultimate culpability rests on the shoulders of the bankers involved. It is astonishing that deeply irresponsible decisions by those bankers should have forced a £45 billion bail-out, and yet no enforcement action is brought and nobody is punished. It is about time that this Government stopped pandering to the big banks and took action to speed up banking reform and rein in the excessive bonus culture.

Mr Hoban: The approach taken by the hon. Gentleman, who seeks to try to blame everybody for the crisis, overlooks the key role that the shadow Chancellor—who is not in his place today—played in the design of the regulatory system that led to the problems we saw at RBS. That design—driven by the shadow Chancellor, who took great credit for it—meant that no backstops were in place when RBS took those decisions.

The other point that the hon. Gentleman should bear in mind is that only three politicians are named in the report as having put pressure on the FSA to adopt a light-touch regulatory regime. One was Tony Blair, one was the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), and the third one—the person who is missing from the Opposition Front Bench today—is the shadow Chancellor, the person who in his first speech as City Minister called on the FSA to adopt a light-touch regulatory regime, a regime that, when confronted with the challenge of RBS, turned from a light touch to a soft touch. It is, of course, the taxpayer who has picked up the bill for the fundamental flaws in Labour’s regulatory regime.

The hon. Gentleman talked about disqualification of RBS directors. It is a pity that the previous Government did not think about that issue in the aftermath of the financial crisis. My right hon. Friend the Secretary of State for Business, Innovation and Skills has referred the report to counsel to see whether it is possible to disqualify the directors of RBS.

The hon. Gentleman talked about approval for acquisition. We will look carefully at the proposal Lord Turner made, but the reality is that the FSA had powers to intervene, but chose not to use them—partly as a consequence of the light-touch regime foisted on them by the previous Government.

When the hon. Gentleman talks about bonuses, let us not forget that it was under the previous Government that bonuses could be paid out in cash and taken straight away. Under the regime in place now, bonuses are deferred, paid out in shares and can be clawed back. Let us not forget that the moment that it was possible to exercise the maximum leverage on Sir Fred Goodwin—the banker Labour knighted—was the moment when it gave away his pension scheme. So I will take no lessons from the Labour party on the way in which we should deal with the problems of RBS.

The hon. Gentleman referred to the Bank of England and seemed to question whether it was able to take on the additional responsibilities. I thought he was moving away from his party’s position of supporting the package of reforms that we have put forward. Let me remind him that it was the Bank of England that identified the problem of the mispricing of risk in the financial markets. The problem was that the regulatory structure it had to deal with meant that the Bank did not have the power to tackle the problem—nor, indeed, did the FSA. What we

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are faced with is a problem of dealing with the regulatory regime left to us by the previous Government. They chose not to make these reforms when they were in government; we are taking action now to ensure that we have the right regime in place to tackle those risks and ensure that we have a stable, but successful, financial services sector.

Mr Andrew Tyrie (Chichester) (Con): Powerful institutions do not leap forward to explain themselves when they make mistakes, and neither did the FSA. The fact is that the almost 500 pages of this report would never have been written had it not been for the unremitting pressure from the Treasury Select Committee. I would like to thank my colleagues on that Committee for helping me to secure this report from the FSA. Furthermore, to make sure that the report was of adequate quality, we took the unprecedented step of sending our own specialist Committee advisers into the FSA with full powers to examine papers and personnel in order to check that the papers underlying the compilation of this report were fairly reflected in it.

Is it not now crucial that the new regulators—the Bank of England and the Financial Conduct Authority—are subjected in future to far more vigorous parliamentary scrutiny than the FSA has been in the past? Will the Government commit in the draft legislation to secure a much higher level of parliamentary scrutiny of these powerful quangos than we have had hitherto?

Mr Hoban: I, too, commend the work of my hon. Friend and his Select Committee, along with the work done by Bill Knight and Sir David Walker in scrutinising the FSA’s report and making consequent improvements to it. One of the challenges we face is, as my hon. Friend said, to ensure that there is proper scrutiny. He commented on the fact that it took the pressure of his Committee to produce this report. The reality is that the existing powers in section 14 of the Financial Services and Markets Act 2000 to require a report to be produced where there is regulatory failure have never been exercised. One measure we have put in place in the Bill is to enable such reports to be produced on a more regular basis—not at a Minister’s request but in response to objective triggers to ensure that reports are published in a timely fashion so that we can learn the lessons from past mistakes. I think that is a helpful way of enabling Parliament to hold the regulators to account. We look forward shortly to responding not just to my hon. Friend’s Select Committee report, but to that of the pre-legislative scrutiny Committee.

John Mann (Bassetlaw) (Lab): Is the position of Hector Sants at the Bank of England still credible following the report, and does the Minister agree that it would not be tenable for anyone connected with the FSA to replace Sir Mervyn King as the next Governor of the Bank of England?

Mr Hoban: As the hon. Gentleman will know, RBS was regulated by the retail division of the FSA, while Hector Sants was managing director of the wholesale division. He took charge of the FSA about three months before the ABN AMRO acquisition, and one of the things on which he should be commended is the way in which he has led its implementation of a more intrusive

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and intense programme of supervision. I think that that has yielded dividends during the last two or three years, and that it is an important part of his record that we should recognise.

Mr David Ruffley (Bury St Edmunds) (Con): The Government’s proposed new regime will be judgment-based, not rule-based, and will therefore require banking supervisors of much higher quality than we have seen hitherto. What steps will the Financial Secretary take to ensure that such people are in place under the new regime?

Mr Hoban: My hon. Friend is right to recognise that the quality of supervision needs to be higher than it was in the pre-crisis days. The need for much more engagement by better qualified banking supervisors is a priority not just for the FSA but for the Bank of England, which will be introducing measures for precisely that purpose.

