Annual Growth Survey 2012

The Committee consisted of the following Members:

Chair: Mr Peter Bone 

Brown, Lyn (West Ham) (Lab) 

Garnier, Mark (Wyre Forest) (Con) 

Hands, Greg (Chelsea and Fulham) (Con) 

Hoban, Mr Mark (Financial Secretary to the Treasury)  

Hopkins, Kelvin (Luton North) (Lab) 

Leslie, Chris (Nottingham East) (Lab/Co-op) 

Love, Mr Andrew (Edmonton) (Lab/Co-op) 

Rees-Mogg, Jacob (North East Somerset) (Con) 

Sharma, Alok (Reading West) (Con) 

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

Walker, Mr Robin (Worcester) (Con) 

Williams, Stephen (Bristol West) (LD) 

Wilson, Sammy (East Antrim) (DUP) 

Marek Kubala, Committee Clerk

† attended the Committee

Column number: 3 

European Committee B 

Monday 20 February 2012  

[Mr Peter Bone in the Chair] 

Annual Growth Survey 2012 

4.30 pm 

The Chair:  Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant documents to this Committee? 

Jacob Rees-Mogg (North East Somerset) (Con):  It is a singular pleasure to serve under your chairmanship, Mr Bone. It might help the Committee if I take a few minutes to explain the background to this document and the reason why the European Scrutiny Committee recommended it for debate. 

In March 2010, the Commission proposed a Europe 2020 strategy to follow on from the Lisbon strategy. The strategy is aimed at promoting smart, sustainable and inclusive economic growth. During the latter half of 2010, the Council adopted, in the context of the Europe 2020 strategy, broad guidelines for the economic policies of the member states and the EU, and guidelines for the employment policies of the member states—together, the Europe 2020 integrated guidelines. 

In June, September and October 2010, the European Council considered and endorsed measures to increase co-ordination of EU economic governance, including strengthening the stability and growth pact, and a European semester, which would tie together consideration of national reform programmes, including reports on progress and plans on structural reforms under the Europe 2020 strategy, and stability and convergence programmes, including reports on fiscal policy under the stability and growth pact. 

With the present communication, the Commission publishes its second annual growth survey to launch the 2012 European semester. The communication sets out the Commission’s five priorities for action at national and EU level over the next 12 months. More detailed analysis underpinning the Commission’s assessment and proposed priority actions is set out in four annexes to the communication. The Commission proposes that the policy actions in the communication should form the basis for agreement by the European Council, following which member states should commit themselves to implementing these actions. 

To a large extent, the Commission’s annual growth survey sets, or is at least intended to set, the agenda for the EU’s European semester. The European Scrutiny Committee therefore recommended that it should be debated in this Committee. While Members might wish to address the full range of the Commission’s assessments and proposals, particular attention might be paid to the matters on which the Minister has sounded a cautionary note, especially taxation issues. 

Column number: 4 

4.32 pm 

The Financial Secretary to the Treasury (Mr Mark Hoban):  It is a pleasure to serve under your chairmanship this afternoon, Mr Bone. I welcome the opportunity to debate the annual growth survey. The debate comes at a pivotal time for the EU, as Heads of State or Government prepare to make a renewed commitment to growth at the European Council on 1 March. 

Those discussions are made all the more urgent by the latest growth forecasts in the IMF’s world economic outlook, which was published in January. It cut the EU’s growth forecast for 2012 by 1.5%—a contraction in the economy of 0.1%—and for 2013 to 1.2%. I fully expect the Commission’s interim forecasts to confirm that gloomy picture when they are published later this week. 

The European Scrutiny Committee’s report concluded that the annual growth survey 

“sets, or is at least intended to set, the agenda for the EU’s European Semester.” 

It is therefore politically significant. I agree with that analysis, and the launch of the annual growth survey is a good start. 

When I spoke to the Committee about country-specific recommendations addressed to the UK in July 2011, I pointed out that the European semester in itself is not a panacea and that much more needs to be done. The UK is leading efforts for an ambitious reform agenda at EU level, just as we are domestically. In many ways, the UK and the Commission share similar objectives, and the UK is leading the way in tackling these challenges head on. 

The annual growth survey calls for differentiated, growth-friendly fiscal consolidation. That means marrying efforts to cut public spending and the deficit with supply-side and structural reforms to provide growth. That is the approach the Government have adopted and one that is endorsed by the EU and a number of international bodies. 

At a time when the eurozone banking system is under pressure, the growth survey highlights the need to restore normal lending to the economy. We have already taken steps to tackle the issue in the UK through Project Merlin and now through a national loan guarantee scheme of up to £20 billion for bank funding. 

The growth survey promises to promote growth and competitiveness in the short and long terms, and it sets out a series of EU-level actions to help to achieve that aim, such as the digital single market and a single market in services. 

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab):  Will the Minister give way? 

The Chair:  Order. For the convenience of Members, I should point out that there are no interventions at this stage. 

Mr Hoban:  As the Committee is well aware, with its allies, the UK is driving the EU growth agenda. As I mentioned earlier, we have high hopes that the Heads of State or Government will be able to agree on a series of concrete reform commitments at the March European Council. The Commission will wish to take note that we

Column number: 5 
aim to achieve this within the context of a real-terms freeze in the EU budget. We are confident that we can reprioritise measures to promote growth within the context of a real-terms freeze. 

The need to tackle unemployment and the social consequences of the crisis is identified rightly as a further priority in the annual growth survey and chimes with recommendations addressed to the UK on skills and workless households. By March, 630,000 will have started the Work programme and, by 2013, it is expected to be supporting 1.2 million people back into the labour market. The final priority of the growth survey is modernising public administration, including through enhancing the efficiency and transparency of public service delivery, which is an agenda we have already embraced—for example, by launching the public services transparency framework. That replaces top-down target setting with a new system of democratic accountability. 

However, there are areas where we disagree with the Commission’s approach, particularly regarding the focus on increased tax co-ordination. It is important that member states retain their flexibility to shape their own tax policies to suit their own economic circumstances and compete in a global environment. Although I am happy to engage with the Commission on tax issues, I trust that the Committee will agree that the Government should not support anything that undermines subsidiarity or fiscal sovereignty. 

In summary, there is much we can support in the annual growth survey. The focus on a limited number of reform priorities is appropriate and we should encourage the Commission to make more use of EU-level levers to support growth. We should also support other member states in their reform efforts. We have recently seen two examples in Italy and Spain, where the new Governments have promoted growth. Those two member states have joined the UK in showing leadership on the EU-level growth agenda. Just today, a letter was sent from 12 member states, including the UK, Italy and Spain, to the President of the European Commission and the President of the European Council setting out a plan for growth in Europe. We have an agenda and an opportunity to push forward for economic reform. That is vital to achieving the goals for the EU. 

The Chair:  We have until 5.30 pm for questions to the Minister. May I remind Members that they should be brief? Subject to my discretion, it is open to a Member to ask related supplementary questions. For the convenience of the Committee, I should say that we are using the digital clock because the analogue clock is considerably faster. I call the shadow Minister. 

Chris Leslie (Nottingham East) (Lab/Co-op):  Thank you, Mr Bone. May I say how intrigued I am that although the Minister talked much about the growth prospects in many European Union countries, he did not talk much about our own? I therefore ask him to remind the Committee what the official growth statistic for the UK was in the last quarter for which the Office for National Statistics reported those figures. 

Mr Hoban:  It was a minor contraction. 

Column number: 6 

Chris Leslie:  I suppose, therefore, that a minor contraction, which we all know is minus 0.2%, could be taken as a gloomy picture, given that the Minister said that the prediction of an EU minor contraction of minus 0.1% for 2012 was a “gloomy picture.” 

