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Section 5 of the European Communities (Amendment) Act 1993

  1. The Chief Secretary to the Treasury (Mr David Gauke)

    I beg to move,

    That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report and Autumn Statement, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.

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    The legal requirement to give the European Commission an update of the UK’s economic and budgetary position—our convergence programme—means there is a welcome opportunity for a wider economic debate, should we want one. [Interruption.] Clearly, since last year’s—[Interruption.]

  2. Madam Deputy Speaker (Natascha Engel)

    Order. If Members leaving the Chamber do so a little more quietly, we can hear the Minister. Thank you.

  3. Mr Gauke

    Clearly, since last year’s convergence programme debate there has been a momentous change in the UK’s relationship with the European Union. The article 50 process is now under way and the United Kingdom is leaving the European Union. There cannot, as some suggest, be any turning back from that. In accordance with the outcome of the referendum, we are leaving the European Union and will make our own decisions, take control of the things that matter to us and seize every opportunity to build a stronger and fairer Britain.

    Given our decision to leave, some Members might find it odd that we are debating the UK’s convergence programme here today. It is right that we should do so, however, because we continue to exercise our full membership of the European Union until our exit and because to do so is a legal requirement that we must take seriously. I should, however, remind the House that the content of the convergence programme is drawn from the Government’s assessment of the UK’s economic and budgetary position. This assessment is based on the spring Budget report and the Office for Budget Responsibility’s most recent economic and fiscal outlook. It is that content, rather than the convergence programme itself, that requires the approval of the House.

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    I should also remind the House that although the UK participates in the stability and growth pact, which requires convergence programmes to be submitted, we are required—by virtue of our protocol to the treaty opting out of the euro—only to endeavour to avoid excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation.

  4. John Redwood (Wokingham) (Con)

    On that point, would my right hon. Friend like to comment on how much influence he thinks the convergence criteria and the deficit reduction requirements have had on successive UK Governments to drive more austerity and cuts?

  5. Mr Gauke

    In the seven years that I have been a Treasury Minister, I have not noticed the convergence programme having an influence on the decisions that we have taken. We have taken decisions to reduce the deficit because we believe that that is in the long-term interests of the United Kingdom, rather than because of any requirements under the EU treaties.

    Let me provide a brief overview of the information that we will set out in the UK’s convergence programme. Members should note that this does not represent new information; rather, it captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the spring Budget. It is fair to say that in March 2017, we were in a better position economically than many had predicted. Growth in the second half of 2016 was stronger than the OBR had anticipated in the autumn statement. In fact, the UK economy grew faster last year than most other advanced major economies, and employment remains at a record high. So, following a period of robust economic growth, record employment and a falling deficit, we sought to safeguard that economic stability in the Budget. That is particularly important as we prepare our country to leave the European Union.

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    The OBR forecasts that business investment will remain subdued as we begin the period of negotiation with our EU friends and partners, and it continues to judge that, in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Accordingly, putting the public finances in good order will remain vital for the foreseeable future, and all the more so given that the deficit remains too high and that there is a range of potential risks in the global economy. That is why we are getting ourselves into a position of readiness to handle difficulties of any kind that might come our way. Our fiscal rules, which enable us to do that, strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term.

    Overall public sector net borrowing as a percentage of GDP is predicted to fall from 3.8% last year to 2.6% this year. This means that we are forecast to meet our 3% stability and growth pact target this year for the first time in almost a decade. Borrowing is forecast to be 2.9% in 2017-18 and then to fall to 1.9% in 2018-19 before reaching 0.7% in 2021-22, which will be its lowest level in two decades. The economic forecasts are broadly unchanged since the autumn, but the OBR has substantially revised down its short-term forecast for public sector net borrowing. As a consequence, we are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Debt is forecast to peak at 88.8% of GDP in 2017-18, and then to fall in subsequent years.

  6. John Redwood

    On that point, it is important to remind the House that £435 billion of the debt is now owned by the state, so the state owes the money to itself, meaning that it is not a debt in any normal sense.

  7. Mr Gauke

    My right hon. Friend is correct about where the debt is owed, but as a country we must none the less be wary of a debt that is high by recent historical standards. It is right that we show determination to set out a plan for how the debt to GDP ratio can be reduced to ensure that the UK is in a more resilient place to absorb the shocks to our economy and to the public finances that occur from time to time.

