On a point of order, Mr. Speaker. I am told that I must raise this question with you, because the Modernisation Committee has no powers to deal with it. There is no rule of the House that I can discover that dictates that our Clerks should sit in this Chamber wearing wigs. You yourself, Mr. Speaker, no longer wear a wig. On this day of modernisation in another political system not very far from here, in the United States, would it not show that we were modernising if our Clerks, who work so hard for us, no longer had to wear wigs?

I do not wear a wig, but I prefer the Clerks to wear wigs.

I beg to move,

That this House takes note of European Union Documents No. 14938/08, Commission Communication: From financial crisis to recovery: A European framework for action and No. 16097/08, Commission Communication: A European economic recovery plan, and endorses the Government’s approach to discussions with European partners on these issues.

I welcome the opportunity to debate the Government’s approach to the European economic recovery plan, alongside the related European Union documents. The world economy is in a serious downturn arising from financial system dislocation. The size and speed of that downturn warrant substantial and immediate action from Governments. Developments in the United States sub-prime mortgage market were the original trigger for the distress in the financial markets that escalated throughout last year, leading on to a severe downturn in economic activity across the world.

What began as disruption to the functioning of specific credit and money markets has spread and intensified to the extent that all financial markets have been affected. Financial institutions and financial systems in both developed and emerging market economies have been placed under severe pressure and, as credit conditions between banks have become tighter, their ability to lend to businesses and consumers has been restricted. That scarcity of credit for businesses and consumers has further contributed to the downturn and produced a real effect on the lives of individual citizens at home and in other countries, too. That is why it is right and necessary for Governments across the world to take bold action now to support the economy. My right hon. Friend the Chancellor of the Exchequer yesterday set out the further measures that the UK Government are putting in place.

In October, we took the lead with steps to stabilise the banking system. The euro-area summit of 12 October agreed a co-ordinated approach based on the UK model. In the pre-Budget report, my right hon. Friend the Chancellor announced measures worth around £20 billion between now and April 2010. That fiscal stimulus includes timely, temporary and targeted measures to support demand and to provide real help to people and businesses through these difficult times.

The document also says that any measures should be within the growth and stability pact and should be close to or within the 3 per cent. budget deficit ceiling. Will the Financial Secretary confirm that our budget deficit will be more than 10 per cent. of gross domestic product this year? Is that not well outside the terms of the document?

I do not recognise the figure that the right hon. Gentleman gives, but I can tell him that the Commission has recognised that, in these exceptional circumstances, countries—including those in the euro area—may well exceed the 3 per cent. limit.

As I said, at the euro-area summit of 12 October, we took the lead with steps to stabilise the banking system. In the pre-Budget report, my right hon. Friend the Chancellor announced measures worth around £20 billion. Yesterday, he announced further measures to support the banking sector and to safeguard millions of jobs at risk from continuing difficulties in the financial system. The aim of the measures is to begin to replace the lending capacity lost by the withdrawal of foreign banks and other institutions, and to address the barriers that prevent UK banks from expanding their own lending. They are also designed to support stability in the economy, and ECOFIN has been looking at them today.

The crisis, however, is global and requires a global solution, so we are also working with partners outside Europe. The G20 summit in Washington in November set a vital precedent for international co-operation. Governments from developed and developing economies debated solutions to the crisis and they agreed on closer macro-economic co-operation and to take whatever actions are necessary to stabilise the financial system and support growth.

The G20 Finance Ministers will meet under the UK presidency in March, and the G20 leaders will meet at the London summit in April. International co-operation is of the greatest importance, and the European Union, its institutions and member states, are among our most important partners.

Is the Minister suggesting that everything being proposed under the Government’s measures to deal with the credit crisis is based on European directives?

No; in fact, if anything it is the other way round. The measures that we introduced in the UK inspired large parts of the European plan, and of course we were closely involved in the discussions that led up to the plan that is before the House this afternoon.

The Minister has claimed that Britain led the way in monetary policy, but we would not have been able to do so if we had taken the Government’s earlier advice—it is the current advice from the Liberal Democrats—and joined the euro, because that would have meant giving up our power of self-government over monetary policy. Will he now repent of that folly and agree that joining the euro would have been a catastrophic mistake? Will he also agree with us that countering the recession will require both fiscal expenditure control and monetary interest rate control, which we can have only if we retain our own currency?

I think that the right hon. Gentleman is familiar with the five tests that the Government have set as preconditions for considering entry to the single currency. I shall take his contribution as a statement in support of those arrangements.

This crisis has impacted on all members of the European Union. The euro area is already in recession, after a fall in GDP for the second consecutive quarter. The latest European Commission forecast expects GDP in the largest member states to fall by between 1.75 and 2.25 per cent. The European Central Bank has taken action in line with the Bank of England and dramatically reduced interest rates, in some cases in co-ordination with cuts made by the G7 central banks.

The European Union now has the opportunity to use its structures and institutions for decisive, co-ordinated action to respond to the crisis and facilitate recovery. At the end of October, the Commission published a communication outlining initial proposals on how the EU can take united, unified and co-ordinated action to address the crisis. The initial response was later developed into a full framework.

On 26 November, the Commission published its European economic recovery plan to inspire a co-ordinated response to the downturn. A plan based on that was subsequently agreed by the European Council, and it has two key pillars. First, the Commission calls for a fiscal stimulus from member states equivalent to around 1.5 per cent. of European Union GDP, to be made up of contributions from member states and the EU itself. This pillar is consistent with measures that we announced in the PBR, including supporting general VAT reductions and front-loading investment projects in infrastructure, transport and climate change, as well as further measures for small businesses. France, Germany, Italy, Spain and the Netherlands have all since announced stimulus packages along those lines.

The plan further stressed that, in these exceptional times, it was necessary for Governments to have flexibility to increase borrowing in line with measures to support the economy, and, as I said a few moments ago, that member states may breach the 3 per cent. of GDP deficit limit outlined in the stability and growth pact. The conclusions from the December European Council reiterated that the revised stability and growth pact provides flexibility for member states to implement measures in the recovery plan without compromising public finances in the medium term. In line with that thinking, we have set out plans for a sustained fiscal consolidation from 2010-11, when the economy is expected to be recovering and able to support a reduction in borrowing.

The second pillar comprises priority actions grounded in the Lisbon strategy for growth and jobs and designed to adapt our economies to long-term challenges to take advantage, when growth returns, of the new opportunities that there will then be. They include employment support initiatives, enhancing access to business financing, reducing administrative burdens, and promoting the rapid take-up of green products and technologies. We are taking action in those and other areas to help individuals and businesses through this crisis, and other members of the European Union will take similar steps in the spirit of this plan. These measures will help to provide us and our European partners with the means to take full advantage when the economy begins to recover.

The plan highlights the role of the European Investment Bank in mitigating the effects of the crisis. The EIB has put together a package of €30 billion in loans to help small to medium-sized enterprises, and that is up 50 per cent. on its usual lending to the sector. UK small businesses stand to benefit to the tune of £4 billion by 2011. The plan also proposes to revise the EU budget’s financial framework to fund energy interconnections and broadband infrastructure. We are looking forward to examining those proposals in more detail, as the detail becomes available, and discussing them with our EU partners. We very much welcome publication of the plan and the agreement at the December European Council on priority actions at national and EU level.