Stewart Hosie (Dundee East) (SNP): The Minister said that the FSA had failed to challenge the RBS management sufficiently over its decisions. That is a masterful understatement. In October 2007 the FSA had precisely four and a half staff in RBS: half a manager and four team members. It was possibly the biggest bank in the world, it was systemically important, and its asset base was bigger than the GDP of the United Kingdom. Will the Minister guarantee that, irrespective of the future shape of banking and regulation, the RBS’s successors—the Prudential Regulation Authority and the Financial Conduct Authority—will always have enough of the right people in such systemically important banks, so that we never encounter such a situation again?

Mr Hoban: That is an important question. I referred earlier to the pressure under which Tony Blair put the FSA to adopt a proportionate regulatory regime. One of the examples put to the then Prime Minister about the light-touch quality of the regime was the fact that there were only six people supervising HSBC, and even fewer have been supervising RBS. I understand that there has been almost a fourfold increase in the number of RBS supervisors, and I think that that is a much better approach. We must ensure that there is intrusive, intensive supervision, and that requires not just more resources, but a higher quality of resources.

Matthew Hancock (West Suffolk) (Con): I warmly welcome the report. I think that the proposal to debar directors from high office in future should be implemented so that we can ensure that rewards are not received for failure at the top, but will the Minister also consider the proposal to debar others mentioned in the report who were culpable?

Mr Hoban: I think that we should give careful consideration to the idea of debarring people who have been incompetent and mismanaged their leadership of institutions. That applies to the directors of those institutions, but it may also apply to the politicians who designed the system in the first place.

Frank Dobson (Holborn and St Pancras) (Lab): Let me begin by declaring an interest: my wife and I have both current and deposit accounts with the Royal Bank of Scotland. As one who was always in favour of tougher regulation of banks, I must also confess that

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I do not recall encountering an organisation before the collapse which could be described as “Tories for tougher banking regulation”.

Will the Minister confirm that the failures extend beyond the area that he has covered? Will he confirm that the auditor, Deloitte Touche Tohmatsu—which received substantial fees—did not seem to notice that there was anything wrong, and that the benighted rating agencies, which keep telling us what should be happening now, gave triple A ratings to both RBS and ABN AMRO right up to the day on which the balloon burst?

Mr Hoban: The right hon. Gentleman makes some important points, and clearly a number of institutions involved with RBS and the regulatory system more widely should bear responsibility for what happened, but let us be absolutely clear that the principal responsibility for the failure of RBS lies with its management.

Mike Crockart (Edinburgh West) (LD): I should, first, declare that the global headquarters of RBS is in Gogarburn in my constituency. Today’s report apportions blame for the RBS demise on previous RBS management, insufficient challenge by the FSA and Labour’s light-touch, lip-service regulations; this Government are now dealing with those. Will the Minister join me in recognising that one group not blamed was the tens of thousands of ordinary employees of the bank, who have continued to work in an exemplary way, despite more than 27,000 redundancies and a slump in the bank’s fortunes and share price, which was previously a major element of their benefits package? Does he agree that today’s report is no reflection on them?

Mr Hoban: My hon. Friend makes an important point. Responsibility clearly rests with the leadership of RBS, not with those working in the bank’s branches, those working at its insurance company and others, who did their job properly and to the highest standards. It is important to recognise that, having identified regulatory issues to address, his party and my party came together in a coalition Government committed to regulatory reform. The Labour party was wedded to the status quo and to the regulatory regime that allowed this to happen unchecked. That party should take its full responsibility, just as we should recognise the excellent work that people at RBS did.

Mr Pat McFadden (Wolverhampton South East) (Lab): The report makes it clear that the primary responsibility for the collapse of RBS lies with the firm. The shadow Minister was big enough to say what he did about past regulation, and the Minister’s anger would be more credible if he and his party had not continually called for lighter regulation. The Minister had said:

“Effective light-touch, risk-based…regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress”.—[Official Report, 28 November 2006; Vol. 453, c. 995.]

The Chancellor had said:

“I fear that much of this regulation has been burdensome, complex and makes cross-border market penetration more difficult.”

If people are going to admit culpability on regulation, the truth is that those on both sides of the House need to look in the mirror. Is that not the case?

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Mr Hoban: It was my party, through the work done by Lord Sassoon, that examined the regulatory system set up by the previous Government, identified some of the challenges and determined that the best thing to do was to reform that system. We have recognised the challenges and the failings of the previous regulatory system, and proposed measures to improve it, and to ensure that it serves consumers and ensures a stable, successful financial services business.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): We have quite a few Members to get in, so please could we have brief questions and answers?

Tony Baldry (Banbury) (Con): The shadow Minister said that the regulation did not work and the regulator did not do anything sufficiently. Surely the reason for that was because the regulator was put under sustained and unacceptable political pressure by two former Prime Ministers and by the current shadow Chancellor. Will my hon. Friend confirm to the House that this Government, and the Treasury under the stewardship of this Chancellor, would not put such pressure on regulators and that the constitutional convention as to how a Government should work with regulators will be properly observed?

Mr Hoban: My hon. Friend makes an important point. We have made it clear that we want to give the new regulatory organisations that independence, power, authority, discretion and judgment to get on with their job, so that we ensure that we tackle issues that need to be tackled and ensure that there is tough regulation where that is needed. For example, we are going to introduce powers for the Financial Conduct Authority to ban particular products—a power that has not been available so far. We are prepared to take those tough decisions and let the regulators get on with their job.