    Beyond our fiscal rules to protect the public purse and prepare our economy, the Budget also set out a wide range of things that this Government will be doing to invest in our future. That includes giving our children the chance to go to a good or outstanding school that sets them up to succeed; helping young people across the country get the skills they need for the high-paid, high-skilled jobs of the future; and investing in cutting-edge technology and innovation, so that Britain continues to be at the forefront of the global technology revolution—three things that will be at the heart of our efforts finally to address the country’s long-standing productivity challenges.

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    The Budget also promised greater support for our social care system, with substantial additional funding so that people get the care they deserve as they grow older.

    The Budget works to strengthen our public services over the long term, too, in our determination to bring down the deficit and get the UK back to living within its means, and to fund our public services for the long term through a fair and sustainable tax system. The spring Budget, therefore, was one that made the most of the opportunities ahead by laying the foundations of a stronger, fairer and better Britain.

    Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the convergence programme to the Council of the European Union and the European Commission, with recommendations expected from the Commission in May. The submission of convergence programmes by non-euro area member states, and stability programmes by euro area member states, also provides a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is in the UK’s national interest.

    The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, the G20 and the OECD. Although we are leaving the EU, we will of course continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours, so we will continue to play our part in this process while we remain an EU member and in other international policy co-ordination processes once we have left the EU.

    The Government are committed to ensuring that we act in full accordance with section 5 of the European Communities (Amendment) Act 1993, and that this House approves the economic and budgetary assessment that forms the basis of the convergence programme.

  1. Peter Dowd (Bootle) (Lab)

    We find ourselves in a strange position. We are debating a motion to approve the Government’s programme for convergence with the EU at the start of an election campaign in the context of leaving the EU. That is an unusual set of circumstances, to say the least. Some see it as almost theological. There will no longer be a requirement for convergence, and the Conservatives have no idea how our economy might work post-Brexit, other than their plan for a bargain-basement deregulated tax haven. It is a simple, if flawed and dangerous, plan regardless of the position that people took in the referendum.

    A complete lack of vision from the Government means that no one can be confident about what our economy will look like in just two years’ time. Labour accepts the referendum result, which is why we did not frustrate the triggering of the article 50 negotiations, but we will never support the chaos of a Conservative plan for Brexit that will potentially put our economy in danger. That does not mean being a “saboteur”, as suggested in some newspapers today; it means doing the job that we were sent here to do.

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    Wealth concentrated in the hands of a tiny super-rich elite and corporations treating us like a tax haven is not particularly good, and it is not what people voted for.

    We have heard much in the debate over the past few months about taking back control. We heard time after time that we will take back control, but we should not take back control and put it in the hands of a group of plutocrats while leaving most people across the country worse off year after year. When we take back control, it has to be shared by everyone, not just a few.

    A Labour Government would deliver a final deal that reflected Labour’s values, ensuring a strong and collaborative future relationship with the EU, which the Minister mentioned. We would defend people’s rights and protections, preventing the race to the bottom that is feared. There is a clear choice between a better future for the whole country under a Labour Government and a bargain-basement tax haven under the Conservatives.

    The Brexit course set by the Prime Minister will have huge repercussions for our country and our economy. In 2016, the UK exported goods and services to the EU totalling £548 billion, with imports totalling £585 billion. The EU accounts for 44% of UK exports of goods and services, and 53% of imports. Despite the Government’s laid-back approach to trade with the EU, a hard Brexit puts much of those exports and EU imports at risk. Sterling has already dropped by nearly 20% against the dollar since the UK voted to leave the EU, becoming the world’s worst performing major currency in October 2016. Many economists now suspect that the pound may depreciate even further as negotiations inevitably deadlock and begin to flounder.

    When the Conservatives came to office, they committed to balancing the books by 2015, and they broke that promise. It is unequivocally a promise broken. They then put the date back to 2019-20, and again it was not delivered. Here we are, days away from the Dissolution of Parliament, without the Government making as much progress on the deficit as they promised. The Chancellor regularly says that it is a rolling target, but there is no such thing. He either has a target or he does not.

    Under this Government, debt as a percentage of GDP has continually risen and now stands at 85%. How can that be a sign of a healthy economy, notwithstanding that the Minister has indicated it will start to come down? GDP growth per capita under this Government has not once surpassed the pre-crisis trend of 2.3%. In fact, growth has been revised down for 2016, 2018 and, now, 2019 and 2020. Again, that is hardly the sign of a strong economy.