The Financial Secretary mentioned the proposals for the acceleration of energy and broadband projects. It is clear from the Government’s response that they were not certain at the time whether that would have budgetary implications for the UK. Is he any clearer now whether the proposals would have budgetary implications for the UK Exchequer?

Clearly, if the European Union spends more than otherwise would have been the case, there will be implications, but we are waiting for the detail of those proposals, which I anticipate will be provided quite soon.

The plan supports our fiscal stimulus, and provides further support for actions to front-load public expenditure, which we have just touched on, and assist small and medium-sized business. The plan and the menu of possible complementary actions that it provides can be enacted in member states as suits the needs of their domestic economies, while producing positive spill-over effects in the wider single market.

Bold action in a common market requires a common framework for action, not least to protect against competition distortion, so the plan also includes a temporary state aid framework for support to the real economy over the next two years. In the state aid arrangements, we need to take account of the extraordinary circumstances across the European Union, so we welcome the Commission’s flexible, pragmatic approach in assessing measures to support both the banking system and the real economy.

The Commission provided rapid approval of UK actions to stabilise the banking system in October. Since October, 15 member state schemes have been approved, each similar to the UK model of recapitalisation or loan guarantees. The temporary framework also endorses the approach to supporting small businesses via state guarantee schemes. However, the role of the EU in monitoring state aid remains important. There should be no suspension of state aid rules, as they are key to ensuring a level playing field across the single market—and, most importantly, to avoiding moves towards protectionism, which might otherwise be a danger, and towards a counter-productive subsidy arms race. In the near term, it will be particularly important for the Commission to enforce the rules when interventions are not appropriate or well targeted.

The right hon. Gentleman referred to a level playing field. Does he not think that in the context of over-regulation, the stability and growth pact, the provisions of the Lisbon agenda and the issue of state aid, the playing field looks more like a battlefield of the Somme? I am thinking of the carnage that has been created in respect of all the rules that we have been told for decades are essential for the European economy. Does all this not demonstrate that all those plans are simply worthless and that the United Kingdom would be much better off with our own economic plans, rather than our being entirely driven by all this European nonsense?

I completely disagree with the hon. Gentleman’s characterisation. The single market in Europe is of immense value to the UK as well as to the other member states. The ability to produce a plan along these lines to achieve a unified response to the crisis demonstrates once again the value to the UK of our membership of the European Union.

My right hon. Friend has talked about the great value of the single market. However, have we not been a dumping ground for continental European produce and had a gigantic trade deficit as a result? We have been able to deal with that only because we have been able to depreciate our currency. Has the single market not been a disadvantage to us, rather than an advantage?

I do not agree at all, and I do not believe that the great majority of UK businesses would either. The European Union accounts for a very large proportion of our trade, and the fact that the single market is in place has been greatly to our assistance. It is one of the reasons why in the past few years we have attracted such an enormous amount of foreign direct investment—more than any country in the world other than the United States. The single market has been an important element in that success.

I am grateful to the Minister for giving way; he is being very generous.

The Government claim that we led the way on state support. Is the Minister seriously telling the House that if we had had to go to Europe to get the support approved and the European Union had said no, we would have stopped it?

I can reassure the hon. Gentleman that we are closely in touch with the European Union on these matters and therefore we do not expect unpleasant surprises in that department.

It may also be necessary to help countries that have been hit particularly hard by the financial crisis and to support their domestic economies and to prevent cross-border contagion. The G20 summit in Washington affirmed international commitment to supporting emerging market economies through this crisis, and it has been necessary for the Community to provide financial assistance to two of its members in conjunction with the International Monetary Fund. As has been the case in respect of many financial institutions in the current crisis, the member states are fundamentally sound, but the pressure of market conditions and exposure to the advanced economies of the euro area, and elsewhere in the EU, have been severe.

The EU medium-term balance of payments finance facility provides the opportunity for external financing from the Community. The facility allows the Commission to borrow on international markets and to lend the money on to member states in difficulty, often with support from the IMF. The Commission has worked closely with IMF staff in assessing situations in member states looking for assistance in producing programmes aligned to economic policy conditions and seeking financing for those packages. The Commission and IMF staff will also work closely together in monitoring the implementation with a view to stabilising the situation as soon as possible. Such financing is very important in the current climate. We need EU member states in positions such as those that a couple have encountered to be able to seek support to restore confidence and protect financial stability in order to prevent contagion and protect the functioning of the single market. We welcome the recent decision to raise the ceiling on the EU financial assistance facility.

This is an extraordinary time in the UK and abroad. We have taken bold action in the UK to stabilise the financial system and restore confidence, and the UK’s lead was followed swiftly by our European partners.

Is the right hon. Gentleman concerned by the report in today’s Financial Times showing that in the coming year the UK’s unemployment rate will be higher than that of Iceland?

I have not read the report to which the hon. Gentleman refers. We are certainly seeing an increase in unemployment right around the world. I was Employment Minister a year ago, and for a period I was able to announce in successive months more people in work in the UK than we have ever had before. The position today looks radically different; that is why we are putting in place the measures that we have announced in the past couple of weeks. The key is to ensure that people who lose their jobs are able to get back into work as quickly as possible, given that there are still more than 500,000 vacancies available.

We took the right course of action in the pre-Budget report to support the economy with a fiscal stimulus, not least in view of employment considerations, along the lines outlined in this plan, as adopted by other EU and G7 Governments. This is a global crisis that will require a global solution, and we will continue to work closely with others for a co-ordinated approach. The EU is a key partner for us. The plan is a bold step in co-ordinating the response to the crisis for the benefit of all the citizens of Europe. I commend these documents to the House.

The motion invites the House to take note of the Commission papers and to endorse the Government’s response to them. Hon. Members will have noted that the Financial Secretary told us that the Chancellor has already gone to ECOFIN to discuss them, so people will draw their own conclusions about the Prime Minister’s commitment to parliamentary government and how much our deliberations are valued.

There is much that we can agree on in the Commission paper: its analysis of the situation that we face; the focus on the need to deliver, at last, on the Lisbon agenda; the use of green taxes to drive demand for energy-efficient products; and, especially, the welcome commitment to open markets and free trade. However, if one reads these two documents together, one cannot avoid the impression that a significant part of the purpose in producing them is to claim ownership of the agenda—that instead of seeing a crisis for EU citizens, the Commission sees an opportunity to extend its competence and exaggerate the role that it has played. The Commission says:

“The EU was able to take collective action when the pressure on financial markets was at its most intense”

and that this

“national action inside a set of clear EU principles”

proved to be the right approach. I have to be fair to the Minister and say that the Government appear to be alert to this case of mission creep, because all they will allow in their response is that the Commission’s document is

“a helpful contribution to the ongoing debate”,

while emphasising that the challenges are very different in the UK, the EU and the international community. That is “Yes Minister” speak for “We’ve read your document and we intend to ignore it.” The Minister needs to be more robust, because the history of UK Ministers dealing with mission creep from the Commission is that unless they are very robust and clear in setting out their case, they tend to find that they get overruled in due course.