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): One of the features of the RBS takeover of ABN AMRO was that lots of people warned against it at the time, and not just with hindsight—many people in the financial services and elsewhere warned of severe consequences. Was the decision to go ahead with that takeover about not just the role of Sir Fred Goodwin, but the fact that those who were meant to prevent him from doing such things did not do so? Was this not only about a question of regulation, but about a culture of takeover, acquisition, internationalisation and over-ambition which was at the heart of the problems of RBS and other places? What will the Minister’s proposals do to prevent that kind of attitude from affecting future managements and future banks when the current financial crises have passed?

Mr Hoban: The hon. Gentleman makes some important points. It is important that shareholders play a more active and engaged role in businesses in which they have a holding. My right hon. Friend the Secretary of State for Business, Innovation and Skills has commissioned John Kay to conduct a review of long-term interest in business and business investment. We need to strengthen corporate governance in boards, as they clearly were not sufficiently robust in their challenge to executives. One of the things that has happened in the FSA is that a

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much more robust approach is being taken to understanding and examining people who want to hold positions of significant influence in our major banks, including those who want to become board members. That is a good way not only of raising the quality of people in the boardroom, but of ensuring that they are robust enough to stand up against a dominant and aggressive chief executive officer.

Stephen Barclay (North East Cambridgeshire) (Con): Will my hon. Friend ensure that the rules allow enforcement action against incompetence? The point being missed by Labour Members is that there are more than 6,000 pages of FSA rules. There is no shortage of rules, but they do not allow enforcement against incompetence; they allow it only against dishonesty. That is what has fettered the hand of the FSA and what angers my constituents, who are aggrieved that individual directors of RBS have not faced sanction.

Mr Hoban: My hon. Friend makes an important point and he speaks with some experience, having worked with the FSA. We need to look carefully at the fit and proper person test for people becoming registered with the FSA to ensure that they are good quality, and can do the job properly and competently.

Dr William McCrea (South Antrim) (DUP): I welcome the Minister’s statement. It is right and proper that we review past failures and learn from them, but how can we use the current situation to get the banks to lend to the hard-pressed small and medium-sized businesses crying out for finance they urgently need, especially in Northern Ireland, where credit is particularly squeezed?

Mr Hoban: The hon. Gentleman makes an important point about the credit situation in Northern Ireland, and I know that the hon. Member for East Antrim (Sammy Wilson) pays close attention to it. We need to ensure that banks are sufficiently well capitalised to enable them to lend to businesses. One of the things that the hon. Gentleman may have noticed from last week’s report from the European Banking Authority is that no UK banks required additional capital, because they are already well capitalised and should be in a position to lend, as was demonstrated by the third quarter Project Merlin figures.

Nadhim Zahawi (Stratford-on-Avon) (Con): This report is a damning indictment of the decisions taken by the previous Government, so it is regrettable that the shadow Chancellor could not be here to apologise in person to the House and to the country. Does the Minister agree that the something-for-nothing culture allowed to fester under the previous Government is something that this Government will not allow and that they will examine how to shift the dynamic in boards in systemically important businesses so that non-execs are able to challenge powerful CEOs and hold them to account?

Mr Hoban: My hon. Friend makes an important point, because there was a culture, as documented in the report, that meant that directors on the board of RBS did not challenge the CEO sufficiently robustly. That needs to change. We also need to ensure that the incentive

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arrangements for directors are robust. Under the previous regime, bonuses could be paid out in cash straight away. Over the past couple of years, tougher rules have been put in place to defer bonuses, to make sure that they are paid in shares and to claw back bonuses where there has been failure. That is a tough regime in place and it should make sure that the incentives of directors are in line with those of shareholders.

Mark Durkan (Foyle) (SDLP): What are the issues inhibiting the Minister from making a clear commitment to strengthen legal powers so that action can be brought against directors of failed banks?

Mr Hoban: I understand the frustration expressed in the hon. Gentleman’s question. We need to look carefully at the proposals in Lord Turner’s report and we will have the opportunity to legislate in the Financial Services Bill, if appropriate, but the hon. Gentleman would not want me to engage in a knee-jerk response to a report that was only published first thing this morning. I want to ensure that we have the right measures in place, whether through company law or regulation, to ensure that we have good-quality people running such organisations.

David Mowat (Warrington South) (Con): The report makes it clear that had the Basel III legislation been in place, the AMRO transaction could not have happened. Will the Minister confirm that it remains his intention to implement Basel III as soon as possible and ideally before 2019?

Mr Hoban: It is our commitment to implement Basel III. We want to ensure that it is implemented consistently across the whole of Europe in capital requirements directive IV and we are pushing for member states to have the freedom to go further and raise capital standards when they believe it is in their interests to do so. We want to see tougher regulation of banks and that requires better and more capital and better and more liquidity.

David Morris (Morecambe and Lunesdale) (Con): The FSA’s report mentions three Ministers in the previous Government who applied sustained political pressure to give a light touch, shall we say, to the regulation. Can my hon. Friend tell me who they were?

Mr Hoban: It is interesting, is it not? It is not often that we see particular Ministers highlighted in reports published by independent bodies. The three who are mentioned are Tony Blair, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and the shadow Chancellor. The shadow Chancellor took great pride in taking credit for the design of the regulatory structure, which failed, and he compounded those mistakes in the design of the structure by putting pressure on the FSA to go for a light-touch regime. The taxpayer has picked up the consequences of the failure to design that structure correctly and of the inappropriate pressure to have a light-touch regime when it came to the regulation of RBS and others. The taxpayer is paying the cost and the Opposition should be apologising for that.

Richard Fuller (Bedford) (Con): Although the report includes useful forward-looking recommendations, its review of the actions of executives, directors, regulators

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and Ministers that led to the crisis amounts to 487 pages of “Oops!” That includes the laughable statement on page 352 that

“deterrence will most effectively be achieved by bringing home to such individuals the consequences of their actions.”