Mr Hoban:  I point out to the hon. Gentleman that the OBR forecast made on 29 November—the time of the autumn statement—was for the economy to have grown by 0.9% in 2011 and that it forecast growth in the UK of 0.7%. 

Chris Leslie:  It is a pity that the Minister did not answer the question I asked. May I ask him another question? What has been the impact on the public purse of the shortfall in growth expectations for the past year? 

Mr Hoban:  The hon. Gentleman will, of course, want to remind the Committee that, when the OBR gave its forecast in November, it cited three reasons for revision to its economic forecast: one was the crisis in the eurozone, and one was the increase in commodity prices and the impact that had on consumer spending. The other factor was, of course, that not only the boom, but the bust, was bigger. The hon. Gentleman is not in a position to lecture anyone about the state of the economy because the problems we are dealing with are those we inherited from the previous Government. 

Chris Leslie:  I was not lecturing; I asked the Treasury Minister a factual question. I simply want to know precisely what the impact has been on the public purse from reduced growth expectations during 2011. 

Mr Hoban:  My right hon. Friend the Chancellor set out the figures in the autumn statement. The hon. Member for Nottingham East is aware of those figures, which is why he is asking the questions. I hope he will accept that the proposals put forward by the shadow Chancellor at the weekend to add to the borrowing seem to run counter to the prescription issued by world organisations about what should happen in the UK, so we should stick to our course and tackle the deficit we inherited from the previous Government. 

Chris Leslie:  It is a pity that partisanship is entering into this question- and-answer session at such an early stage. We may have to make some partisan points later. I was trying to elicit some factual statistical information. One of the figures being talked about is £158 billion more borrowing than was expected because of the gloomy picture on growth that the Financial Secretary indirectly described. 

May I ask a different question? I understand that the Treasury is committed to the proportion of national debt being reduced as a share of GDP by 2015. Will the Financial Secretary address that point? Are we on course to achieve that target? 

Mr Hoban:  As I said, in the autumn statement the Chancellor set out figures not only for the deficit, but for debt. It was concluded that we were on target to meet the fiscal mandate to eliminate the structural deficit and ensure that that debt falls as a percentage of GDP. 

Column number: 7 

Chris Leslie:  I take it that that is a reiteration of the commitment, but it is difficult to read between the lines. What has been the impact of raising VAT from 17.5% to 20% on growth in the UK? 

Mr Hoban:  The reality is that when we ask independent analysts what is driving the economic forecast, they do not cite VAT. They cite the scale of the boom—the unsustainable debt-fuelled boom that we saw under the previous Government—and the scale of the bust. They highlight the increase in commodity prices and increased tensions in the eurozone impacting on the UK economy. The actions that we have taken to tackle the legacy that we inherited from the previous Government have meant that despite our deficit being higher than that of countries such as Greece, our interest rates are similar to those of Germany. That means that households and businesses are able to borrow at lower rates than otherwise would be the case, and of course those rates would be put at risk if we diverged from the fiscal path that my right hon. Friend the Chancellor has set. 

Chris Leslie:  So many words—but no figures. I thought the purpose of this part of the Committee was to ask factual questions and receive factual responses. In case the Minister did not hear my question the first time, I asked him whether the Treasury has made any assessment of the impact on growth of raising VAT from 17.5% to 20%. If the Minister does not answer that question, I have to take it that no assessment has been made. Can he tell us whether his officials or anyone in the Department have assessed the impact of the VAT change on growth? 

Last March, the Treasury produced a document called the “Plan for Growth” for the March 2011 Budget. What assessment has the Treasury made of the measures contained in that and the impact on growth in the past year? 

Mr Hoban:  The reality is that the economic forecasts are prepared by the Office for Budget Responsibility. It looks at the Budget package as a whole and uses that to determine its forecasts for growth. I am clear that if we had not taken tough action at the time of last year’s Budget and if we had not put in place the growth measures in the Budget, we would not be in the strong position that we are in now. We are doing the structural reforms that are needed to create economic potential in this country. The “Plan for Growth” sets out a series of those reforms—I do not know whether the Opposition support them—which include measures such as reducing the headline rate of corporation tax and the modernisation of the tax system to encourage more businesses to come to the UK. We have taken a series of measures to tackle some of this country’s economic problems, some of which we inherited from the previous Government. The OBR carries out the economic forecasting, and it bases its forecast on those packages as well as on some of the wider macro-economic impacts of world events. 

Chris Leslie:  This is a very important point. The Minister is saying that the only economic forecasting that takes place is at the Office for Budget Responsibility. Does the Treasury itself have no capacity or capability to undertake any of its economic forecasting? 

Column number: 8 

Mr Hoban:  We have been clear in our institutional reforms that we want to see transparency in growth forecasting, rather than having the growth figures fixed in the Treasury to suit the political whim of the Government of the time. The official figures used to forecast economic growth will no longer be concocted in the Treasury, but produced by an independent Office for Budget Responsibility. 

Chris Leslie:  I am very sorry to labour this point, Mr Bone. It is only in this Committee that we can get into this level of detail. The Minister has a series of officials, not just here but in the Treasury. Do they not make any internal assessments? I do not need to know the details of their internal arrangements; I just want to know whether the Minister receives advice from his own officials, including assessments of the measures that he or the Chancellor may have taken in budgets or elsewhere. Does the Treasury have such a capability? If it does, I can ask him further questions about it. If the Treasury does not have a clue about the consequences to its various policy measures, I can write to the OBR. 

Mr Hoban:  I have been very clear, as have my right hon. and hon. Friends: the official forecasts for economic growth are prepared by the Office for Budget Responsibility. They are the forecasts that we use, that are in the public domain and that are the benchmarks against which we will be judged. 

Chris Leslie:  Has there been any assessment of, for example, the impact of VAT on growth by Treasury officials? Yes or no. 

Mr Hoban:  The reality is that we are prepared to undertake a wide-range of analyses to support policymaking. Tackling the deficit through an increase in VAT is far more preferable as a policy tool than the tax on jobs that Labour proposed as part of its manifesto. I understand that the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), proposed an increase in VAT before he was overruled. 

Chris Leslie:  I think that we have an answer. I think that a variety of assessments are made, so I suppose that we must resort to freedom of information requests or that sort of thing rather than using this Committee procedure. It is quite exhausting trying to extract these technical points from the Minister. 

May I ask the Minister some specific points about the memo, which starts on page 111 of the bundle? In particular, I want to ask him about a memo from the noble Lord Sassoon, the Commercial Secretary to the Treasury. In his opening statement, he gives the impression that the Government did not wish to engage in policy arrangements across the EU that will undermine subsidiarity or sovereignty. Paragraph 44, on page 117, states: 

“The Government is also supportive of talks on tax policy coordination to support economic growth and fiscal sustainability.” 

Will the Minister tell us what talks on tax policy co-ordination have taken place so far, or might take place within the next year? 

Column number: 9 

Mr Hoban:  The hon. Gentleman will be aware that there are discussions in ECOFIN about the transaction tax. It is not a policy that we support, but those talks take place. The noble Lord Sassoon makes the matter very clear in paragraph 43. He says: 

“The Government will continue to make clear to the Commission that it considers that tax matters are primarily for Member States and that it is important that Member States retain the flexibility to shape their own tax policies to suit their economic circumstances and to compete in a global environment.” 