As the Minister said, the context of these issues is global. The problems that arise from this crisis must be dealt with by the world’s major economies working together in the G7, the G8, the G20 and other institutions. Britain’s focus must be multilateral and international, not merely regional. At least as far as the banking crisis at the heart of the current problems is concerned, London is not just another city within a member state of the European Union. It is a global financial capital in its own right, and on issues of financial regulation, the UK Government must protect the interests of London. Whether we like it or not, in the present circumstances, our private prosperity and the funding of our public services are heavily dependent on the prosperity of the financial markets based in the City of London, and will be for the foreseeable future. Of course, that means an enhanced system of financial regulation to replace the failed regime of 1997, but it must be a system that is designed for the challenges facing London and co-ordinated directly with the Governments of other major financial centres around the world, not one that is intermediated by the EU, the primary purpose of which is, quite properly, the internal regulation of financial services in the European market and not necessarily the promotion of London as Europe’s principal financial centre.

Does the hon. Gentleman share my concern about the Government bailing out banks when we subsequently read reports of the very same banks writing off loans to Russian oligarchs in the region of £2 billion to £3 billion? Does he think that that is a wise use of taxpayers’ money?

None of us likes to read about bank write-offs on that scale, and we all recognise that some very poor professional judgment has been exercised. But I would say to the hon. Gentleman that it was no good the Prime Minister feigning shock and horror yesterday at the fact that British banks have been making loans to Johnny Foreigner. He was happy enough to claim the credit for London’s role as a global banking centre. Well, what does a global banking centre mean if it does not mean the lending of money across borders? He should not have been surprised, and I do not believe that he was surprised to discover that British banks have engaged in extensive international lending.

The UK Government cannot subcontract responsibility for the regulation of Britain’s biggest industry. To take the hon. Gentleman’s point, it is the UK taxpayer, not the EU, who picks up the bill if things go wrong, and the Government need to set out clearly the limits of any EU-based system of financial markets regulation. The Minister cannot afford to assume that the first priority of everybody in the European Union when they wake up in the morning is ensuring the continued dominance of London in the EU’s financial market arrangements.

My hon. Friend makes a very good point. Does he not agree that the problem was that the Government blundered in, making a big cash injection into the Royal Bank of Scotland without any due diligence, audit or professional inquiry, even though there were weeks between the general statement of principle and the final deal? Why on earth did they not do their professional job?

My right hon. Friend is absolutely right. No effective due diligence was exercised, and we have to ensure that, as the Government get involved more deeply with the bank, they conduct an effective independent audit of the quality of the assets they propose to underwrite, so that the insurance they propose to put in place can be properly and fairly priced.

What the hon. Gentleman says suggests to me that he supports the idea of public ownership, and not just that, but a high degree of public control of how banks behave, especially when billions of pounds of public money are going into them.

I do not know which of my comments the hon. Gentleman has interpreted in that way. We had little choice in this situation but to inject public funding into the banks most at risk. The Government cannot allow the UK banking system to fail, which is why the official Opposition supported the action that the Government took in October. It is not something that we were happy about, but it was necessary in the circumstances.

Will the hon. Gentleman give way?

No, I must make a little progress, if the hon. Gentleman will allow me.

The Government’s response needs to spell out more clearly and emphatically where there may be a role for the EU and where the challenges that have to be tackled should be tackled multilaterally by the relevant Governments. Of course, the Government have a competitive claim of their own, which the Minister set out. The claim is that the actions taken by EU members are to the credit of the UK Government—that the UK blazed the trail and the EU followed. The Commission claims that national Governments acted according to

“a set of clear EU principles”,

but the UK response sees it rather as

“action taken by EU Member States, that built upon the measures…that were announced initially by the UK”.

It is a diplomatic version of Punch and Judy.

Before I move on, I want to draw the House’s attention to something buried in the preamble to the first paper. The Commission states:

“The shocks hitting the European economy are expected… to reduce the potential growth rate in the medium term”.

That seems to me like a dose of common sense and realism, but it does not seem to be referred to anywhere in the Government’s response, and as far as I can see, it is not reflected in the UK 2007 pre-Budget report, which assumes recovery of growth to a trend rate of 2.75 per cent. If that trend rate of growth is not recovered, there will be significant implications for the UK economy and the size of the future fiscal deficit. If the Government disagree with the European Commission’s analysis of the likely future trend rates of growth and the impact of the financial crisis on those rates, why does the Government response not address that issue?

I am very much encouraged by the line that my hon. Friend is taking on whether the European Union or the United Kingdom should decide the regulatory framework. Would he therefore be good enough to rule out the idea of the creation of a European unified regulatory response to the credit crunch, and to urge that point of view in the shadow Cabinet, in case anybody else might have a different point of view?

I thank my hon. Friend for his comments. This is an international crisis and it needs to be dealt with in collaboration with Governments around the world, but it is obvious to me that it would be a mistake to have a regional focus on what is an international problem. Of course we need to work with Governments and major financial markets across the world, but we should not be sidetracked on to a regional agenda when an international response is needed.

On the broader issue of the global response, the Commission paper is, again, focused principally on establishing a role for itself. It seeks to identify national, regional and international dimensions to the solutions that will be needed, although most external commentators appear to see national and international dimensions only. In the paper, the Commission makes an unconcealed grab for the power to negotiate on behalf of the EU’s G7 members. It says:

“The fragmented representation of the European countries and of the euro area should…be addressed to increase the EU’s overall effectiveness and influence.”

Once again, I say to the Minister that the Government need to be clear on their view—they are not clear about it in their response—on the appropriate extent of any EU involvement in what is essentially a multilateral process between the world’s major economies.

I want to turn to the section of the first paper dealing with the impact on the real economy and with the Commission’s recovery plan—the most important part of the package. It identifies financial markets, instability and lack of credit as the root of the problem and urges, as we have done, monetary action, a cut in interest rates and support for lending. It then proposes two key further areas of action. One is what it calls priority short-term action grounded in the Lisbon strategy, designed to help alleviate the effects of the recession in a way that contributes to the long-term, supply-side improvements that the Lisbon process identified as necessary for the competitiveness of the European economies. That is exactly the approach that we have urged in our double test for interventions by the Government in a recession; such interventions must help families and businesses that are struggling in the short term, but must do so in a way that strengthens, rather than weakens, our economy for the recovery to come.

Has my hon. Friend detected any recognition in the Commission’s papers of the cost to the real economy of the continuing flow and volume of job-destroying regulations? Is he aware that, specifically, the passenger emissions regulations recently agreed show, according to the Government’s cost-benefit analysis, that the cost outweighed the benefit, even after taking into account the supposed environmental benefit? Will he commit himself to examining that burden of cost, which undermines our competitiveness, and that of Europe, in the middle of a global recession?

My right hon. Friend anticipates what I was about to say. There is no recognition of the conflict with the principles and objectives of the Lisbon agenda that arises from the flow of damaging regulation. The Government’s response broadly consists of agreeing, as they have done before, with the objectives of the Lisbon agenda, but they need to focus on the problem of the continuing flow of regulatory burdens. The British Chambers of Commerce estimates that 70 per cent. of the cost burden imposed on business since 1998 flows from European Union regulations. If the Lisbon agenda is to be effective, the European Union has to address that issue.