    In seven years, the Conservatives have borrowed £750 billion, and I remind people time and again that that is more than all Labour Governments combined. Since 2010, 10 of the Government’s 14 Budgets and autumn statements have seen an increase in forecast borrowing, and their record on borrowing can be summed up in two words: missed targets. Make no mistake that the Conservatives are the party of borrowing. Is it any wonder that the Conservatives borrowed so much when the public finances each year have huge gaping holes? This year, we saw the Chancellor’s attempt to hit self-employed workers with a rise in national insurance contributions, and the Conservatives’ U-turn on that measure left a £2 billion black hole in the projected public finances. How can we rely on the Conservatives’ rosy assessment of the economy when we know that the sums do not add up?

    That feeds into the wider problem with the public finances under the Tories. Children are beginning to sit in crumbling schools, and across the country people are waiting ever longer to be seen by professionals in the NHS, which is undergoing the worst crisis in its history. Why do we have that sorry state of affairs? Because the Conservatives have sacrificed the services that everyone uses just to pay for £70 billion of tax cuts for corporations and the super-rich over the next few years. The Government have presided over the slowest recovery since the 1920s, with both economic growth and average earnings growth downgraded yet again. Despite falling unemployment, workers are suffering the worst decade of pay in 70 years. Rising inflation is now outstripping wage growth.

    The Government have done little to address the scandal of chronic low pay and insecure employment, which is reflective of an economy that is not working as they claim.

    So their promise of a £9 national minimum wage has drifted downwards, while inflation is increasing the cost of living for everyone.

    The Government’s assessment of the economy makes no mention of the continued economic imbalance in respect of the devolved nations and the regions. We simply cannot continue to have such an unbalanced and unequal economy. That comes back to the point I made at the start about the disparity in regional economic growth, which I see in my region and in many others.

  2. John Redwood

    So how much extra tax should the Government impose next year to deal with the budget deficit the hon. Gentleman is worried about?

  3. Peter Dowd

    I am sure we will have that debate during the general election process.

    As I mentioned, this Government have pledged to take back control from Brussels, but what about control for the millions of people who live outside the M25? How can this Government square their desire for less interference from Brussels with the Secretary of State for Communities and Local Government not batting an eyelid when banning local councils all over the country from charging £1 for fun runs in local parks? Is it really the job of the Secretary of State to micro-manage park budgets? Have we come to that? Have we come to a British Secretary of State telling local authorities, “You can’t charge these people £1, you can’t charge them 50p”? That is ludicrous, which is we why have to take back control, so that when control comes back to this country it is pushed down.

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    It is all the more bizarre that the Secretary of State has taken that position, given that both he and his predecessors have cut local government support by as much as 60% in some areas. Authorities have had not only huge cuts in their budgets, but interference on piddling amounts of money, such as £1 for park runs. It is pretty pathetic.

  4. Ian Mearns (Gateshead) (Lab)

    My hon. Friend is making a powerful set of points. On the point about local government finance, it is all very well for the Government to withdraw revenue support grant, but at the same time they are not doing anything about the other side of the account: the council tax banding system. The Government are doing nothing to rebalance that system, which makes up local government revenue apart from the revenue support grant. If they do not rebalance that, things are grossly unfair. The RSG was brought in because a band D median did not exist for all parts of the country, and it certainly does not exist for the north-east of England, which is why we have required RSG from its inception in the early 1990s.

  5. Peter Dowd

    My hon. Friend makes a fair point. This Government have abandoned local government—apart from Surrey County Council.

    We cannot have a fair and prosperous economy until all regions and cities have access to adequate funding and investment in infrastructure—until all regions and cities have the power to implement financial decisions at a local level without the constant heavy-handedness of a Westminster-obsessed Government. The referendum result in favour of leaving the European Union was a vote against not just so-called “unaccountable bureaucrats” in Brussels, but the lack of accountability of the Government here at home at those local levels. For many people in this country, the Government are alien and have no relevance to their lives. For many people, this place has no relevance to their day-to-day living; they see it as a bubble and, as we often see here, it is a bubble. The Government sit here in Westminster and Whitehall making decisions, and little consideration is given to the ramifications and the disastrous effect their policies have on ordinary people’s lives. That is why a post-Brexit Britain must look seriously at devolving economic powers to the cities and regions across the country. The Government can no longer pretend that we are a unitary state that can be ruled by diktat from London, given that we have a Parliament in Scotland, Assemblies in Northern Ireland and Wales, and a Mayor in London, and of course we will have the city region Mayors in Manchester, Liverpool and the West Midlands from next month. [Interruption.] The Minister says that the Government created them, and I completely accept that, but they have to give them significant powers and responsibilities. The Government have been dragging their feet in many regards on that.