There are areas—the savings directive was one—in which there has been co-operation to tackle tax evasion, and we all welcome that. The overriding message, however, is that tax matters should be the responsibility of member states and not of the European Union—a message with which I am sure, Mr Bone, you might well agree. 

The Chair:  Order. While sitting in the Chair, I have no views except on the procedure. 

Chris Leslie:  For that, Mr Bone, we are most grateful. 

The key word in paragraph 43 is “primarily”— 

“the Government will continue to make clear to the Commission that it considers that tax matters are primarily for Member States”— 

which is not the same as saying that they are entirely or simply for member states. The document in no way rules out tax policy co-ordination. The Minister mentioned the financial transactions tax, although that did not seem to be an issue so much about co-ordination as about saying no to a particular proposal—I do not disagree with him. 

On paragraph 45, however, the Minister talked about the common consolidated corporation tax base, the CCCTB proposals. Can he update the Committee on where the CCCTB discussions are and clarify whether the Government are engaging in that discussion and considering working with the Commission on any proposals that might emerge? 

Mr Hoban:  Let me be clear that there are areas on which we talk to the Commission about tax. There is a great deal of co-operation throughout the European Union on VAT and its scope, for example, and I myself have participated in discussions about the scope of VAT. 

On the CCCTB, as is clear from the explanatory memorandums, we think it is the responsibility of member states to shape their tax system. However, we are engaged constructively at EU27 level to help shape the common consolidated tax base. There are discussions in working groups, and people are working through detailed proposals, but a number of member states as well as the UK are concerned about the detail—Sweden, the Netherlands, Ireland, the Czech Republic, Bulgaria, Estonia and Malta share some of our concerns about poor definitions and the weakness of anti-abuse provisions. It is important for there to be a voice at the table on such matters, but it is not the same as signing up to them. 

The Chair:  Order. I remind hon. Members that we are supposed to be having brief questions and brief answers. I say that to the shadow Minister and Minister because other Members might want to get in and we are time limited. 

Column number: 10 

Chris Leslie:  That is an entirely fair point, and I shall try to be brief. 

I do not really disagree with the strategy on CCCTB arrangements, but it is interesting that the Minister is engaging on them. It is a pity that the Liberal Democrat member of the Committee is not present at the moment, because the Government are a coalition, and the Liberal Democrats’ 2009 policy document said that they wanted to address the variability of issues on cross-border corporation tax. It stated: 

“A clear area for co-operation is in the movement towards a harmonised tax base in the EU, often referred to as a Common Consolidated Corporate Tax Base”. 

Have the Liberal Democrats been shaping and driving CCCTB policy in the Treasury? 

Mr Hoban:  The tax policies of the Government are those of the coalition. 

There is a short answer, Mr Bone. 

Jacob Rees-Mogg:  I want to follow up on the tax issue because we do not have to go as far page 117; exactly the same point as was made by the hon. Member for Nottingham East is made on page 8. Where do the Government think that talks on tax policy co-ordination could support economic growth and fiscal sustainability. 

Mr Hoban:  Broadly, we do not believe that there are any tax barriers to the completion of a single market, and we think that we can promote growth without moving to a harmonised tax system. It is important that member states are free to compete on tax matters to help stimulate their economy. 

Jacob Rees-Mogg:  I am grateful to the Minister for that answer. In that case, is the comment in the document simply a mistake that slipped through as a drafting error? Is it the case that the Government do not believe that tax harmonisation could be of benefit, and therefore do not want to enter into discussions about it? 

Mr Hoban:  We are happy to have those discussions with other member states, but our broad principle is that such matters are best left to member states so that we can shape our own tax system to meet our own needs. 

Kelvin Hopkins (Luton North) (Lab):  It is a great pleasure to serve under your chairmanship, Mr Bone, particularly in this debate on matters European. The Minister, as so often happens, talks optimistically about the future economy and refers constantly to Labour’s failures. Was it not the case that when Labour left office, unemployment was falling and the deficit was starting to reduce? The opposite is the case now. 

Mr Hoban:  I do not wish to prolong the discussion that I had with the hon. Member for Nottingham East, but we set out clearly the causes given by the Office for Budget Responsibility for its revisions to the growth forecast. The current uncertainty in the eurozone has a chilling effect on the economy, and I am sure that, like me, the hon. Member for Luton North speaks to business men in his constituency and will understand the impact

Column number: 11 
that such problems have on confidence. It would be good to see a resolution to those problems, as that would help not only the eurozone economy, but the wider European economy. 

Kelvin Hopkins:  The papers mention growth-friendly fiscal consolidation—the theory that savage cuts will somehow help the economy grow. Was that not the policy in the 1920s with the Geddes axe, and also under Herbert Hoover, which led to the great depression, the rise of all the problems of the 1930s, and later to the war? Is it not a contradiction to have so-called fiscal consolidation leading to growth when we are in this situation? 

Mr Hoban:  I will not engage in a lengthy discussion about the merits, or otherwise, of Keynesian policy. However, countries such as ours that have high fiscal deficits need to tackle them, and we can do that in a way that prioritises economic growth. For example, at a time when we are cutting public spending, we are also increasing investment in apprenticeships and looking at ways to reduce the corporate tax burden to encourage investment in the UK. We can have measures that tackle the fiscal problem but which also improve economic prospects, whether that relates to how we redirect spending, or other supply side reforms that do not have a fiscal cost. 

Kelvin Hopkins:  The Minister is too young to have lived through this time, but I lived through the 1945-51 Labour Government and the subsequent Conservative Government. Both those Governments took a high-growth, high-spend approach to the economy and kept demand at a high level. Not only did we have full employment and rising living standards, but the post-war debt dropped like a stone. 

Mr Hoban:  I may not have lived through those periods— I was only born in 1964—but I can remember some of the challenges that arose from that period of economic consensus and led to long-term fundamental weaknesses in the UK economy that needed to be addressed. I grew up in the north-east in the ‘70s and ‘80s, where economic change was required, but the cosy post-war consensus had put it off. We must recognise that economies need to develop and move on, and not remain static in an idealised Butskellist era. 

Kelvin Hopkins:  We could debate the subject at greater length, but I must say that I rather liked that cosy world of full employment, growth and rising living standards. 

There are a thousand questions that we could ask, but to take one in particular, the documents discuss restoring normal lending to the economy. The European Central Bank has apparently engaged in quantitative easing, like Britain. It has given vast sums of money to banks to help their balance sheets, and the banks have lent or given the money back to the European Central Bank for safekeeping. Is that not complete nonsense? It has no effect on the economy whatever; it just helps prevent the banks from collapsing in the short term. 

Mr Hoban:  The long-term refinancing operation to which the hon. Gentleman refers has eased pressures in the banking sector, particularly in the eurozone, and

Column number: 12 
alleviated a funding crisis that posed a significant threat to the banking sector. He points to the need to ensure a resolution to some of the challenges facing the banking sector in the eurozone, including by boosting capital to give people the confidence to lend to each other as well as back to the ECB. 

Kelvin Hopkins:  I could ask many more questions, but I have one more for now. Reference is made to inclusive economic growth. Has anybody communicated that thought to the Greeks? 

Mr Hoban:  We all want to see economic growth across all regions and countries in the EU. It is vital that ambitious measures are pursued to tackle not only deficits but the structural reform needed to secure long-term economic growth in all parts of the European Union. 

Mr Robin Walker (Worcester) (Con):  The shadow Minister mentioned paragraph 45 of the memorandum from the noble Lord Sassoon, but I was more interested in paragraph 46, which says that the Government 

“does not see reduced VAT rates or exemptions as inefficient or a barrier to compliance; and…believes it is important that Member States retain their ability to shape their own tax policy.” 