I want to focus on the second part of the package, which is described in the Commission’s paper as

“a major injection of purchasing power,”

equivalent to 1.5 per cent. of GDP. Of course, as the Minister said, that is overwhelmingly a commitment to exhort the member states, not direct Community spend. The Government have seized on that part of the EU proposal to seek to justify their fiscal stimulus package, and the VAT cut in particular, which is now widely perceived to have failed. There is a legitimate debate about—[Interruption.] The measure is widely perceived to have failed, but if the Minister wants to take issue with me on that, I am sure that I can dig out numerous quotations.

Has the hon. Gentleman seen today’s inflation figures, which show a sharp and welcome fall in inflation, reflecting in large part, as the Office for National Statistics has said, the effectiveness of the VAT cut, as it is passed through to consumer prices?

I am not sure that the consensus of economic opinion sees the rapid collapse in inflation as an entirely a good thing. We are heading rapidly into deflationary territory, with growth in the retail prices index below 1 per cent. and falling at the fastest rate since the early 1980s. The Minister is far too smart and well informed to think that that is entirely good news. It is good news if the increase in prices is moderating substantially, but having lower prices in the shops does not help people who do not have a job or any earnings with which to purchase things. I can see that the Minister is a “glass half full” man who sees joyous news in this morning’s inflation figures, but I am afraid that many people will see in them yet another measure of the calamitous collapse of demand in the economy and warnings of the problems to come, particularly in employment.

There is a legitimate debate to be had about the role of fiscal policy in rescuing economies from recession and about the behaviour of households and the extent to which it is Ricardian, as the economists would describe it. A lively debate is taking place in the academic literature, with analysis of the experience of previous recessions. That debate has been contributed to by, among others, Professor Christina Romer, the chair of Barack Obama’s council of economic advisers, who identified monetary developments as largely responsible for the recovery in the US after the great depression and fiscal developments as contributing “almost nothing” before 1942, when the gearing up of wartime production provided a demand stimulus. Professor John Taylor of Stanford university, another former member of the council of economic advisers, concluded that effective fiscal policy should be limited to allowing the “automatic stabilisers” to operate freely and appropriately.

It is not my purpose today to rehearse the academic debate. It is sufficient to note that a debate is taking place. Each Government around the world and in the EU will draw their own conclusions, based on their history and experience, about the desirability and effectiveness of using a fiscal stimulus, and we have seen that debate taking place particularly emotively in Germany. However, the Commission’s papers, despite the Government’s attempts to spin them in a different way, do not support the fiscal action that the Government have taken, as the Prime Minister claimed that they do. In December, he said that

“the debate about the use of fiscal policy to stimulate our economy and to give direct support for families and businesses in Europe is resolved. Europe favours substantial fiscal stimulus alongside cuts in interest rates…This European set of announcements is the answer to those who…believe that fiscal policy has no role to play.”—[Official Report, 15 December 2008; Vol. 485, c. 813.]

The European Commission’s papers, however, make it very clear that fiscal action must be constrained by the growth and stability pact. Page 7 of the recovery plan states that

“the budgetary stimulus should take account of the starting position of each Member State. It is clear that not all Member States are in the same position. Those that took advantage of the good times to achieve more sustainable public finance positions and improve their competitiveness have more room for manoeuvre now. For those Member States, in particular outside the Euro area, which are facing significant external and internal imbalances, budgetary policy should essentially aim at correcting such imbalances.”

There could not be a more explicit reference to the UK without specifically naming it.

The truth is that Britain simply does not have the fiscal room for a stimulus package. We entered the credit crunch with the biggest budget deficit of any major economy. In March 2008, the Government had to concede that, for the seventh year running, the outlook for the public finances was weaker than had previously been forecast. According to the Institute for Fiscal Studies, 16 of 21 comparable industrial nations have reduced their debts and 19 have reduced their structural budget deficits by more than the UK since this Government have been in office. The World Economic Forum has stated that Britain’s

“greatest weakness”—

stems from our—

“growing public sector deficit”.

The stark fact is that, as this Government increase our debt to 57 per cent. of gross domestic product and to more than £1 trillion in just three years’ time, every child born in Britain today is born with £17,000 of debt around its neck.

The Commission also notes the need for credible medium-term budgetary frameworks, and the Government’s response relies on the claim that fiscal policy has been set on the basis of delivering a balanced, cyclically adjusted current budget and a declining debt-to-GDP ratio once the recession is over. That was the claim of the Minister’s colleagues, but I put it to him that he and his colleagues have no credibility when they make such statements. Their Government ran a structural budget deficit through seven years of continuous economic growth, and in each of those years, they predicted a return to balance in two or three years’ time. Every year, however, that prediction was postponed by another year. The return to balance was the “jam tomorrow” that never came.

The Commission’s paper argues, as the Minister has said, that the growth and stability pact should be implemented with “flexibility” during the recession, and that corrective action would be required during the recovery. The Government have latched on to that, saying that they agree with the Commission that excessive deficits need to be corrected over time frames consistent with the recovery of the economy. The Minister cited that statement, but the EU is referring to excessive deficits that arise as a result of tackling the economic crisis, not to excessive deficits that are already in breach of the growth and stability pact limit and that were being run before we even went into recession. Those deficits were earning rebukes from the European Union before the economy had even turned down. That was the situation that the United Kingdom found itself in. The Commission’s prescription for those with structural deficits before the recession is very clear, and I have already spelled it out. It is that fiscal policy should essentially aim at correcting such imbalances.

The Government are wrong to interpret these documents as any kind of green light for their unaffordable fiscal actions, which only add to the mountain of debt, hamper the recovery and burden future generations. On the contrary, the warnings to the UK in the Commission’s paper could not be clearer, and the UK Government’s response is disingenuous in the extreme in trying to interpret it otherwise.

On the global response to the financial crisis, the Commission is empire building and the UK Government are right to rebuff it, but need to do so more forcefully. On Lisbon and supply-side reforms, the Commission is merely cataloguing the failure to deliver on the agenda agreed many years ago to make Europe the most competitive knowledge-based economy by 2010—an objective that now looks rather a long way from being achieved. The UK Government response merely endorses that agenda once again, rather than identify the reasons why it has not been delivered.

On the financial markets architecture at EU level, the Government need to dig in and ensure that they will determine the regulatory regime governing Britain’s biggest industry and that they negotiate globally on cross-border supervision and information-sharing arrangements that can be done effectively only at a global not a regional level. I do not necessarily regard it my purpose to endorse what the Government do in this area, but I have to say that, for the good of my country and the prosperity of my constituents, I would rather have even this Government negotiating on those matters than the European Commission whose interests are diverse, diffuse and not necessarily focused on the best interests of the UK.

Finally, on the fiscal stimulus, countries that are in a position prudently to increase their deficits must make their own decisions about the case for active demand management and the risks attached to it, but the UK clearly does not have the scope to deliver such a stimulus without damaging medium-term fiscal stability. The Commission, to its credit, makes that very clear, and the Government have failed to respond to the warning, simply pretending that the Commission document says something different and claiming that the EU has provided cover for the Government’s politically motivated actions when it patently has not.