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    Under seven years of Tory mismanagement, our economy has seen stagnant wages, slow growth and low productivity. I note that the Minister did not mention productivity once in his speech—[Hon. Members: “Yes, he did.”] Okay, perhaps he mentioned it once. We have also seen excessive borrowing, rising debt and failed promises. The Chancellor has presided over an economy that has seen tax giveaways for the richest in our society, at the expense of those on middle and low incomes. The Government have drastically cut public services and failed to balance the books. If re-elected, the Conservatives would radically cut tax in a desperate bid to attract overseas investment and transform our country into a low-pay and low-tax economy.

    The assessment of the economy presented by the Government does not account for their catastrophic record and failed economic targets, or for the huge black holes in public spending. It makes no assessment of what the UK’s post-Brexit economy will look like, nor does it acknowledge the economic difficulties ahead. I urge the House to reject the motion.

  1. Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)

    It is a pleasure to make my final speech in the Commons before the general election. The electors of Kirkcaldy and Cowdenbeath will determine whether I return to make any speeches here in future.

    I was intrigued by and enjoyed the opening remarks of the hon. Member for Bootle (Peter Dowd), who pointed out that it is rather strange to be debating this subject: we are facing being dragged out of the European Union, yet we are discussing convergence. I knew this would be a tremendously popular debate—we need only to look around the full Benches to see how popular it is—so I took a leaf out of the Leader of the Opposition’s book and tweeted that I was going to be speaking on this important topic, in the hope that I would get the equivalent of “Mary from Rochdale” letting me know the key points I should raise. Only one person replied with a suggestion of what I should include in my speech, and it was: “Can you say hello to my Auntie Sadie in Balloch?” I could not possibly do that in a speech of such importance, but perhaps that clarifies how many of the things we debate in this House are very technical and difficult for the public to engage in. On a serious note, they are none the less very important.

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    The Minister talked about the OBR forecasts. Yesterday, I showed great prescience—or lack of it. Scott started to work for me on the day that the general election was declared. I gave him one task to prepare for this speech: I asked him to contact the Library and to find out how many independent evaluations had ever been done of the Treasury or OBR models of the UK economy. This morning, the Library staff got back to say that they could not find that any such evaluations had ever been undertaken. That is perhaps not surprising when we see some of the results of those models.

    In following up, I asked the Library staff to look into how the OBR model was described by the OBR. They directed me to the OBR’s website, on which we find the wonderful statement that much of its model is based not on hard fact but on the judgment of those who use it. Different people might get incredibly different results using the same model. There will come a time when Governments of whatever shade are going to have to consider the way in which we understand and model the economy, and how far we can ever rely on forecasts of the type the House has been receiving for a good number of years.

    This could obviously be a fairly wide-ranging debate but, thinking about the future, I thought I would make one or two remarks about issues that will still need to be addressed when we have exited the European Union. Exiting itself will not contribute anything; it will require the will of Government to do something. The Minister rightly mentioned the importance of business investment. Last year, the House held a debate on quantitative easing—I seem to recall that the hon. Member for Bootle took part in it—that I think was slightly less popular, in terms of the numbers taking part, than this debate. None the less, it was interesting that so many of those who spoke in that debate talked about the problem that QE had created for investment. The assumption from the original essay by Friedman in 1969 was that introducing QE would lead to a rise in asset prices, the consequence of which would be to increase confidence in business and a significant increase in investment. We know that that has not happened, despite well over £600 billion of QE being introduced. It would be interesting to know how the Government, or the future Government, will tackle the rewinding of QE.

    In recent days, senior bankers have made some very intemperate remarks about the business sector. I wish to point to one that was made just two days ago in the Daily Express by a senior executive from the Royal Bank of Scotland. He described as a “bunch of chancers” a group of small and medium-sized enterprises that were pursuing some reconciliation of the problems they experienced from the Global Restructuring Group and the like. Can Members imagine any other industry talking about its customers as a bunch of chancers? Apparently, those customers were called that because they may have the audacity to go to the courts to seek redress. If Members look at the RBS accounts, they will see that RBS has tripled the amount of money that it has set aside for the hiring of lawyers to defend cases—I see a Member nodding. It expects to defend cases worth something in the order of £1 billion. Surely that says something about our banking culture which will need to be addressed.