I have sat through many debates on fuel duty in which we have argued about where tax should be. I am all in favour of reducing fuel duty as a quicker measure than reducing VAT, but do the Government have any plans to repatriate powers over VAT exemptions in order to live up to that statement? 

Mr Hoban:  That is a good question. My hon. Friend the Exchequer Secretary will be more than happy to answer a question of that nature. VAT is one of those issues on which there is a degree of European Union competence, but there are other areas, including things such as corporation tax, that perhaps we need to consider more closely if we want to maintain a competitive tax regime. 

Ms Stuart:  Can I take the Minister to the first couple of pages of the document? It says: 

“In March 2010 the Commission proposed a ‘Europe 2020 Strategy’, to follow on from the Lisbon Strategy.” 

Can he tell the House why the Lisbon strategy was such an utter failure, and whether Europe 2020 will be any better? 

Mr Hoban:  The hon. Lady raises a good point. As a seasoned watcher of European matters, she puts her finger on it. One problem has been that the EU has not placed sufficient emphasis on the structural reforms needed to stimulate growth. The crisis requires the Commission and member states to focus with renewed vigour on the growth agenda. It is noteworthy that both the Italian and Spanish Prime Ministers are pushing pro-growth agendas. I said in my opening remarks that they are two of 12 member states that have written to Barroso calling for specific growth measures to be taken in the next European Council meeting. I doubt that Europe can afford not to pursue the 2020 strategy with more vigour than the Lisbon strategy. 

Column number: 13 

Ms Stuart:  Is the Minister therefore saying that the only thing wrong with the Lisbon strategy was lack of vigour? 

Mr Hoban:  I will not go into the Lisbon strategy in detail—you encouraged me to be brief, Mr Bone, and the hon. Member for Luton North has another 997 questions to go—but I think that Europe has not pursued the growth agenda. It has imposed more regulation on business, it has not considered how to complete the single market and it has not perhaps done much to complete free trade agreements. Europe simply cannot afford to backslide. 

Ms Stuart:  Finally, to follow the question from the hon. Member for Worcester, there is a prevailing view within Europe that the differential VAT rate is actually bad for Europe. Does the Minister agree with that view, or does he, like the hon. Member for Worcester, tilt more towards the idea that some of those powers should be repatriated? 

Mr Hoban:  There is a difference between calling for a single VAT rate and calling for repatriation. Perhaps I lie somewhere in the middle. I do not think that there is a particular problem. [ Laughter. ] As you know, Mr Bone, I am a consensual figure. I think that it is important that countries have the freedom to adjust their VAT rates as appropriate. 

Jacob Rees-Mogg:  I wonder if I might continue, briefly, on the VAT theme, and whether the Minister would be kind enough to explain, a little, what parts of VAT remain entirely dealt with by unanimity, and therefore require the Government’s consent; to what extent the European Commission, and particularly the European Court of Justice, can enforce the chosen rates; and whether that is a danger to our position, in that it can happen not by unanimous agreement but by the back door. 

Mr Hoban:  I confess that there comes a point where even my knowledge of VAT is surpassed by the quality of the questions from my hon. Friend. I am sure that inspiration will be found to enable me to answer that question before the end of the debate. 

Jacob Rees-Mogg:  I was not trying to catch the Minister out at all; but perhaps I may be allowed one more question. I note that the European Commission is asking for wealth taxes, such as on high-value property. I wonder if it has been got at by the Lib Dems. 

Mr Hoban:  My hon. Friend can suggest that our coalition partners have huge reach and power in this matter. Wealth taxes are a feature of other EU tax jurisdictions, so clearly the Commission has listened not only, perhaps, to our coalition colleagues, but to Governments elsewhere. 

Mr Andrew Love (Edmonton) (Lab/Co-op):  The Minister has prayed in aid the figures from the OBR, with respect to the future direction of the economy. Will he

Column number: 14 
explain what, since it was set up in 2010, its revisions of its growth forecasts have been? Have those been upward or downward revisions? 

Mr Hoban:  As the global macro-economic environment has deteriorated, clearly the OBR has had to reduce its forecasts, to take that into account. The hon. Gentleman would be the first to complain if it stuck to the same figures regardless of what was going on around it. 

Mr Love:  The conclusion that the question is meant to lead to is that the fact that the revisions have been entirely downward puts a greater emphasis on the Government’s growth strategy. Does the Minister accept that there is some scepticism about that growth strategy, when all the figures seem to be going in the wrong direction? 

Mr Hoban:  The hon. Gentleman should reflect that although the Government have announced significant reforms as part of their growth strategy, there is at the same time continued commodity price inflation, which depresses consumer incomes and therefore affects consumption. The economic position of the eurozone has deteriorated, and as I said in my opening remarks the growth forecast for 2012, according to the IMF, has fallen by 1.2%. There are significant revisions in growth figures globally, not just in the UK. The UK does not stand in isolation from those trends. The UK exports more to Ireland than to Brazil, Russia, India and China combined, and what is happening in the eurozone has an impact on our economy. 

Mr Love:  I accept those figures, but does the Minister also accept that the basis of the growth strategy that the Government appear to be pursuing is very much supply oriented? The difficulty with supply-side measures is the time it takes for them to have an effect. Does he accept that in a sense his growth strategy is failing because it will take time for it to work? 

Mr Hoban:  What the economy needs, in the long term, is a sustainable model for economic growth. That requires supply side reforms, and they will work their way through at a different pace, depending on what they are. However, it is vital that we undertake that reform, particularly when the fiscal position constrains us in what we can do using fiscal measures. 

I am now inspired, Mr Bone, to respond to the questions that my hon. Friend the Member for North East Somerset asked me about VAT. Indirect tax measures are dealt with on a unanimity legal basis, so the UK has a veto, for example, over EU proposals, given the indirect tax legal base. I hope that helps to clarify things for my hon. Friend. I knew I would get there in the end. 

Mr Love:  I note the Minister did not argue that supply-side measures take time to come in and are therefore having little impact in the short term, but I want to move on. The strategy the Government have laid out is very much austerity based, if I can characterise it that way. Does he accept the argument put forward by international organisations such as the IMF that austerity alone will not deliver the growth we all seek? 

Column number: 15 

Mr Hoban:  The hon. Gentleman makes a point, but the ambitious programme of fiscal reforms we have announced has led to lower bond yields, and that has been of value in the short term to households and businesses; that is the reality of the situation. In November last year, the OECD said: 

“ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields”. 

Households benefiting from low interest rates will recognise that the action we have taken has helped them rather than hindered them. 

Mr Love:  I note what the Minister says. Let me ask him one final question. Although, at this stage, the OBR figures for 2013, 2014 and 2015 show likely economic growth more along the trend lines of the past, there is significant concern that we may face 10 years of limited or no growth, with a flatlining economy very much along the lines experienced by Japan in the 1990s. Is that a concern for Ministers? If so, what action do they propose to take to ensure that such things do not happen? 

Mr Hoban:  It is not my job as a Government Minister to do long-term economic forecasting or to talk down the economy. The OBR set out its forecasts. It is independent of the Government, those forecasts are independent and it will revise them at the time of next month’s Budget. However, it is right to tackle our problems in two ways, as the annual growth survey suggests: by tackling the deficit and promoting growth-friendly policies. That twin-track approach is vital not only to get this country out of the problems we have inherited, but to tackle the problems across Europe. 

Kelvin Hopkins:  The papers talk about promoting growth and competitiveness. An essential component of any array of weapons for promoting or sustaining competitiveness is surely the ability to flex one’s currency. Was Britain not wise to stay out of the euro so that we could flex our currency to at least maintain competitiveness? 