We cannot endorse this flawed approach, so I urge my right hon. and hon. Friends to vote against the motion.

I am always amazed at the Conservatives and how they view the world in which they live. They appear not to realise that there is a wolf at the door, but are much happier talking about a bogey man in the cupboard. In reality, we are facing an international collapse in financial credibility and the banking system, so we should be endorsing what the European Union, of which we are a part in terms of policy and decision making, is doing because it is, in fact, copying a strategy designed by this Prime Minister and this Government. That is the reality of it. Every other President, Prime Minister or leader will try to say that they have put in their bit, but the reality is that it was a headless organisation until we put the plan forward that was endorsed.

We have debated this issue before in a European debate: both the framework document and the action plan were debated in early December, just before they went to the European Council on 11 and 12 December and were endorsed by the European Union. I am on the record in that debate, speaking about what I hoped would be endorsed—

rose—

rose—

I am not giving way so early in my speech.

The UK acting alone would, quite frankly, not be able to deal with the blows coming from the banking credit implosion—that is what it is throughout the world. I do not use pejorative terms such as “Johnny Foreigner”; I understand the banking system and its international nature. Decisions were taken by some of our so-called great banks—those are the ones that made the greatest errors—so we have the Royal Bank of Scotland with£2 trillion of debt, based on very dubious assets. I studied economics and know what my economics professor would have thought. The Conservative Government took away the rules and we then further loosened them, and he would have been horrified at the leverage on such worthless assets as mortgage debt bundles. This needs to be dealt with on a big scale, and I believe the EU is the best mechanism for doing that.

I thoroughly endorse the Government’s approach. I would have preferred it if they had not only “noted” the documents, but actually agreed with them as well. I often wonder whether people ever take the trouble to read the documents that our European Scrutiny Committee endeavours to read from cover to cover. I shall refer to some that have not been referred to in any detail today. They may not have been read yet, as they were put before our Committee only at its most recent meeting, on 12 January.

I welcome the increasing flexibility that—notwithstanding the picture painted by Opposition Front Benchers—is a feature of communications from the European Union on how the crisis should be dealt with. The early papers that were before the Committee in December on the framework document and the document on recovery from the financial crisis were a little rigid and cautious. The very good officers of the House who advised the Committee, for example, said:

“At first blush, some of this”—

that is, the proposal on reinforcing competitiveness—

“seems to include acceleration or resurrection of pre-existing Commission ambitions, for example revision of the European Globalisation Adjustment Fund rules or stepping up investment in Trans-European Networks.”

However, the situation has moved on quite a bit since then. I think that Opposition Front Benchers should note the frameworks and endorse them, and also note later documents showing both the Government’s willingness to be flexible and—again, contrary to the picture painted by the Opposition—to resist policies of which they were not yet convinced. I shall give examples of that later.

Why does the hon. Gentleman consider this to be a global banking crisis, given that China, India and Japan—countries with colossal economies—have experienced nothing like the problems that the United Kingdom has experienced with the Royal Bank of Scotland?

One of our problems is that we became fully involved in a way that I would roundly criticise, without exercising proper caution. There are questions to be asked about the regulatory framework, but we are not here to debate that. I have said the same in statements that I have made both publicly and in the House. The problem began with an attitude towards the banking system that originated with the Conservatives and, sadly, continued under our Government.

I am willing to speak at any time about the Financial Services Authority and the failings in regard to policies on regulatory reform, but that is not the context in which this debate is taking place. We are experiencing a crisis, and we have seen the collapse of the banking system. It has been an international rather than a national development, affecting economies at different levels, but the socialist-leaning economies of the Scandinavian countries seem to be more immune than others.

The hon. Gentleman mentioned a plan earlier, but the plan that we are currently following is not new. It did not appear in 2008 or 2009; it stems from the problems affecting Sweden in 1992 and 1993. An important part of the Swedish recovery was the setting up of “toxic banks” to take on the toxic assets of other banks, which in the final analysis left the Swedish economy with a total cost of between 1 and 3 per cent. of GDP—less than has already been committed by the United Kingdom Government.

As a socialist in the Labour party, I am attracted to the idea of the Swedish model, and if we were to adopt all the other facets of the economy of Sweden—or other Scandinavian countries—I would not mind including the little bit that the hon. Gentleman has just endorsed. However, that is not what we are discussing now, and the Labour agenda does not appear to contain the sweeping changes that would probably be on the agenda of anyone who wished to see a Swedish-style economy in Britain.

Let us return to the topic of today. I believe that in its first flush the recovery plan was correct, and the framework was correct. It was, without doubt, driven by the Government’s ideas and responses, and it is right for us to endorse the Government’s support for it. We debated this matter in December, although not all the Opposition Members who are present today may have been present then. However, there are five documents tagged to this debate, which I consider very important because they show how the situation is developing. We considered some of them back on 24 November.

Document 4938/08 concerns the response to the final crisis. It refers to the new financial architecture and dealing with the impact on the real economy. The aim was to develop the framework subsequently. The document that was tagged at the same time and could have been read with the same bundle referred to increasing the facility for medium-term balance of payments support for member states. One of the first things that happened was that Hungary found that the facility under EU structures was not capable of alleviating its balance of payments problems. In the old days, before the EU and the resulting co-operation, one country would have done down another, damaging its economic ability. I remember that happening under the Conservatives, and I remember very well similar attacks on the currency when I was a young member of the Labour party under the Wilson Government. However, the EU acted responsibly, and extended support for the Hungarian economy and any other economy facing balance of payments problems.

It is great that we are not now throwing other countries to the dogs to our advantage. We are not short-selling those countries. Sadly, the Government ignored their rule on short selling, and Barclays has been short sold in the past few days. We should never have removed that short selling restriction; we should have left it.

The hon. Gentleman’s speech is well constructed, but if everything is hunky-dory and we are working together as one big, happy family and no country has been singled out, why has our currency collapsed?

It is not collapsing because of attacks on our currency. It is falling because of interest rate and borrowing policies. It is falling because of a natural market pattern, not because of an attack by one economy on another, which is what used to happen. Economies would deliberately do down other currencies, but that is not what is happening now. I agree that being outside the euro at the moment is an advantage for our competitiveness, and I am pleased that we are outside it. I would have urged us to go in earlier, but I am willing to recant on that, because our flexibility at this time and in this situation is wonderful.

The European Union will have to show great flexibility with the Irish situation, or Ireland may not be able to sustain its membership of the euro. European document 14306/08, which we also considered on 24 November, changed the interpretation of state aid rules in exceptional circumstances of financial crisis. It is important to realise that state aid policies would have choked off any attempt to deal with the problem of the real economy or support for the financial sector.

Another two documents were tagged, and the Committee considered them only last week, on 12 January. The first gave the context for state rules in guidance on the recapitalisation of banks. It is important to consider that, and I shall quote some of the stated aims of that policy, because there is flexibility in that context. Its purpose is

“contributing to the restoration of financial stability; helping ensure lending to the real economy; and avoiding systemic effects from insolvency of a financial institution.”

That is underpinned by good, sound rules. It continues:

“Member states’ own banks should not obtain an undue competitive advantage over banks in other Member States.”