Does the Minister agree that deterrence would be more effectively achieved by those people hearing the clunk of the prison door and the turning of the key?

Mr Hoban: My hon. Friend is right to say that many taxpayers up and down the country who have seen £45 billion poured into RBS want to know why action has not been taken against its directors. Today’s report is an attempt to address those issues. It recognises that there are some problems with the sanctions available to the FSA and in the Companies Acts, and we are committed to reviewing them and seeing which tougher sanctions can be put in place to deal with directors who let down the businesses they work for and the customers they serve.

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Durban Climate Change Conference

6.2 pm

The Secretary of State for Energy and Climate Change (Chris Huhne): With permission, Mr Speaker, I wish to make a statement on the outcomes of the United Nations climate change conference in Durban, which concluded only yesterday. I was present for the last week and a bit of the conference, along with my colleague the Minister of State, Department of Energy and Climate Change, the hon. Member for Bexhill and Battle (Gregory Barker), who has responsibility for climate change.

After the disappointment of Copenhagen, last year’s Cancun conference showed that the UN climate process was back on track. The Durban conference was designed to build on that outcome and our aims were therefore higher. At our most optimistic, we hoped to agree a road map to a new global legally binding agreement to replace or supplement the Kyoto protocol. Unlike Kyoto, it would incorporate emissions targets for all countries other than the poorest and least developed. It would be accompanied by agreement to a second commitment period of the Kyoto protocol from 2013. We also aimed to encourage countries to strengthen their voluntary pledges to reduce emissions in the years before any new agreement entered into force and we hoped to establish the green climate fund.

I am pleased to say that, following two weeks of intense negotiations, we achieved each of those key aims. The talks resulted in the adoption of the Durban platform, a road map to a global legal agreement applicable to all parties. Negotiations for the new agreement, which will begin early in 2012, are to conclude as early as possible and not later than 2015 and the commitments in the new agreement will take effect from 2020.

The conference explicitly recognised the global gap between countries’ existing emissions reduction pledges to 2020 and the global goal of limiting average temperature increases to below 2° above pre-industrial levels. It launched a work programme for ratcheting up ambition, a process that will be reinforced by a forthcoming review of the scientific evidence.

The conference also agreed to adopt, next year, a second commitment period of the Kyoto protocol. Many details remain to be worked out over the coming months, including specific emissions reduction targets, the length of the commitment period and a process for dealing with surplus emissions allowances, but the headline message is clear: the Kyoto architecture—the rules and legal framework for managing emissions—has been preserved and can be built on in the future.

The conference also resolved to establish the green climate fund to support policies and activities in developing countries. The UK is one of the few countries to have pledged climate finance beyond the initial fast-start period, and we will make an announcement on the green climate fund once its design is completed.

The conference also resolved to establish a work programme to consider sources of long-term finance for developing countries with the aim of mobilising at least $100 billion a year by 2020. Progress was made on several other parts of the international climate regime, including reporting guidelines for developed and developing countries; the creation of the adaptation committee, which will provide advice and ensure coherent action on adaptation; the establishment in 2012 of the technology

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executive committee to facilitate the development of low-carbon technologies; further details of the framework for reducing emissions from deforestation and forest degradation; and a process for establishing new market-based mechanisms to deliver effective reductions in emissions at least cost.

As well as the substantial diplomatic and technical outcomes I have outlined, the Durban conference saw a highly significant political realignment. More than 120 countries formed a coalition of high ambition in support of a road map to a global legally binding deal. Many African and Latin American states, the group of least developed countries and the Alliance of Small Island States joined the EU to argue for the road map to a new agreement. That realignment has laid a firm political foundation, grounded in common interest, on which we can build future achievements.

I am sure that the House will wish to join me in paying a sincere tribute to the British team of negotiators. Drawn from across government and supported by the Foreign and Commonwealth Office and its posts, ours was one of the smallest of the G8 countries’ delegations, but what it lacked in quantity it made up for in quality. Its members played a key role in many of the detailed negotiating groups, sometimes on behalf of the entire European Union. The UK operated within and through the EU delegation, co-operating closely with representatives of other member states and the European Commission. By working together with our European partners, we were able to deliver more effectively for the British national interest and for our shared ambitions.

In conclusion, the Durban conference represents a significant step forward. It has re-established the principle that climate change should be tackled through international law, not through national voluntarism. It has persuaded the major emerging economies to acknowledge, for the first time, that their emissions commitments will have to be legally bound. It has encouraged all countries, also for the first time, to admit that their current climate policies must be strengthened and it has established the green climate fund to support the poorest countries in tackling and responding to climate change. It has also preserved the invaluable legal framework of the Kyoto protocol while at the same time opening the path to a new, more comprehensive and more ambitious global agreement. It was a clear success for international co-operation.

We still have much to do. Durban alone will not limit global warming to 2° above pre-industrial levels, but we have taken a clear and vital step towards our goal. I commend the statement to the House.

Caroline Flint (Don Valley) (Lab): I thank the Secretary of State for early sight of his statement and join him in paying tribute to the British team of negotiators. Whatever our differences with the Government over their handling and delivery of policies at home, there is consensus across the House that the only way we will tackle climate change is by getting all countries signed up to a legally binding framework to cut their carbon emissions. In that vein, the progress made at Durban is to be applauded.

First, I welcome the recognition in the Durban agreement of the emissions gap—the difference between the action that countries have committed to and the action we

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need to take to prevent dangerous climate change. The gap is too large and I hope that the Secretary of State will say a little more about how the UK will be leading efforts to narrow it.

