UK Budget and European Commission

23rd March 2016

David Gauke leads the annual debate on the pre-budget report provided by the Government to the European Commission.


Section 5 of the European Communities (Amendment) Act 1993

6.24 pm

The Financial Secretary to the Treasury (Mr David Gauke): I beg move 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.

After four days of debating the Budget I am sure the whole House will welcome a further opportunity to debate the UK economy, given the information that will be provided to the Commission this year under section 5 of the European Communities (Amendment) Act 1993.

As in previous years, the Government inform the Commission of the UK’s economic and budgetary position as part of our participation in the EU’s stability and growth pact. The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2015 autumn statement and Budget 2016. It also includes the Office for Budget Responsibility forecasts. As such, it is based entirely on previously published documents that have been presented to Parliament. It is the content, not the convergence programme itself, that requires the approval of the House for the purposes of the 1993 Act.

Mr David Nuttall (Bury North) (Con): Will my hon. Friend explain, for the benefit of the House, what he understands by the meaning of the word “convergence”?

Mr Gauke: The important point here is that the United Kingdom is not obliged to converge with other EU member states. If I remember correctly, the terminology dates back to the Maastricht treaty, and this is a part of the process that originates from that. The UK is not subject to any sanctions as a consequence of our participation in this process, nor are we required to take any directions from the European Commission in respect of our economic policies.

John Redwood (Wokingham) (Con): But surely the purpose of tabling the numbers to the Commission is that it puts it under what it calls “surveillance”? It can then make an adverse report. It is very clear that the intention is that our budget deficit should never be more than 3% of GDP. I note that, for the first time in some time, the Government will at least get the budget deficit below 3%. I am in favour of doing that anyway, but is it not the case that they have to do that because that is what convergence is all about?

Mr Gauke: It is the case that the provision dates back to the Maastricht treaty—no doubt my hon. Friend the Member for Stone (Sir William Cash) can provide further details on its history—which was incorporated into the European Union (Amendment) Act 1993. That requires us to submit a report. The important point for the House is that this does not give the European Commission the ability to impose sanctions on the UK. I am in complete agreement with my right hon. Friend that the UK should not have excessive deficits, but that is a matter ultimately decided by this House, this Parliament and the elected Government of the United Kingdom.

Sir William Cash (Stone) (Con): I know my hon. Friend listened to what I said in my point of order, so I would like to address the point to him personally. Section 5 states:

“Her Majesty’s Government shall report to Parliament for its approval”—

on the basis that it is accurate—

“an assessment of the medium-term economic and budgetary position”.

It is absolutely clear, unless he can tell me that this document was prepared since the controversy of the past few days, that this cannot be accurate and nor can it be a proper assessment. To report to Parliament something that is not accurate is quite an important and rather difficult problem for the Minister, is it not? What measures will he take to correct the position, so that Parliament can approve it on the basis of an accurate assessment?

Mr Gauke: I will return to that point later, but let me address it in short now. The information provided to the Commission under this process is and has always been based on information already published. It is not a new exercise. We do not ask the OBR to go through the process once again. It is required to produce its documentation and make its assessments at the times of Budgets and autumn statements, and we do not think that our requirement under European legislation is such that we should require the OBR to go through that process again.

The essential position of the public finances remains the same. Notwithstanding the announcement on personal independence payments, it remains the case that from next year debt will be falling every year, that the deficit will be falling each and every year of this Parliament and that we will be in surplus in 2019-20. I suspect that my hon. Friend the Member for Stone (Sir William Cash) would not be keen for us, as a consequence of this requirement—I suspect he is no enthusiast for our going through this process in the first place, but the fact is we have to go through it—

Mr Nuttall: Why?

Mr Gauke: Because that is what the law requires us to do.

It would not seem proportionate, in these circumstances, to do anything other than submit documentation previously prepared by the OBR.

Sir William Cash: I just want to put this to bed. I have made the point that the documentation cannot be accurate—unless my hon. Friend is going to tell me the Government have changed the figures since publication—but there is a second point. It appears from the figures, which can be a bit confusing for some people, that there is a black hole. Some people allege it is as much as £4 billion and others say it is only £1.3 billion—it relates specifically to PIP—but he will appreciate that it is not possible for the documentation to be accurate. This has nothing to do with the OBR as such—it is not the OBR report being submitted—but concerns the Government’s own assessment. Will he be kind enough to get that right? It is important that we are accurate.

Mr Gauke: Our principled approach over several years has been that the documentation provided to the Commission is based on the most recent publications. I do not think it would be sensible or proportionate to rerun elements of a Budget process purely for an EU audience. That would not be the right thing to do.

George Kerevan (East Lothian) (SNP): On the accuracy of the information being transmitted to the Commission, there is another matter, which has not been brought up. The figures for February’s tax receipts have led to a significant increase in February borrowing. It is therefore impossible in the final month of the financial year for the Government to hit their declared target for borrowing. It will be greater than the target—so, again, the information is inaccurate.