The policy is about flexibility. Not everyone is happy and everything is not hunky-dory, or whatever the hon. Member for Wellingborough (Mr. Bone) said, but there are signs of willingness to try to create a co-operative approach throughout the EU. We would not have had that without the EU, and I commend the Conservative Government who took us into the European Union. I voted yes then, and I would vote yes again.

The document also states that

“state recapitalisation should not distort the domestic market, banks that seek additional capital in the market should not be put in a significantly less competitive position due to state recapitalisations.”

That guidance and those rules, which the EU has agreed, are important. Whether the Commission, Britain, the French or the Germans came up with them does not bother me, nor does it bother my constituents who write to me asking why they cannot obtain credit, and why their bank is taking away the credit that they require for their cash flow to enable them to buy the goods required to manufacture the products to sell to their customers. I have written to the chief executives of the banks of those which have written to me because the banks have to realise that they must show co-operation and flexibility, and the ability exists for them to do that. I hope that we will commend the Government for their endeavours.

I repeat that Opposition Front Benchers appear to want to ignore the wolf at the door to talk about the bogey man in the cupboard. It is time they focused on the real problem. The Commission is not some sort of animal that is out of control. We have control of the Council and I hope that, after the Lisbon treaty, we will have control in the Parliament of dual mandate, which is important and will democratise the process. If we are not willing to engage in that and simply want to call names across the water, we become increasingly ridiculous, but—thank goodness—the Government are not doing that, as the motion shows.

The final document that is tagged to the debate is 17606/1/08, which we considered last week, to amend the 2007 to 2013 financial framework. The intention was to change it in such a way that we moved, for example, €5 billion to trans-European energy connections from the defence of natural resources, and thus try to put the money into the real economy. The idea is worth considering. The Government are not currently convinced about it, and the Committee has not cleared the document because we believe that further dialogue is needed with the Government. However, that shows that the Government are not simply jumping in lock, stock and barrel and accepting every proposal that comes out of the Commission. They want to examine it in detail and see how it will affect our economy and our companies. The right framework and the right plan are being pursued, and they should be endorsed.

While the hon. Gentleman is on the subject of the budgetary framework, has he considered the impact on UK demand and the UK fiscal position of the much higher price that our contributions to the Union will cost the UK Government as a result of the depreciation of sterling against the euro?

I am very conscious of that. I have a fairly good degree in economics and I am conscious that that will be a problem for those who pay in sterling and have commitments that they cannot escape because the value of sterling has fallen. We are in that market situation because of the major trauma throughout the system. I believe that it could have been avoided if we had not been so growth conscious, growth hungry and, frankly, greedy. I say “greedy” because, in many respects, we pursued the same philosophy as the previous Conservative Government—that was the problem. We told people that they could have everything, that they did not need to worry about the future and that they could just borrow and buy. Now it is coming home to roost. It frightens people and may destroy lives for a long time. I am not happy about that. I have a much more rational and probably less profligate view of the way the economy should grow than that which has been pursued for the past 25 years. My constituents regret what may come down the line in the next year. However, we are considering an international economic framework and financial plan, which has increasing flexibility.

There may be more flexibility and more debate with our Government about the detail, but the House should endorse the Government’s actions in supporting the framework and the plan, and I hope that hon. Members will vote for it if it is pushed to a Division later.

There are occasions, albeit less frequent than in the past, when the Chamber feels like the centre of the political world. Today may not be one of those occasions, but we are holding an important debate, and I regret that more time has not been allocated for our discussions.

Following the comments of the hon. Member for Linlithgow and East Falkirk (Michael Connarty), I emphasise that the Liberal Democrats believe that the European Union has a role in addressing the financial crisis. The contamination of the banking sector and the deficits faced by Governments in advanced economies are international phenomena, and the Government are right to work in the G20 with the Administration that will take over 21 minutes from now in the United States.

Of course, four of the seven members of the G7 are EU member states. Therefore, we have within the parameters of the European Union clear scope to try to work to our mutual benefit by addressing some of these common problems. The EU is, of course, also our biggest trading partner, and the United Kingdom is part of the single market and is, therefore, to an extent influenced by decisions taken within the overall European Union that impact on businesses and individuals in this country. The EU also has a greater critical mass than the UK. That is a particularly pertinent issue with regard to the banking sector.

The Conservative spokesman and others have raised the primacy of London within Europe in banking and the financial sector, and I greatly welcome that, but London is now such an international centre, and the scale of the investment—and, in many cases, the debt—held by institutions based in the UK, and often in London, is so vast, that in some cases it threatens to dwarf the ability of the UK Government to deal with, and, if need be, save such institutions. RBS, for example, is now 70 per cent. owned by the UK Government, and if what we read is true, its liabilities are about double the size of the total British economy. If we took on its liabilities and they were put on the overall public balance sheet, we would instantly go from being a country with growing levels of public debt—but levels nevertheless comparable to those of many other leading economies—to a country with much higher levels of public debt. The accountancy might not be done in that way, but the scale of such financial institutions in comparison with the scale of the British state and economy has changed markedly in the last decade, and that has a bearing on how governmental institutions have to regard the current situation. The scale is now completely different from Northern Rock and Bradford & Bingley; now, a few months on, the discussions we were having on them in this Chamber seem quite innocent. When we discuss RBS and Barclays, we are talking about big international institutions.

What conclusions can we draw from reading the documents put before us and from the debate we are having here in the UK? The first is that the bankers themselves have behaved without honour or shame, and many people would like to see greater contrition from them. Secondly, the UK banking sector, and the regulation of it, has been a failure, and the UK Government need to learn the lessons of that failure of regulation. However, we also need to look at the scope for wider European union and for global regulation. There is a balance to be struck, of course, but when institutions operate around the world and do not recognise national borders, there needs to be some regulatory recognition of that reality.

The Government need to know the liabilities that we—the taxpayers—are covering. I echo the sentiments that have been expressed, in this debate and elsewhere, that this is a difficult moment for our Prime Minister. We have got used to his lecturing other EU member states on how he brought an end to boom and bust and how they should follow our example in the UK, but we now find ourselves in a rather more humble position, because although the EU may not be driving growth on a global scale, it is certainly not looking sickly in comparison with the UK.

The EU’s framework for action deals with the real economy, and that is the correct focus. There is a need for a fiscal stimulus across the EU to encourage consumer demand, and I do not share the Conservative party view that we should be seeking to choke back consumer demand at this point. Nor do I share—this follows on from the observations made by the previous speaker—the Conservative party’s paranoia with regard to the European Union. The shadow Cabinet is split on the Lisbon treaty, on membership of the euro and even on whether the British Government should be temporarily cutting the rate of VAT.

The Conservatives have not given us a clear answer. They may not like the Government’s policy on interest rates, but what do they think interest rates ought to be? The Conservative party is keen on telling savers that interest rates have been cut too low, but I understand that, having rescinded its initial stance of not having any views on interest rates, it now completely supports interest rates of 1.5 per cent.—a tenth of what they were under the previous Conservative Government. What does the Conservative party wish the deficit to be? It says that the deficit is far too high, but the party could give us a percentage indication. The previous Conservative Government ran a public annual deficit of 8 per cent. in the early 1990s. Is that roughly what the Conservative party has in mind at the moment, or is that figure too high or too low?