Mr Hoban:  I thought John Major’s Government were absolutely right to ensure that in the Maastricht treaty. We therefore had the flexibility not only to ensure that our currency could adjust, but to recognise that monetary union and fiscal sovereignty are contradictory forces. Given that we want control over fiscal policy, we should stay outside the single currency. 

Kelvin Hopkins:  I agree entirely about maintaining an independent fiscal policy, and I would like that freedom to be accorded to other European nations, too. However, fiscal policy is only one measure to control our economies; there is also monetary policy. Eurozone countries do not have independence on monetary policy, as we do. Will the Minister not suggest to the European Union that it is about time that it re-established at least a number of independent currencies for those nations that cannot manage membership of the eurozone and that it allowed them to choose their own interest rates? 

Mr Hoban:  The hon. Gentleman promotes his own prescription for the problems in the eurozone, and I will not comment on it. What I would say, however, is that

Column number: 16 
the challenge, whether a country is inside or outside the eurozone, is to embrace structural reform. As Ireland is demonstrating, countries can be part of the single currency and embrace structural reform, which can lead to economic recovery. 

The Chair:  If no more Members wish to ask questions following that splendid questioning, we will now proceed to debate the motion. 

Motion made, and Question proposed,  

That the Committee takes note of European Union Document No. 17229/11 and Addenda 1 to 4 relating to a Commission Communication: Annual Growth Survey 2012; supports the Government’s view that this document sends important messages about the urgency of pursuing both fiscal consolidation and structural reform; further supports the tough decisions being taken in the UK to bring the deficit under control and stimulate economic growth; welcomes the focus on EU-level reforms such as the liberalisation of services and the development of the digital single market as a complement to Member States’ reform efforts but considers that an even greater effort is required at EU level to stimulate growth; and agrees that the survey should not focus on taxation, as it is important for Member States to retain the flexibility to shape their own tax policies to suit their economic circumstances.—(Mr Hoban.)  

5.14 pm 

Chris Leslie:  I am conscious of the time, and it would be quite wise to adopt a policy of mutually assured summation in this particular debate. There are a thousand questions that we could cover, but I want briefly to give, from my point of view, an assessment of the document before us. 

We have elicited some interesting information from the Minister, who is in favour of tax co-ordination across the European Union. That is an interesting and notable point to put on the record today. There was some doubt as to whether that was the same thing as harmonisation, but co-ordination is the word in the document and that is the one that we have to lodge for the record. It was also interesting that the Minister described the forecast for growth across the European Union of minus 0.1% for 2012 as a “gloomy picture”. He could not quite come to say that that was also the case for our minus 0.2% growth in the last quarter in this country, but maybe we are making a little progress. 

The debate gives us a chance to reflect on whether the Government have a credible plan for growth. I am surprised that they have put words in the motion today about tough decisions being taken to stimulate economic growth. It is difficult to see where those tough decisions have been taken, because as far as many members of this Committee, particularly those on the Opposition side, can see, it has been a case of the Government sticking their head in the sand and pretending that there is no problem. We will have to wait and see whether the Chancellor wakes up for the Budget in March. The credit rating agency Moody’s said last week that the Chancellor was on negative outlook, because of the “materially weaker growth prospects” for the economy. That is from the bad flatlining position that we already have. 

As the Committee knows, the Opposition believe that the Government have taken the wrong course, raising taxes too precipitously and cutting too far and too fast,

Column number: 17 
in such a way as to negatively affect our growth prospects and therefore reduce the revenue that might accrue to the Treasury, resulting in £158 billion more borrowing forecast than last year. 

The document before us rightly focuses on the five different aspects forming part of the EU annual growth survey, but it is worth pausing to reflect that, because of the failure to generate or even focus on economic growth, we are now faced with a debt and deficit reduction strategy that is in tatters. We will see even more years of austerity beyond the spending review period and into the next Parliament, with little detail on how the Government will achieve balance, even though they promised to balance the books by 2015. Those, at least, were the Prime Minister’s words fairly recently. 

Let me look at the five areas in the document. First, the document says that the annual growth survey should focus more on growth-friendly fiscal consolidation measures. That would be sensible. It is a pity that the Government have chosen to raise VAT, cut the future jobs fund and the education maintenance allowance and make changes to tax credits, which are not exactly growth-friendly fiscal consolidation measures. 

The second aspect of the document talks about needing to restore normal lending conditions within domestic economies. We know that the Project Merlin deal, which was signed last year, has been a bit of a flop and that it has missed its targets, particularly on net lending to small and medium-sized enterprises. Fear not, the Government are now focusing on the cunning plan of credit easing. We will not, however, see the results of that until the Budget, although there are interesting rumours in the Financial Times today that HSBC is not impressed with the proposal and that several other high street banks might also be distinctly lukewarm towards it. 

Kelvin Hopkins:  I congratulate my hon. Friend on what he is saying. I am not one to be sympathetic with bankers, but if I am a banker, am I going to lend in a period of fiscal constraints, when companies may go bankrupt and when the construction sector is likely to go downhill? I want to lend to a growing economy, and that growth has to be stimulated in the first instance by Government. It cannot simply be left to the private sector and private banks. 

Chris Leslie:  There are a number of ways of stimulating growth. By pretending that public policy has absolutely no bearing on growth prospects, as the Government seem to be doing, they are pulling the rug from underneath the health of the economy. It is, indeed, a great pity that they are doing that. 

Mr Love :   May I thank my hon. Friend for giving way? I did not want him to move on without asking him to comment in greater detail on credit easing. Is it not the case that, for credit easing to work, the Government must have the active support of the banking industry in this country? Is it not of great concern that there are reports in the Financial Times today that severe concerns are being expressed by our major banks about whether such an approach will work and whether it is good for the banking industry? 

Column number: 18 

Chris Leslie:  Indeed. Of course, the Minister’s neck is on the block, as his hon. Friends will know. This is the Minister who was right behind the Project Merlin deal, yet what I suppose we could characterise as plan B involving credit easing is now being negotiated. Let us hope that, on this occasion, the Treasury keeps some minutes, makes records and has targets that are enforceable, because that was not the case with Project Merlin. That was a very poorly negotiated arrangement and, frankly, the banks ran rings around the Treasury. I hope that the Government learned lessons that they can apply. 

The point HSBC seems to be making is that its funding is more to do with its back book of depositors. From its perspective, that often presented a more affordable source of capital than the Government might be offering. It will be interesting to see what the results are. However, I am sure that we will have to wait for the Budget for that. 

The third area of the document makes recommendations for measures that might help in terms of the front-loading of growth-enhancing measures. Indeed, in the Labour party’s five-point plan for jobs and growth, we also called for capital infrastructure measures to be brought forward where possible. There was some talk that the Government were also thinking about those issues, but we have not really seen much happen in terms of introducing some of those construction, job-enhancing measures. I hope that the Government will revisit that as a matter of urgency. 

Fourthly, the document talks about the need to tackle unemployment, and rightly so. The Government have a disgraceful record on that. There is a 17-year high for unemployment, particularly youth unemployment, which I think is at 22%. That has not been helped by the abolition of the future jobs fund, education maintenance allowance and so on. 

