UK Budget and European Commission

19th April 2017
David Gauke leads the annual debate on the UK budget report provided by the Government to the European Commission.

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.

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.]


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


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.

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.


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?


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.

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.


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.


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.

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.

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David holds regular surgeries at various places in the constituency, including Rickmansworth, South Oxhey, Berkhamsted and Tring. 
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19th October, South Oxhey
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Call 01923 771781 to make an appointment.

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