I can understand why the right hon. and learned Member for Rushcliffe (Mr. Clarke) has been brought back to mentor the Conservative shadow Chancellor. All I can say is that if the right hon. and learned Gentleman is offering a similar service to the Liberal Democrat shadow Chancellor, the answer will be, “Thanks, but no thanks,” because he does not need his hand holding in the same way. Does the hon. Member for Runnymede and Weybridge (Mr. Hammond) wish to intervene?

After that rant and tirade I wonder whether it is worth the effort, but the hon. Gentleman did ask a question. The Opposition’s position is clearly that interest rate decisions are for the Monetary Policy Committee. If he were to look at the motion that we have tabled for tomorrow’s debate, he would see that we acknowledge that the reason why interest rates have fallen is perfectly understandable, as are the decisions of the MPC. We have sought to address the problems facing savers through the tax system—if he is able to turn up tomorrow afternoon, he will hear a little more detail.

I shall be in the Chamber tomorrow, because I diligently attend debates in this House. The Conservative party is very much giving the impression of being a group of politicians seeking to make this up as they go along—perhaps we will have some coherence from them tomorrow. Their instinctive hostility towards the European Union, as put forward by the hon. Member for Stone (Mr. Cash), the right hon. Member for Wells (Mr. Heathcoat-Amory) and others this afternoon, is not advantageous to the UK’s position.

The EU’s economic recovery plan offers some useful pointers to the way forward. One of those is the fiscal stimulus, which has been mentioned by the Minister and others. If it is co-ordinated, it will have added effect. The economies of Europe are interdependent to some degree, so there is scope for co-ordinating not only a fiscal stimulus but interest rate policy where that is applicable and likely to be effective. The immediate aspiration is to boost demand in a way that is advantageous to businesses across Europe. It is right to support viable businesses, including through measures such as aiming to speed up the payment of invoices.

I am very cautious about going down the path of propping up businesses that are simply not able to manufacture a product or supply a service for which there is sufficient consumer demand to make those businesses viable. The United States, for example, needs to be extremely cautious about going down this path to any great degree. There are other businesses that are essentially viable but have short-term cash-flow problems, and it is valid to give them the short-term assistance that they need to get over those pressures.

The hon. Gentleman has made a point about US policy on specific industries—I assume it was an allusion to the car industry, in which I know the hon. Member for Luton, North (Kelvin Hopkins) has an interest—so can he tell us what Lib Dem policy is on support for the UK motor industry?

I am genuinely fascinated by what the hon. Gentleman infers. I have never been outflanked so far to the left in any debate in which I have spoken in the House. My position on the car industry is that companies that make cars that people want to buy should flourish, and that companies that make cars that people do not want to buy are unlikely to be successful. I am absolutely gobsmacked if the Conservative party’s view is that the taxpayer, rather than funding improved schools and hospitals, should support companies that make cars that consumers do not want to buy.

Sadly, the hon. Gentleman is talking nonsense. There is a collapse in demand at the moment, and that is why the car industry cannot sell its cars—it is not because people do not want cars. As and when we recover, one hopes that people will start to buy cars again. If we allow the car industry to disappear in the meantime, it will not be able to produce those cars.

This is a widening of the debate, but the three big car-making companies based in Michigan in the USA have problems that go beyond this immediate economic cycle. Asian car manufacturers have located themselves in states of the USA, mainly in the south. They are producing cars within the domestic American market, and so not necessarily with cheaper labour costs, although they have probably negotiated better terms with their employees. They are producing cars at a cheaper price that more Americans wish to buy. I am afraid that the big three American car manufacturers have become bloated and complacent.

If we are to learn something from the 1970s, it should be that it is not in the longer-term interests of the economy for the state to continue to support businesses that are not competitive. I am making the distinction between that and the provision of short-term cash-flow support for companies that are essentially viable but find themselves in short-term difficulties. It may sometimes be difficult to distinguish between the two, but it is not that hard in the case of the American car companies. They have problems that, in retrospect, may have been evident for a number of years.

The third matter identified in the economic recovery plan is infrastructure development, with crucial investment to be brought forward. That is important in this country, where for example the house building sector has dried up, but also right across the European Union.

The fourth matter is innovation, and what many of us call a “green new deal”. That is a matter on which the EU has provided genuine leadership in the global debate, and the high level of environmental consciousness in the EU and among its citizens means that there is scope for it to continue to lead on energy efficiency and greener transport, for instance by producing cars with lower carbon dioxide emissions. The American car-making market has not been sufficiently mindful of that, which is yet another example of the big manufacturers there being behind the curve and not anticipating changes to consumer demand. The EU can and should take the lead on such matters.

Yesterday, the Commission announced that only Iceland and the Baltic states will suffer a worse recession than the UK. Our economy is anticipated to shrink by 2.8 per cent., unemployment is set to rise towards 3 million in 2009, and the banks are awash with hidden toxic debts that the taxpayer is now having to fund. The Government’s own borrowing estimates are constantly being revised upwards, and I ask the Minister whether he or the Chancellor really believe that the UK economy will start to grow again this July. Does anyone in the House or in the country believe that any longer?

We must offer some hope and some optimism that Britain and Europe as a whole will emerge from this crisis, that we will learn the lessons about greed in the banks, which the hon. Member for Linlithgow and East Falkirk mentioned, and about inadequate regulation, and that we can build a better, greener, fairer and more decent society. I believe that that will be the case once we have got through the very difficult months and possibly years ahead.

There is not much time left, so I shall try to be brief. I welcome this opportunity to debate the economic crisis and an EU response to it. We are seeing a series of national responses with some more words about co-ordination and solidarity, with the EU limping along behind and coming up with its own strategy. In reality, it is the national strategies that are being undertaken.

It is right that other countries are starting to imitate what Britain has done. We have yet to see whether it will be enough or whether it will work, but at least we have taken some strong action. Germany has now followed suit, although it was initially critical. It is beyond the EU’s ability to cope with the crisis, because its whole economic philosophy is inherently deflationist and the opposite of what is required, which is reflation.

The documents that we are considering show some interesting contrasts. The EU is still trying feebly to promote its neo-liberal clap-trap—the very policies on liberalisation, supply-side monetary constraints and so on that have led the world to crisis. The UK Government’s response is more realistic and pragmatic and differs significantly in tone from the documents. I am pleased about that. I agreed entirely with the Conservative spokesman when he said that the British Government were a better judge than the European Union of what is best for the British economy.

Even the EU documents have changed their tone between October and November. By November, the supply-side words were still there—the usual nonsense—but the recovery plan had started to talk about swiftly stimulating demand, words that possibly have not featured in EU documents ever before. They perhaps recall the words of Keynes, who saw his way to creating an economic system that worked after the second world war.

Co-ordinated reflation was one of the slogans of those who, like me, long supported the alternative economic strategy, as it was called. Co-ordinated reflation is what we need now, but we will not get it if countries cannot indulge to an extent in some defence of their economies. If they are simply going to reflate and suck in imports, they will not benefit their economies. Some degree of protectionism, I think, will happen. It is already happening in America.