Secondly, I welcome the fact that Durban has re-established the principle that climate change must be tackled through a framework of international law that incorporates both developed and developing countries. It is undeniable that developed countries bear responsibility for significant historical emissions and, in the light of that, I welcome a second commitment period for the European Union to the Kyoto protocol. However, it is equally true, given the rate at which many developing countries’ economies and emissions are growing, that any meaningful treaty on cutting carbon emissions must be legally binding and include developing countries too. The Secretary of State will know, for example, that while developed countries are likely to meet the collective Kyoto target of a 5.2 % reduction in greenhouse gas emissions by 2012, global emissions of carbon dioxide rose by 45% between 1990 and 2010. The challenge now, as I am sure the Government recognise, is translating the principles and aspirations that were agreed at Durban into a treaty that can actually deliver the cuts in greenhouse gases we need.

As the Secretary of State himself has admitted:

“There are still many details to be hammered out”.

May I ask him to give the House a little more detail on the following issues? What safeguards were put in place at Durban to ensure that the next round of negotiations will deliver a legally binding global agreement by 2015? How does he intend to use our strong relationships with countries such as the United States and Canada, as well as India and China, to help to broker a global agreement? Also, and importantly, how does he plan to monitor the progress that is being made and to keep the House up to date?

Thirdly, I welcome the establishment of the green climate fund, negotiations for which started at Copenhagen under the stewardship of my right hon. Friend who is now the Leader of the Opposition. If properly financed, it will provide vital support to the poorest countries to cut their carbon emissions, mitigate the effects of climate change and underpin the positive support for a global legal framework. Again, although important details are yet to be agreed, this serves as a warning about the length of time it can take for an idea shared to become an idea implemented. On the detail of the fund, will the Secretary of State say a little more about how he expects the necessary resources to be raised so that it is up and running as soon as possible, and what contribution he expects the UK to make?

Although progress has been made at Durban, it has also shown the scale of the challenge we face and the need for a strong European voice making the case to tackle climate change. The Secretary of State himself said that the Durban conference showed that we can achieve more working with our partners in Europe than we can on our own. We can only compare that with the outcome of last week’s EU summit, which left us isolated. As the Deputy Prime Minister’s chief parliamentary and political adviser, the hon. Member for North Norfolk (Norman Lamb), put it:

“Our new position comes with very real risks. To be in a minority of one is not good.”

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Will the Secretary of State reassure us that the UK’s voice within Europe on climate change will not be undermined as a result of the Prime Minister’s actions?

Finally, does the Secretary of State agree that reducing carbon emissions and preventing climate change are as much about example as exhortation? He has been generous enough to recognise the record of the previous Labour Government. We reduced the UK’s greenhouse gas emissions by more than 21% compared with emissions in 1990, thereby exceeding our Kyoto target. We also passed the Climate Change Act 2008, which was a world first, binding the UK Government in law to reduce carbon emissions by a third by 2020 and by 80% by 2050.

The Secretary of State will know that there is genuine concern across the House about the Government’s commitment to being the greenest Government ever, not least today when the cuts to the feed-in tariff for solar power come into effect. We hear that the Green investment bank will be delayed, and the future of carbon capture and storage is in doubt, so I ask him to reassure me and the House that alongside our international efforts to reach agreement to cut carbon emissions and tackle climate change, the Government will not lose sight of the need to make the UK cleaner, greener and a world leader in the low carbon economy.

Chris Huhne: I very much welcome the right hon. Lady’s response. It is very valuable, when going into negotiations such as those at Durban, to know that there is widespread consensus across the House on the key goals we are aiming for. I pay tribute to hon. Members on both sides of the House, particularly those who have been following these issues closely, in helping to sustain that consensus.

The emissions gap is too large and we will work on it. As the right hon. Lady rightly said, one of the key issues has been the importance of monitoring. One thing that the UK Government have actively encouraged has been the development of the emissions gap report from the United Nations Environment Programme. I had a very fruitful meeting with Achim Steiner in Durban, and I know that the programme will continue to build on that. I very much hope that that monitoring will build gradually over time to become the environmental and climate change equivalent of the sort of regular reporting that we have from the OECD and particularly from the International Monetary Fund on the world economic outlook. It would be good to have a regular world climate change outlook or global climate change report.

On the legal side, the step forward is very significant. As the right hon. Lady will no doubt have read in the press, there was an attempt, right up to the last moment, to insert into the final text the words “legal outcome”, which had been defined in the past by India and China as merely decisions of the conference of the parties. That would not have been adequately legally binding for our purposes in terms of an overall treaty. It was therefore an essential objective of the European Union’s team to take out those words and insert words that could not be interpreted as a voluntarist approach but could mean only that there was a legal agreement with real force. The compromise from the Brazilians which we finally adopted does exactly that—on the advice we received from the very able international lawyer on the

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UK team. That was confirmed at the time by our legal advisers—under some great pressure, I have to say, as we huddled at 4 in the morning, or whatever time it was, in the plenary room. They also advised some of our partners in that coalition of the willing. I think that we got a good deal that means exactly what it says.

I very much take on board the key point that we need to ensure that our environmental goals are not seen as an obstacle to development. That is an agenda on which I want very much to work with the Indian Environment Minister to ensure that there are viable and effective pathways to development at every level of income per head. I was particularly proud to participate in the launch of Ethiopia’s zero-carbon growth programme with the support of the Mauritian and UK Governments. Prime Minister Meles was at the launch as well. At the middle-income level, there is the example of Costa Rica. At the high-income level, let me respond to the right hon. Lady’s point about what we are doing domestically. I was very pleased that an objective assessment of what is being done by European countries, which was produced last week by Germanwatch, concluded that the UK had the second-best framework for dealing with carbon emissions of all 27 member states of the EU, behind only Sweden. However, our ministerial team likes to come first, so we will work on that.