    One matter that I have been pursuing in this House is the issue of Scottish limited partnerships and other forms of limited partnerships that have been, particularly since 2008, subjected to use by international criminals, including, and perhaps particularly, those from eastern Europe, Ukraine, Russia and the like. The amounts involved now total many billions of pounds. About 10 days before recess, there was an urgent question on the latest money laundering scandal. When I questioned the Minister at the time, I pointed out that, at the heart of these scandals, lie these limited partnerships. Since 2008, 22,000 Scottish limited partnerships have been created. They are completely opaque; we have no idea who owns them. Many of them seek to operate in tax havens and to launder significant amounts of criminal assets.

  2. John Redwood

    Before he closes his remarks, do the hon. Gentleman and his party think that the EU is right to say that state debt should not be above 60% of GDP?

  3. Roger Mullin

    It is perfectly reasonable for the EU to make such a statement and to seek to have some control over debt. It is interesting to note that the Scottish Government can at least say today, all these years after the Scottish Parliament was created, that they have absolutely no debt. That is certainly something that this Government cannot claim.

    Regardless of whether we were going to be in or out of the EU, this country—the UK and all its member nations—would still face major economic challenges that require will and intelligence to address. Surely that is the message that we should all be taking to our constituents as we face the future.

  1. Mr Gauke

    As I stated in my opening remarks—as much as 30 minutes ago—following this debate, and with Parliament’s approval, the Government will inform the Council of the European Union and the European Commission of our assessment of the UK’s medium-term economic and budgetary position. That is based entirely on information and documents already presented to Parliament. Presenting that information through the submission of the UK’s convergence programme is a legal requirement under the EU’s stability and growth pact.

    Let me pick up on a couple of points made by the hon. Member for Bootle (Peter Dowd). First, he made the case for greater devolution. I remind him that it is this Government who have put in place the new metro Mayors—no doubt he is spending much of his weekends and constituency Fridays campaigning for the Labour candidate for Mayor of the Liverpool city region. We also have elections in Manchester and the West Midlands. That was not created by the previous Labour Government; it was created by this Government, recognising the need for decisions to be made at local level and for real powers to be devolved to that level. I am surprised that he was so unwilling to credit the Government for what we have done on that front.

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    Secondly, the hon. Gentleman accused me of not mentioning productivity in my remarks, and he made comments about the Chancellor not discussing it generally. In fact, the Chancellor regularly comments on the need to improve our productivity, and in my remarks a little while ago I drew attention to the measures we are taking on schools, skills, and technology and innovation, which, as I said a few minutes ago, are at the heart of our efforts to finally address the country’s long-standing productivity challenges. It is very difficult to see how the Labour party’s policies, which would drive away business investment and discourage enterprise and innovation, would do anything other than weaken our productivity. If the hon. Gentleman wishes to fight the next few weeks on the subject of productivity, I for one would welcome that.

    In the Budget, we continued to prepare this country for long-term prosperity, first and foremost by putting our economic stability first and by continuing to improve the state of our public finances, but we also set out meaningful investment in our future productivity and our current public services. This is therefore a plan that strikes the right balance between reducing our deficit, preserving fiscal flexibility and investing in Britain’s future. Those are the foundations of a stronger, fairer and better Britain. Those are the foundations of a strong and stable platform for the upcoming exit negotiations. That is the basis of the convergence programme we present to the European Union. On that basis, I am pleased to commend the motion to the House.

    Question put.

Division 198

The House having divided:

  • Ayes: 298
  • Noes: 191

Resolved,

That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report and Autumn Statement, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.

  1. Alison Thewliss (Glasgow Central) (SNP)

    On a point of order, Madam Deputy Speaker. You may remember that I have previously raised the issue of having time to debate in the House the Government’s rape clause and two-child policy. The last time I raised the matter, the usual channels came back to me and assured me that time would be made available in a delegated legislation Committee for the rape clause to be debated. The final list of DL Committees has appeared in the Whips Office, and as far as I know there will now not be time, with the proposed election, for the rape clause to be debated anywhere in this House.

    There are no third-party referrers in Scotland because the NHS and women’s organisations think that the guidance is not sound and are refusing to co-operate with it. Is there any recourse for me to raise this with the Government ahead of the election, to ensure that these very important issues get debated?

  2. Madam Deputy Speaker (Natascha Engel)

    I think the hon. Lady has very successfully done so herself. As she can see, on the Treasury Bench is the Leader of the House, who will, I am sure, take up the matter with her. I thank her for the point of order and for giving me notice of it.