Mr Gauke: Again, I make the same principled point. We provide information already published in these reports—we do not seek to amendment it—although the hon. Gentleman makes an interesting point: should this be updated monthly in the light of public finance numbers? I would make a second point about the public finances, however. Having been in the Treasury for a little while now, I know that public finance numbers can be quite volatile, so one should take good news and bad on a monthly basis with a pinch of salt. It is only when one steps back that one has a good view of the overall position, and that is what the OBR does twice yearly.

On the process, I remind the House that although the UK participates in the stability and growth pact, by virtue of our protocol to the treaty opting out of the euro, we are required only to endeavour to avoid excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation in the pact. Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit that programme to the European Commission. The Commission is expected to make its recommendations to all EU member states in mid-May. These recommendations will then be agreed by Heads of State or Government at European Council.

Mr Nuttall: This process takes place, as we both know, every year, and we have this debate every year. What, however, is its purpose? What possible benefit is there in going through the motion or charade of submitting this document to Brussels every year? What are the benefits for this country and for my constituents?

Mr Gauke: Apart from the fact that the law requires us to do this, I would tell my hon. Friend that the UK has a proud record of structural reform. We are performing better than many other EU member states. To the extent that other such states are able to examine the measures that we have been taking to improve the performance of the UK economy and to the extent that they see it as an example well worth following, this will help to strengthen other EU member states’ economies, which might have a benefit to the constituents of my hon. Friend. The fact that we are leading the way as the fastest-growing major western economy means that we have a proud record. We should not be hiding our light under a bushel.

Budget 2016 set out the Government’s assessment of the UK’s medium-term economic and budgetary position. In uncertain times and against a deteriorating global economic outlook, the Budget delivers security for working people. It takes the next bold steps in the Government’s long-term economic plan. The UK is forecast to grow faster than any other G7 economy this year, with employment at record highs. Against that, productivity growth is weaker than forecast, while globally the economic picture is less positive than it was six months ago.

The OBR tells us that in every year of the forecast, our economy grows and so, too, does our productivity, but it has revised down growth in the world economy and in world trade. The OBR also notes concerns across the west about low productivity growth, and has revised down potential UK productivity growth. In the face of the new assessment of productivity and the slowing global economy, the OBR now forecasts that UK GDP will grow by 2% this year, 2.2% again in 2017 and then 2.1% in each of the three years after that.

I shall not go through all the figures that have been debated at some length relating to the deficit and the debt, and I shall not go through all the Government’s measures. What is clear is that we are restoring our public finances, heading towards a surplus at the end of this Parliament and reducing the deficit year on year. I hope that the House will, in line with section 5 of the European Communities (Amendment) Act 1993, approve the economic and budgetary assessment that forms the basis of the convergence programme. I look forward to hearing this evening’s debate.

6.38 pm
At the conclusion of the debate

Mr Gauke: The debate has addressed both the Budget and our membership of the European Union, so I am grateful to be on my feet at this point, and not later.

Let me respond to some of the points that have been made. To come back to what I said to my hon. Friend the Member for Stone (Sir William Cash) about the numbers, it is important that the document is based on information that has been published in advance and that we do not produce a mass of separate information and documentation for the purposes of meeting this requirement.

As my right hon. Friend the Member for Wokingham (John Redwood) will be aware—indeed, he touched on this—the requirement goes back to the 1993 Act. We are complying with obligations in our domestic law to provide this information, and it is therefore right that we do so.

The point raised by my hon. Friend the Member for Stone about our trade deficit with the European Union brings me to the wider issue of our membership of the EU. I know that he shares with me a belief in free trade, and in transactions where there is a willing buyer and a willing seller, both parties benefit from the transaction. The point I would make in the context of our membership of the EU is that, whereas 44% of our exports go to the European Union, only 7% of the European Union’s exports come to the United Kingdom.

My right hon. Friend the Member for Wokingham mentioned the contributions we make to the EU. It is worth pointing out that, thanks to the deal secured by the Prime Minister, our net contributions—whether in cash terms, in real terms or as a proportion of GDP—are in fact falling.

Let me turn to the remarks made by the hon. Member for Wolverhampton South West (Rob Marris), who speaks as a shadow Treasury Minister. For the first time in the six years I have been a Treasury Minister, we have heard an apology from the Labour Front Bench for borrowing too much money before the crash. That is something the hon. Gentleman deserves some credit for, because, try as we might on many occasions, we never got one out of Ed Balls.

The hon. Gentleman criticised the Government’s record on borrowing, but let us be clear: had we stuck with the structural deficit that we inherited, by 2020 we would have borrowed an additional £930 billion over 10 years. It is also worth pointing out that in May 2010, the International Monetary Fund forecast the UK to have had the largest budget deficit in the G20 that year. Between 2010 and 2016, the UK is forecast to have reduced its headline deficit at the second fastest rate in the G7—it is second only to the United States. The IMF forecasts that the UK will reduce its net debt as a share of GDP by more than any other G7 country between 2015 and 2020. If the hon. Gentleman believes that the problem is that we are borrowing too much money, perhaps he could explain why, time and again, the Labour party has opposed every measure we have taken to reduce the deficit.

We have had a lively debate, and I hope the House will support and approve the motion.

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