On the key issue concerning our allies, such as the US and Canada, the right hon. Lady is absolutely right that we need to build our relationships there and ensure that they can be brought into that agreement as well. She asked for details of the global climate fund and about our support for it. We stand ready to support it and we have already disbursed £1 billion of the £1.5 billion allocated for fast-start finance. We are one of very few countries to have a programme of financial commitments for developing countries beyond the fast-start finance period. We have allocated £2.9 billion in total for the comprehensive spending review period and, as I said in my statement, I very much hope that we will be able to make an announcement in due course when we have concluded the arrangements on the shape of the green climate fund.

Finally, the right hon. Lady rightly mentions the importance of working with our European partners. This is a particular example of the success of European diplomacy. As one member state we would not be able to achieve anything like as much as we have been able to achieve working closely with the other 26 member states and contribute to that with the undoubted expertise we have within the UK team. Importantly, when it came to the key negotiations, it was perceived in the plenary that the European Union was acting together, and that we were very much prepared to carry through on our threat. Often in these negotiations a good bit of leverage is needed, and we were prepared to carry out our threat that we would not go ahead with the second commitment period of the Kyoto protocol unless we had those key assurances that the future agreement would be legally binding.

In addition to the change that I described in the politics of the conference, it is highly significant that China, India and Brazil, but particularly China and India, have moved substantially in the direction of accepting that we need an overall agreement which will reach a global solution to the problem.

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Tony Baldry (Banbury) (Con): May I offer my right hon. Friend many congratulations on what has been achieved? Does he agree that one of the major achievements of Durban was that for the first time everyone in the world, including the major emitters—the United States, India and China—is now committed to the same process of a legally binding agreement? For the first time ever, everyone is going in the same direction towards the same objective. A simple machinery of government question is: will the funding for the green climate fund come from the budget of my right hon. Friend’s Department or that of the Department for International Development?

Chris Huhne: We have to determine the exact way we disburse money for the green climate fund. As I say, we will make an announcement in due course. My hon. Friend is right to say how important it is that everybody has signed up to that global agreement.

Barry Gardiner (Brent North) (Lab): I congratulate the Secretary of State and his team on what was achieved at Durban. It was a vindication of the European negotiating position. Can he provide the House with further clarity on the climate fund money after the start-up period? Will he confirm that at least 50% of that money will be provided for adaptation and that the bulk of it will not go to mitigation, as was part of the original agreement? Will he also comment, please, on the gap there will be between the conclusion of the negotiations no later than 2015 and the 2020 deadline for implementation of those commitments? There is a perception in emerging economies that the earlier they conclude the negotiation, the bigger the gap will be in what those commitments deliver in 2020.

Chris Huhne: Let me answer the last part of that question first. The most encouraging thing is that we dealt with both time periods. There is a clear commitment to dealing with a single over-arching global agreement from 2020, but there is also a clear set of procedures—admittedly, there are no numbers yet—for addressing the emissions gap from now through to 2020, so the process will not stop in 2015. We have achieved great progress in getting real action. The contrast is often noted between Canada, which is a signatory to Kyoto protocol but is busting all its targets, and China, which is not bound on emissions but is doing an awful lot. We are able to do an awful lot and that is very important.

Adaptation is key and yes, that will be essential to the efforts of the green climate fund, particularly the public funding. It is much more difficult to get private funding for adaptation measures—that is much easier on the mitigation side. I expect that the publicly funded aspect will be higher than 50%. I draw the hon. Gentleman’s attention to the recent OECD report, which found that our existing commitments on and support for adaptation measures were among the best, and that will continue.

Andrew George (St Ives) (LD): Notwithstanding the answer that my right hon. Friend gave the right hon. Member for Don Valley (Caroline Flint), what lessons can we take from the conference when negotiating international agreements? Does he believe that the UK’s contribution to this welcome outcome would have been made easier or more difficult had we adopted an isolationist posture?

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Chris Huhne: The Prime Minister has made his position on other matters quite clear. On negotiations, from my experience in Brussels—I know that the Deputy Prime Minister had a similar experience when we were Members of the European Parliament—I can say that it is absolutely key that one has to be in the room where one’s interests are being affected. That is essential. In Brussels there is an adage that is one of the first rules of negotiating: if you’re not at the table, you’re on the menu. I have an awful feeling that we should bear that in mind in all aspects of international negotiations, but my hon. Friend can rest assured that when it comes to the UK’s participation in the United Nations framework convention on climate change, we were in all the key rooms at all times. At one point last year in Cancun, for example, I can assure him that we—[Interruption.] The UK delegation—the team. What generally happens is that the group of people who are deciding on the key compromises gets smaller and smaller. I can assure my hon. Friend that at every stage of the game, right the way through to the final huddle, the UK was represented. That is a central negotiating objective.

Mr Deputy Speaker (Mr Nigel Evans): I gave a little latitude there, but I am not looking for an extension of the first statement.

Dr Alan Whitehead (Southampton, Test) (Lab): I congratulate the Secretary of State on the outcome of a conference that was widely regarded as unlikely to succeed, even in the objectives that have been set down now. It is substantially because of the EU’s negotiating position and the British role in it that that very good outcome was achieved, even though there is a great deal more to do.

Will the right hon. Gentleman expand on the role of Connie Hedegaard, the EU Commissioner for Climate Action, originally from the Danish Conservative People’s party, in careful negotiation, keeping the parties together and making sure that the EU presented a united front and that no one withdrew from that? Will he confirm that the EU position, which I hope will develop up to 2020, will have the full-hearted participation of the UK as the new treaty approaches a conclusion?