The fifth area, which is perhaps a Cinderella area and is the last one in this set of recommendations for helping, is modernising public administration. As I say, it is important to recognise that public policy can have an impact on growth. I am curious to see what the impact of the Government’s modernisation programme—for example, the introduction of universal credit—will be on efficiency and the support that is provided for the economy. My prediction is that universal credit is heading towards being a total and unmitigated disaster, not least because the Government are supposed to have contracted to deliver an IT system by April next year and the contracts have not even been let at this stage. We all know the difficulties that national IT system contracting can lead to. Applicants for universal credit will all have to make their applications online. If anyone has elderly constituents who are perhaps thinking about making changes or applying for universal credit, I wish them good luck with those online applications. Public administration will undoubtedly have an impact on the economy, and the Government need to improve their approach in a number of ways. 

As I say, I have tried to be as brief as I can on probably one of the biggest topics currently being discussed. I am afraid to say that we cannot support the motion before the Committee. It would be invidious of us to support a document that says that the Government are taking tough decisions to stimulate economic growth when palpably they are not doing so. 

Column number: 19 

5.24 pm 

Jacob Rees-Mogg:  May I begin by thanking the Minister and the shadow Minister for making this one of the most interesting scrutiny debates that I have attended? I have attended quite a few in recent months, and the debate has been thorough and proper. [Interruption.] I have no wish to get out more; I can think of few happier ways of spending an afternoon than in Committee Room 10 under my great hero, Alfred the Great, who I try to get into every speech if possible. 

It is important to remember that the document basically applies to our European partners in the eurozone and not to us. The Government have done almost everything right. When we look, as the hon. Member for Nottingham East did, at the reference to 

“pursuing differentiated, growth-friendly…consolidation”, 

this cannot work in a closed system. If one does not have flexibility over one’s currency or over one’s monetary policy, it is impossible to cut Government spending in a way that is growth friendly. If, on the other hand, one has a currency that can devalue and a monetary policy under one’s own control, it is perfectly possible to balance the effects of the fiscal contraction with the monetary stimulus. We have seen that in this country with the figures we got recently on the lowest deficit in car trade in 36 years. That is because we have a competitive currency, because we have a freely floating currency. 

Point one of the document, as far as the European Union eurozone members are concerned, is a contradiction. The document is well intentioned, well meaning and wants to do all the right things with something that is impossible. We say to the Greeks, the Italians and the Irish and so on that they must cut and cut, creating a vicious cycle whereby their economies shrink further and further. We are immune from that because of our currency. As it happens, the previous Government deserve some credit for not joining the euro. It may have had more to do with the personalities of some of the people concerned, but it was certainly the right result for the country. One cannot make a fiscal contraction work without a separate monetary policy. 

Then we come to the next point in the document which refers to 

“restoring normal lending to the economy”. 

There is a great deal of experience about what happens when banks get into trouble. There are two ways of dealing with that. One can do what the Americans did in the 1930s and close all the banks—that did not work; that led to a depression—or do what was done in Asia in the late 1990s when they had their Asian crisis. In that case bank capitalisation rates were suspended for the duration of the crisis; banks were not forced to get repayments immediately; and people were not forced into bankruptcy with urgency. In such circumstances one says, “We as the Government, as the central bank, understand that bank capital cannot be restored quickly; it takes time.” Fascinatingly, we see in Thailand that 12, 13 or 14 years after the crisis, banks are still writing off some of the loans from that period, but they have gone through two economic cycles since then and they have returned very well. 

Kelvin Hopkins:  I agree with what the hon. Gentleman says—surprisingly, perhaps, given that we sit on different sides of the House. There was another factor in managing the far east crisis. Was it not the case that many countries imposed exchange controls and devalued, too? 

Column number: 20 

Jacob Rees-Mogg:  It is absolutely right that many countries had a devaluation. Very few imposed exchange controls. The only one I can think of is Malaysia, but certainly Thailand and Indonesia did not. Page 15 of the document states: 

“strengthening of the capital positions of systemic banks” 

was required 

“in order to reflect heightened risks in the sovereign…debt markets”. 

That is exactly the wrong thing to do. They cannot afford to build up their balance sheets at this stage. They have to do it later. 

Mr Love:  What does the hon. Gentleman say to the argument put forward by the banks that it is the market that is demanding that Basel III be implemented as soon as possible, rather than wait as has been suggested? 

Jacob Rees-Mogg:  The hon. Gentleman makes an absolutely crucial point. Once it is announced that there will be those requirements, there is huge pressure on the banks to be early in doing them, because there is toxicity in being the last to do it. It is better for the authorities not to propose such targets, because once they are proposed they become de facto real. We saw this with the extraordinary lending provided by the Bank of England. Once the Bank said that it wanted the money paid back, the banks paid it back as urgently as they could, which made it harder for them to lend to businesses. So what is announced is crucial to what then happens. Basel III has got completely the wrong end of the stick. The Basel organisation, which allowed for low bank capitalisation rates at the peak of a boom, is now imposing high ones as we are at the depth of a trough, particularly in some European countries. That is so unbelievably silly that one cannot expect it even of, I suppose, a group of bankers. 

Mr Love:  What does the hon. Gentleman say to the argument put forward by many that if banks did not pay out bonuses, or if they restricted the dividend that could be paid, that would help them to rebuild their capital base? 

Jacob Rees-Mogg:  I am entirely in agreement with that, but I might also dare to say that if the banks were not taxed quite so heavily, they would be able to build up their capital base faster. I am not sure that I am meant to say that in present company, so I will pass swiftly over that point. 

The hon. Member for Edmonton is obviously right. If banks pay out their cash, they will have less capital to build up their balance sheets and to make loans from. If we are talking about a 10% capitalisation rate, we take £1 billion out of a bank, and that is £10 billion of lending that the bank cannot make in the ensuing year. Points 1 and 2 of the document, we think—or I think, but I am going to use the royal “we” on this occasion, because I seem to be getting quite a lot of support from both sides of the House—are basically wrong. 

If we look at tax in annexe 4, and I may find that there is a little more disagreement about this, I think the document once again gets it wrong. It believes, as always, in the big-state solution: “Let’s impose it from the top, and then it will work.” I believe in tax competition,

Column number: 21 
and I think we see it in some of the activities performed in the City that came here because taxes were imposed in other countries, and those activities built up our markets. One would certainly see that if a European transaction tax is implemented, but we saw that in Ireland, with the low corporation tax rate that Europe has been desperate to get rid of. That led to a substantial part of the growth in the Irish economy. We are embracing that now, and I could not support more the Government’s efforts to reduce corporation tax as a priority, because it brings business into this country and helps build up our economy. If there was competition across Europe on tax, all countries could begin to attract more business from the rest of the world, which ultimately is what we have to compete with. 

Again, as a criticism of the document, it is a Eurocentric document: everything that happens happens within the boundary of the European Union, and the rest of the world gets mentioned in passing. The document is not about competing with the rest of the world, but about a level playing field within Europe. That is the economics of perhaps, heaven knows, the 1950s or 1960s, but for once, I would rather like to be more modern than that and have the economics of the 21st century. 

I want to highlight the incomprehensibility of parts of the document, because it is in a particular form of language. There is a wonderful column in the Financial Times every Monday by a lady called Lucy Kellaway, which exposes corporate jargon and phraseology in a way that makes people laugh. Nothing is better than the European Union in that respect. If I may, I shall offer a few snippets. 

Unemployment is perhaps the most important issue that we have to deal with. It has to do not only with economic growth and the contribution to gross domestic product, but with people’s lives. So what does the European Union say? It calls for 

“the implementation of balanced flexicurity policies”. 

As far as I am aware, “flexicurity” is not a word. The document gives absolutely no idea what the word aims to mean, except that it will be a policy. 