Chris Huhne: Yes, Connie Hedegaard led the European Union efforts very ably, drawing on her experience in Danish politics and then in Europe. That was a critical part of the success. I reiterate, however, that it is not merely a question of finding the right negotiating strategy, which is what the European Union did. The EU understood from the word go that it was crucial that we move pressure on to the big emitters, China in particular, from the other developing countries and that we establish that new relationship with a substantial number of developing countries. That was ably led by Connie Hedegaard.

The other thing that I would highlight is that when one gets into negotiations and has a number of essential asks, the negotiating counterparties have to believe that one is serious and not going to buckle. In the past it has been the case that some of the more herbivorous members of the European Union have been taken as willing to buckle. We did not do that on this occasion and as a result we got every single one of our asks.

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Zac Goldsmith (Richmond Park) (Con): I, too, congratulate the Secretary of State on the progress that has been made, particularly given that I do not think anyone really believed that there would be progress. I also welcome the declaration relating to the Congo basin—the second largest tract of rain forest in the world—which was launched by the Minister of State, my hon. Friend the Member for Bexhill and Battle (Gregory Barker). The Secretary of State mentioned progress on reducing emissions from deforestation, and I was hoping that he could be a little more specific.

Chris Huhne: I pay tribute to my hon. Friend for his interest in that area and the work he has done. The Congo basin initiative is absolutely crucial. We aim to work with some interesting projects through bilateral support from the UK Government for some key forest nations, which will be in the Amazon, the Congo basin and Indonesia. Further progress was made through the technical achievements in the working groups, which he will find set out in the full agreement.

Caroline Lucas (Brighton, Pavilion) (Green): The Secretary of State talked about the importance of monitoring. Monitoring is important, but so is action. I am deeply worried that, unless we see much faster action, we risk going down in history as the species that spent all its time monitoring it own extinction, rather than taking active steps to avoid it. The Durban agreement will not limit global warming to 2°, as he acknowledged, which means that we are on course for exceedingly dangerous climate change, so what will he do to ensure that the EU moves as fast as possible, unilaterally if necessary, to a 30% reduction target by 2020?

Chris Huhne: I am grateful to the hon. Lady for her question. Action is the most important ultimate benchmark of what we do, but I urge her not to underestimate the importance of knowledge in informing action. One of the key gaps that we need to fill in this area is regular reporting and attention on the gap between what we are doing and what we need to do to hold the global temperature rise to within 2°, beneath the level that would create dangerous climate change. I have had discussions not only with Marcin Korolec, the Environment Minister of Poland, which currently holds the presidency of the Council of the European Union, but with Martin Lidegaard, the Energy and Climate Change Minister of Denmark, which will hold the presidency for the first half of next year. I had good conversations with him in Durban and am confident that the Danes will bring forward some clear time within the Council to ensure that we make real progress towards some of the key staging posts in reaching 30%. Perhaps most progress will be made on the energy efficiency directive, because it should be relatively easy to agree and we know that energy efficiency measures tend to have benefits outright. We are thinking about how to do that and I hope that the European Union will be able to move forward on domestic action in the first six months of next year.

Jeremy Lefroy (Stafford) (Con): I thank my right hon. Friend and his team for their work. What does he intend to do to encourage other countries to sign up to the green climate fund and follow the UK’s lead?

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Chris Huhne: The power of example is quite powerful, as the Minister of State and I have discovered. We have substantial credit for what this Government are doing on development among African countries and other developing countries, and I think that that power of example is carrying over to other developed countries. I very much hope that others will join in helping to fill the green climate fund. A number of countries have already been prepared to make conditional pledges, including the Government of Korea, and I am sure that there will be others.

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): At the most recent Energy and Climate Change questions I expressed my concern about progress in the negotiations. I would like to put on the record my tribute to the Secretary of State and his team for their work in helping to secure substantial progress. He mentioned the importance of monitoring and information in the period running up to 2015, but he will also be aware that there is a danger that things might go a little quiet after the negotiations in Durban and that in the run-up to 2015 there might yet again be last-minute political pressure and attempts to put decisions off to another day. What steps can be taken to ensure that there is an opportunity for a political focus from now until 2015 not only in the UK, but in other countries, to ensure that we have an agreement in 2015? For example, what review mechanisms are in place to allow politicians and Governments to have an impact on the negotiations to ensure that they result in the type of agreement we want in 2015?

Chris Huhne: The UNFCCC process provides numerous opportunities, including through the groups around it, such as the Major Economies Forum and the Clean Energy Ministerial meeting, which we will host next spring, in order to bring political leadership to the whole process. I was very encouraged by what happened at Durban and that the political leadership is increasingly there, and we need to build on that.

Jo Swinson (East Dunbartonshire) (LD): I congratulate my right hon. Friend and all those involved in the negotiations in Durban on a very welcome outcome, especially after so many disappointing climate change talks. I wholeheartedly agree with the remarks of the hon. Member for Brighton, Pavilion (Caroline Lucas) on the need for the EU to step up its own emissions targets, but that will clearly be a challenge, given the global economic difficulties we face. Will my right hon. Friend tell us more about the progress being made on the Technology Executive Committee to promote low-carbon technology so that we can simultaneously boost our economy and reduce emissions?

Chris Huhne: Progress is being made in that regard. The key is to ensure that appropriate progress is made at different levels of development. Much can be achieved in some of the poorer developing countries where there are low levels of development by ensuring, for example, that people simply use more efficient forms of burning wood for cooking. We are making progress on the technological issue, but it applies at all levels of development.

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Rushanara Ali (Bethnal Green and Bow) (Lab): How much funding has the international community raised towards the $100 billion green climate fund and what international leadership are he and the Government providing to ensure that other Governments make a strong commitment to meet the goal of reaching the full amount urgently, rather than waiting for 2020?