There is an even better one, which is slightly longer: “Moving forward”—that is always a bad phrase and can almost always be deleted from any text— 

“with the agreed recommendations on revising wage-setting mechanisms, in conformity with national social dialogue practices”— 

I do not think I have ever had a social dialogue practice with anyone, but perhaps it will come one day— 

“to better reflect productivity developments, and adapting unemployment benefits further, combined with more effective activation and appropriate training and support schemes, to facilitate the return to work.” 

What I think it means is cutting pay and making it easier to get into work. Why on earth does it not say that? Why do we have to battle through this persiflage of jargon that is there simply to confuse people? 

To bring the matter to an end, it is the supply side: there are not simple solutions to the biggest credit explosion that we have had in several generations. 

To get through credit cycles, we require time and supply-side reforms. The document finally gets to that, when it states that “Reforming employment protection legislation” should be done, which is a deregulation agenda. Every week, however, the European Commission sends us regulations—the European Scrutiny Committee ploughs

Column number: 22 
through 20 or 30 more regulations from Europe each week—even though, to get the economy growing, it recognises the need for the opposite in the form of a deregulatory approach. 

The Commission’s heart is in the right place and it wants to do good things, but it works on the basis that the state knows best, that nanny knows best, rather than a policy of having free markets and free competition. Not least through the leadership shown by our Government, our great virtue is that we are free from such regulations. We are outside the euro, which saves us from many of them. The document is of fundamentally poor quality. 

5.36 pm 

Kelvin Hopkins:  I almost did not struggle in today, because I have bronchitis, but as the hon. Member for North East Somerset was going to speak, I thought that, if nothing else, I would come to listen to him. Although he and I have serious differences on economics, listening to him is certainly always an education and a pleasure. 

The document is unreal, as are so many European documents. As members of the European Scrutiny Committee, the hon. Gentleman and I have the advantage of specialist advisers who translate Euro-speak into English, so we always have documents written in an English that we can understand rather than the kind of words that he referred to. I am suspicious of all sorts of phrases—“moving forward” is one example, and “modernising” is another. I am always afraid that “modernisation” and “reform” will finish up as something that I do not like politically, and that goes for their use by the previous as well as the present Government. The words “reform”, “modernisation” and “moving forward” raise the hackles on my neck. 

I shall briefly talk about the Treasury, of which I have been a close student for some 40 years, since I was a junior scribe at the TUC. Its record in managing our economy is lamentable: it has made mistake after mistake. I have to say that I foresaw, before 2008, that in building up a massive mountain of private debt, something would crash at some point. Apparently, the Treasury failed to see that building the economy on a bubble of rising house prices was never going to work; it clearly went wrong at some point. 

Forecasts are made not only by the Treasury, but by the Bank of England. As has been reported in The Independent today, the Bank of England makes optimistic forecasts that always turn out to be wrong. When he makes presentations to the media and to the world of economics, the Governor of the Bank of England excludes people who might upset his optimistic forecasts by saying disagreeable things. They are left behind, so that they cannot upset his forecasts. 

I remember the forecasts that were made in 1990, just before we entered the exchange rate mechanism. At that time, the Government’s favourite forecasting organisation was the London Business School, but The Sunday Times gave its forecasts nought out of 10. The only forecasting body that got anything right—it was top of The Sunday Times league—was the Cambridge Economic Policy Group, which was a group of left-wing Keynesians from the great university that spawned John Maynard Keynes. It got it right and so upset the then Government that its funding was taken away, while the London

Column number: 23 
Business School got it badly wrong but was supported, which is the same situation that the Bank of England is now in. When the history of the Treasury is written, it will be seen to have made an historic set of failures during the past 40 years. They are as nothing, however, to those of the European Union. 

We dealt with the document’s five major points during the questions. First, on differentiated growth-friendly fiscal consolidation, tell that to the Greeks, or even to the Spaniards and others, because even the stronger European economies such as Holland’s are starting to go into recession. Secondly, on restoring normal lending to the economy, squeezing the life out of countries with austerity is not going to encourage lending. Thirdly, on promoting growth in competitiveness, how can there be competitiveness when there is a single currency, which cannot be used as a vital component of establishing competitiveness in an economy? Fourthly, on tackling unemployment, unemployment has risen, although our unemployment is lower than that of many European nations, in particular Spain and others, which are really suffering as a result of their membership of the single currency. The social consequences will be disastrous. We are looking at the break-up of countries and politics, and at the possible abandonment of democracy in such countries. It is unbelievable. 

Democracy has to mean choice for electors. It is a travesty of democracy for two major parties—one ostensibly of the left and one ostensibly of the right—to act as conspirators against their own people, but that is what is happening in Greece, where democracy was born. I like to think that the Greeks one day will establish a real democracy when they get real choice about how they govern their country. In the first instance, that will mean removing themselves from the eurozone and having control over their own economy for the future. 

Stephen Williams (Bristol West) (LD):  The hon. Gentleman has a long history of antipathy towards the European Union, but does he at least accept that the euro has exposed the underlying weaknesses in the Greek economy rather than causing them? 

Kelvin Hopkins:  Even if there were underlying weaknesses in the Greek economy, the Greeks chose to run it in a particular way. Greek living standards may not have been comparable to those in Germany but at least most people had employment, somewhere to live, something to eat, something to do and a certain pride in their economy. If Greece had chosen at any point to industrialise and become a more modern economy, that would have been its choice, but what economy it had is now being destroyed. We cannot rap Greece over the knuckles for failing to become a modern economy like Germany. 

Countries should not be told from the outside what sort of economy they should have; they should decide for themselves. If a country sees an economy next door doing well, it can choose to follow that country’s example because it seems to be working. If another country or an outside organisation forces a country to do things against its wishes, however, that is anti-democratic and not based on the choice of its citizens. I do not accept that we should be telling the Greeks how to run their economy; they should choose how to do that, but first

Column number: 24 
they need to get control of their economy by re-establishing a national currency. That will be painful, but it will be a lot better than what they have at the moment. 

The document is wholly unrealistic, and I support my hon. Friend the Member for Nottingham East in his opposition to it. It represents a dream world, in which everything is somehow all right as long as one does not look at the nasty bits. It talks about growth and stability, but what growth and what stability? We are in a crisis, and the document ought to be talking about the crisis, but instead it talks about a world that we can dream about but that does not exist. I support my hon. Friend, and I will be voting against the motion. 

5.43 pm 

Mr Hoban:  This has been a lively debate. I will deal with some of the issues that have been raised, and I will return at the end to the point about the deficit and the real reason why the Opposition oppose the motion. One of the key aspects in the annual growth survey was the restoration of bank lending, which was mentioned by the hon. Member for Nottingham East and by my hon. Friend the Member for North East Somerset. It is important for businesses to be able to get the finance that they need to grow and to expand. Difficult choices are being made about how that finance is to be supplied. One of the challenges that we have seen in this country is an over-dependence on bank finance when businesses need access to a wider range of sources of finance. That is why, through the relaxation of the rules on venture capital trusts and the enterprise investment scheme, for example, we have encouraged more people to invest in the early stages of business start-ups and why, as part of our credit easing package through the business partnership fund, we are tackling some of the market failure that stops pension funds and others from investing in debt. There are ways that we can do it. 

The hon. Member for Nottingham East would have been the first to complain if we had done nothing to encourage banks to lend more to business. He would have been the first to criticise us for sitting on our hands, as, frankly, the previous Government did, with the exception of their lending targets for RBS and Lloyds. Following an offer from the banking sector, we reached an agreement whereby it agreed to some lending targets. Let us be clear: the hon. Gentleman airily said that the sector missed its targets, but the reality is that it lent £25 billion more than its target to all businesses. That is £36 billion more than it lent in 2010, which is a sign that it met its overall target. 

Chris Leslie:  SMEs? 

Mr Hoban:  I will come on to SMEs, if the hon. Gentleman will be patient. The sector missed its target for SMEs by about £1 billion, but its lending to SMEs still increased significantly compared with 2010, so there was merit. 

In my conversations with people in the banking sector, the fact that the banks had entered into those commitments meant that they were much more focused on lending. A number had engaged in initiatives that brought forward lending opportunities to business. I do not think that the hon. Gentleman is being entirely reasonable, because, as I said, he would have been the first to criticise us if we

Column number: 25 
had done nothing. Of course, that is happening at a time when banks are shrinking their balance sheets and businesses are paying off debt, so the signal from Project Merlin helped remind businesses that banks could lend. 

I do not agree with my hon. Friend the Member for North East Somerset on bank capitalisation. Unlike other crises, banks are writing off underperforming debt. Without adequate capital to absorb them, such losses create a lack of confidence in bank funding markets and inhibit banks from lending to each other. It is right to ensure that the right capital is in place. It would have been better if capitalising banks had started sooner. The UK banks did not require any existing capital under the European Banking Authority stress tests because the recapitalisation started prior to the eurozone crisis biting. That capitalisation meant that UK banks were in a stronger position. Tackling some of the banking problems is the key. 

The hon. Member for Nottingham East was very critical of universal credit, but it is important that people are better off working than they are unemployed. The Opposition’s approach to welfare reform is interesting; they are quick to find reasons not to support the measures we are taking to tackle welfare issues and public spending problems. Reforming the welfare system and encouraging more people into work are important. 

We are doing a significant amount to tackle youth unemployment. I want to point out to the hon. Gentleman that in my constituency, youth unemployment is lower now than it was when his party was in office. As the right hon. Member for South Shields (David Miliband) said and acknowledged, the problem of youth unemployment did not start under this Government. Youth unemployment was rising when the economy was growing under the previous Government, and we need to tackle some deep-seated issues. That is one reason why we are funding an extra 250,000 apprenticeship places, which will give young people the skills they need to compete in the work force. I have talked to employers in my constituency in manufacturing, engineering, aerospace, and shipbuilding, and they use apprenticeships to help provide them with the work force for tomorrow. 

Kelvin Hopkins:  Unemployment is rising differentially in the poorer areas of the country, which are largely represented by Labour MPs. If apprenticeships are going to rich areas, such as the Minister’s constituency, will that not just create inequality? At a time when unemployment is rising, what benefit there is coming through is going to the rich areas. 

Mr Hoban:  I will not take any lectures about inequality from Opposition Members. When they were in government, the gap between north and south widened, not narrowed, despite the billions of pounds that were pumped in to regional development agencies. There was a fundamental failure in the model of economic growth that the previous Government pursued. It was driven by debt—not just in the housing market, but in the City. 

One of the things that we are tackling—the hon. Member for Luton North raised this—is the level of private sector debt that is creating instability in the

Column number: 26 
economy. We set up the Financial Policy Committee to identify the threats to financial stability, to enable action to be taken and to stop some of the problems that we have seen in recent years. Such action is vital to ensure that we have a stable economy. 

Mr Love:  May I first welcome the increased numbers of apprenticeships? However, does the Minister accept the concern that has been expressed up and down the country about the quality of some of those apprenticeships? Although they may help to improve the situation in the short term, the level of qualification received will, in the slightly longer term, limit the benefits that the apprenticeship programmed has delivered. 

Mr Hoban:  The hon. Gentleman needs to reflect on some of the modern apprenticeship schemes; they actually did not provide the work experience that many of our apprenticeship schemes now do provide. Employers will look at the level of qualification that they think is appropriate for their business. 

When I spoke to people at BAE Systems, who run operations at the Portsmouth dockyard, they said that they wanted their apprenticeships to have the highest possible qualification leading on to degrees. They recognised that high levels of skills were vital to a modern economy in the 21st century. I do not accept the hon. Gentleman’s point about qualifications, but I do think that employers need to invest more in higher skills. 

I was amused when my hon. Friend the Member for North East Somerset talked about the amount of jargon in this document, especially as he rounded off his attack on jargon with the word “persiflage”. I think that that was the first time that I have heard that word in Committee. It is perhaps an appropriate word to use, given the way in which these documents are written. In my experience of discussing some of these documents in European councils, so much effort goes into the drafting that often the meaning is lost, as everyone seeks to get in their point. 

I want to end on the point with which the hon. Member for Nottingham East started. He said that he wanted to oppose this measure, and I know why that is. He mentioned a key phrase but, in making his case, he left out a few words. He objects to 

“tough decisions being taken in the UK to bring the deficit under control”. 

That is the issue that we face. Every time we put forward welfare reform measures, the Opposition seek to oppose them. They talk about their shock about the education maintenance allowances, but there are no commitments to reinstate them. At the weekend, the shadow Chancellor decided to conjure up another £12 billion of borrowing to fund some temporary tax cuts. He has already suggested £10 billion of extra borrowing to fund a temporary VAT cut. The reality is that all such measures push the economy off course in tackling the fiscal deficit. 

Let me remind the hon. Member for Nottingham East of what Moody’s said last week. Its statement warned against 

“reduced political commitment to fiscal consolidation, including discretionary fiscal loosening”, 

Column number: 27 

of the sort that the shadow Chancellor seems focused on at the moment. Moody’s recognises that such discretionary fiscal loosening could lead to a downgrade, and also stated: 

“The rating agency believes that the UK government’s response to negative developments late last year indicates its commitment to restoring a sustainable debt position.” 

Christine Lagarde, at the end of January, said that 

“those countries that have fiscal space and that can slow down their fiscal consolidation efforts are very few, and I’m afraid Britain is not in that particular group.” 

I shall wrap up. Time and again, the Labour party talks about fiscal plans, but it clearly has no plans to tackle the deficit. The tough decisions that we have taken, and which the motion emphasises, have led to a situation in which our interest rates are similar to those of Germany, although our deficit is higher than that of Greece. Those tough decisions have led to lower rates, benefiting businesses and families. The low rates are a testament to the credibility of the Government in tackling the problems. I believe that, as the growth survey states, we can tackle the deficit and bring credibility to fiscal plans while promoting growth-friendly policies. On that basis, I urge my hon. Friends to support the motion. 

Question put.  

The Committee divided: Ayes 7, Noes 5. 

Column number: 28 

Division No. 1 ]  


Garnier, Mark   

Hands, Greg   

Hoban, Mr Mark   

Rees-Mogg, Jacob   

Sharma, Alok   

Walker, Mr Robin   

Williams, Stephen   


Brown, Lyn   

Hopkins, Kelvin   

Leslie, Chris   

Love, Mr Andrew   

Stuart, Ms Gisela   

Question accordingly agreed to.  


That the Committee takes note of European Union Document No. 17229/11 and Addenda 1 to 4 relating to a Commission Communication: Annual Growth Survey 2012; supports the Government’s view that this document sends important messages about the urgency of pursuing both fiscal consolidation and structural reform; further supports the tough decisions being taken in the UK to bring the deficit under control and stimulate economic growth; welcomes the focus on EU-level reforms such as the liberalisation of services and the development of the digital single market as a complement to Member States’ reform efforts but considers that an even greater effort is required at EU level to stimulate growth; and agrees that the survey should not focus on taxation, as it is important for Member States to retain the flexibility to shape their own tax policies to suit their economic circumstances. 

5.57 pm 

Committee rose.  

Prepared 21st February 2012