Chris Huhne: Perhaps I should clarify that the $100 billion a year commitment relates to not only the green climate fund, but other sources of finance. It is obviously due when the agreement comes into force from 2020, but in the meantime we have fast-start finance. I have already said what our commitment is. A number of websites are available that add up where we have got to in relation to international pledges. I do not have the figure at the moment, but I will be happy to respond at the next Energy and Climate Change oral questions or to write to the hon. Lady with the latest information.

Glyn Davies (Montgomeryshire) (Con): For a UN treaty on climate change to be meaningful and successful, all the major emitters in the world must be part of it, so it was encouraging to hear that the United States, China, India and Brazil are part of this agreement. How satisfied is the Secretary of State that the treaty obligations are legally binding, that those nations are not just paying lip service and that they will deliver on the commitments we are expecting?

Chris Huhne: The key point on legally binding treaties is that they are not a sufficient condition for dealing with the problem. We must have follow-through in national action, but such treaties are a necessary condition. I cannot think of any international problem that has been resolved without a legal framework. For example, the idea that President Reagan could have gone to Moscow and suggested that international nuclear disarmament or the strategic arms reduction treaty process could proceed with voluntary pledges would have been regarded as laughable. We have stressed, and will continue to stress, that the key objective is to ensure that this is done through a legally binding international treaty that provides everyone with an assurance that we are all moving.

There is a lot of national action. One of the great myths is that we are the only country doing anything, by which I mean that when I talk to fellow Energy and Climate Change Ministers I find that they all say, “But we’re the only country doing something.” In fact, there is a tremendous amount of action. One useful initiative I participated in was the launch of the GLOBE international study of parliamentarians interested in this area, which set out clearly the amount of action being undertaken through legislation right around the world. We will ensure that that process continues.

Mr Mike Weir (Angus) (SNP): There is a gap between promise and delivery not only on emissions, but—as often happens at international conferences—on the amount of money pledged for funds. The green climate fund is important, because climate justice demands that many countries suffering from climate change need help now, but who does the Secretary of State expect to put money into the fund, how soon it will be in place and how soon will money be given to such countries to help

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them out? I am concerned about his comment that few countries other than the UK have contributed to the fund so far.

Chris Huhne: I should make it clear that no one has contributed to the green climate fund so far, because it has not been set up. The agreement at Durban, which after all was reached only yesterday morning at 6 o’clock, was to set up the fund, so the hon. Gentleman is being slightly churlish in expecting us to have sorted out all the details and got the fund up and running within 24 hours or so of reaching the agreement. I have no doubt that it will happen; there are a number of pledges already and, as I have said, we stand ready to make announcements in due course. I said to the hon. Member for Bethnal Green and Bow (Rushanara Ali) that I would write to her on the latest state of play on international commitments generally to fast-start finance, for example, and I am happy to copy in the hon. Gentleman on that answer.

Mr Graham Stuart (Beverley and Holderness) (Con): As president of GLOBE in the House of Commons, may I thank the Secretary of State for attending the launch of the second GLOBE climate legislation study, which shows tremendous action taking place in many countries and most of all in developing countries? Does he agree that there is an enormous benefit to the UK economy from closer bilateral work with India and, perhaps in particular, China in the light of the visit, hosted by GLOBE recently, of Xie Zhenhua, the Chinese Minister with responsibility for such matters?

Chris Huhne: Yes, I agree very much that the relationships that we are increasingly building with China and India are very valuable and absolutely key to the agenda’s success. We have to make it clear that there is no conflict between the absolutely legitimate expectation of developing countries to be able to raise the living standards of their people and our need to protect our children and our grandchildren, and their children and their grandchildren, from the effects of climate change. One of the most passionate and moving speeches that I heard in Durban was from a Bangladeshi Minister, who described the real threat that there is to his country and to his people if we do not get a grip on climate change.

Mark Durkan (Foyle) (SDLP): I commend the Secretary of State for his statement and the ongoing work that it reflects. He mentioned the resolution on a work programme to look at long-term sources of finance for developing programmes. When does he anticipate the programme commencing? Does he believe that the UK’s input will be on an EU axis, and do the possible sources of finance include in that context a financial transaction tax?

Chris Huhne: The work programme will kick off, and it is up to the UNFCCC secretariat to arrange the details, but I do not anticipate any time being lost in setting it up and getting it under way. The details of those represented on it will be settled through the process, but we as a Government are keenly interested and have a lot of expertise in the area, so I hope that we will be able to play a full part and, depending on how that is determined, be represented on any group that pushes the work programme forward.

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On the financial transaction tax, the hon. Gentleman will know that we as a Government support financial taxes in general. We have moved on our own banking levy, for example, further and faster than other European countries, and we take the view that we can have further taxes on financial services, but that if such a tax touches areas that are very mobile, as a financial transaction tax obviously would do, it must be concluded at a global level. It cannot be done in only one country, because if it is the activity switches to other centres, and one simply loses out on all the revenue that one anticipated.

With that very important caveat of realism, the issue certainly has been talked about, but I do not believe that it is very likely to make progress, given the stand that other key parties have made against a financial transaction tax—and I am thinking in particular of the United States.

David Mowat (Warrington South) (Con): The Secretary of State will be aware that in the last year of the previous Government we were 25th out of 27th on the percentage of our energy that came from renewables, ahead only of Malta and Luxembourg in the EU. Did that impair his ability to lead by example in Durban; and will he confirm that by the end of this Parliament we will have gone a substantial way to correcting that?

Chris Huhne: I thank my hon. Friend for that point. He is absolutely right that the record that we inherited from the previous Government placed us 25th out of 27 EU member states on installed renewables, and I am determined that, having worn the dunce’s cap for some time, we shall make all the best efforts to get out of the dunce’s corner and be the fastest-improving pupil in the class.