The word “protectionism” has been used as a hostile epithet for the common economic policies that I have supported in the past, but if one looks back to the 1930s, one sees that the depression was caused by deflationist policies, particularly in France and Germany. The hon. Member for Louth and Horncastle (Sir Peter Tapsell) has mentioned that in recent debates, and he is absolutely spot on. When countries reflated behind tariff barriers, it helped them to recover. That was particularly true of Britain. Another way of protecting one’s economy, of course, is to depreciate one’s currency. We came off the gold standard in 1931, and that helped us to stimulate the economy.

There is also the question of fiscal stimulus. It might be that in the 1930s America did not benefit quite so much from fiscal stimulation, but Britain certainly did. Let us consider Nazi Germany—I would not imitate everything that it did, but it built like there was no tomorrow. It built a massive arms industry and motorways and put all its people back to work. That was not done by monetary measures but by fiscal stimuli and public spending. The economics, if not the politics, were certainly right. I would have built hospitals rather than arms, but it did the right thing.

In the EU, a number of countries are going to suffer badly because they are in the eurozone. Ireland is a particular example. In contrast to what the Liberal Democrat spokesman said, a report in The Independent today suggests that Ireland will suffer most, with a 5 per cent. contraction, followed by Germany, interestingly. Germany has always been lauded as the great success in the past, but it is also a mirror image of us. We are a country with a balance of trade deficit, but the Germans have had a balance of trade surplus. That surplus is in serious danger because of declining demand in the international market. The Germans will have a serious problem. Keynes was absolutely right to say that big surpluses and big deficits were wrong and that countries should be able to appreciate or depreciate their currencies to deal with them. If we want stability in the world economy, we have to allow countries to adjust their economies. Indeed, we must encourage them to adjust their economies to ensure that they do not get strongly out of line, as Germany is in one direction and we are in the other.

Spain has got problems, and how is Italy going to recover without withdrawing from the euro and devaluing? I think that Italy has to think seriously about its membership of the eurozone. There have been civil disturbances already in Greece, but I think that Germany has a very serious problem. I hope that the Germans are sufficiently intelligent to deal with it; I worry about disturbances in any country, but disturbances in Germany would be more worrying than most.

This has been a very brief debate and I am running out of time, but I suggest that we must think seriously about reconstructing the Keynesian world that we had between 1945 and 1970. It was regulated and stable, and it grew rapidly, with living standards rising faster than at any other time in our history. We must seriously consider reconstructing the world economy on that basis.

On a day like this, with Barack Obama about to make his inaugural speech as we engage in this debate, we must bear in mind the scale of the problem that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) identified clearly. In the context of this financial crisis, do we want more Europe, or less? I believe that the US wants us to have more Europe, and I have disagreed with that view—and with prominent members of my party on it—for a very long time.

My hon. Friend the Member for Runnymede and Weybridge was right to argue in the context of the City, for example, that it was essential for us to have our own rule-based system. I accept that we might need to share information and attempt to co-operate with EU member states and other countries around the world, but there is a difference between doing that and subjecting ourselves to the rigidities of a legal framework that is not in the interests of our economy or the City of London.

I turn now to the economic recovery plan. As the hon. Member for Luton, North (Kelvin Hopkins) noted, Europe as a whole is in recession at the moment. There is negative growth in Britain and in Ireland, which is in desperate straits, while Spain, France, Italy and Germany all face serious economic problems. For three decades and more, promises have been made about where the European economy would go as a result of the EU’s plans. I remember reading the Cecchini report in the 1980s, which set out all the promises and forecasts about how the euro would operate. All of them have been shattered; as I said in an intervention earlier, it is like witnessing the carnage of the Somme to see rules laid down as the paragons of virtue for Europe’s economy lying shattered in the dreadful crisis that we are debating today.

In fairness to the Minister, he said that there were differences between the UK and other countries. We know that Germany is deeply worried about how Nicolas Sarkozy, for example, is trying to push for more integration. He is doing that, of course, because France is so dependent on Germany, but the Germans themselves have a real problem.

The documents talk about the need to continue with the stability and growth pact. I remember arguing with my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in November 1996 when, in a previous incarnation as Chancellor of the Exchequer, he advocated the pact. Now it is in pieces, and my right hon. Friend the Member for Wokingham (Mr. Redwood) was right to say that its rules have been stretched to a point that renders them completely untenable. The Treasury has admitted that the United Kingdom’s GDP deficit could well be 8 per cent., a figure which I know the Minister will confirm. On the figures that I suggested on 7 October in the fiscal rules debate and since, I would say unequivocally that the figure of £1 trillion is nonsense and that in fact the figure is much nearer £2 trillion and possibly £2.5 trillion.

If we take into account genuine financial obligations including public sector pensions and so on, we see that the figures are truly horrendous. I therefore strongly urge that we note the fact that the state aid rules are being stretched and that a change in the over-regulation inflicted on our businesses can be achieved only by applying the rule of the supremacy of Parliament, an amendment on which the Conservative party supported me during the passage of the Legislative and Regulatory Reform Bill, both in the Commons and the Lords. That requires the judiciary to endorse the decisions taken in this House and not at the European level, otherwise we will not get the repeal necessary to reduce the burdens on British business.

The Lisbon agenda does not work either, as Will Hutton indicated when he was a rapporteur in respect of the agenda. On every scale and on every item included in the economic recovery plan, there is no doubt that either the rules have been broken or the established policy does not work, all of which the Minister implicitly admitted by showing that we, like other countries, were having to go down different routes. Because the—

I ask the Serjeant at Arms to investigate the delay in the No Lobby.

Before I call the Economic Secretary, may I say that as the Front Benchers took 63 minutes out of the 90 on the previous motion, I hope that there will be a little more awareness of the number of Back Benchers wishing to take part in this debate? I shall try to vary the cast to some extent.

I beg to move,

That this House takes note of an unnumbered Explanatory Memorandum from HM Treasury dated 4 December 2008, European Court of Auditors 2007 Annual Report, an unnumbered Explanatory Memorandum from the Department for International Development dated 8 January 2009, European Court of Auditors Annual Report on the activities funded by the seventh, eighth and ninth European Development Funds, European Union Documents No. 12156/08 and Addenda 1 and 2: Protection of the financial interests of the Communities: Fight against fraud, No. 12471/08 and Addendum 1: Annual report to the discharge authority on internal audits carried out in 2007, and No. 12472/08: Report on the progress at 31 March 2008 on the modernisation of the accounting system, an unnumbered Explanatory Memorandum from HM Treasury dated 16 October 2008, European Anti-Fraud Office: eighth activity report for the period 1 January to 31 December 2007, and European Union Documents No. 14480/08 and Addendum 1: Commission Report to the Council on the follow-up to 2006 Discharge Decisions (Summary)—Council recommendations, and No. 14481/08 and Addendum 1: Commission Report to the European Parliament on the follow-up to 2006 Discharge Decisions (Summary)—European Parliament Resolutions; and supports the Government’s promotion of measures to improve the level of assurance given on the Community budget.

I am pleased that we are able to have this debate on EU financial management issues on the Floor of this Chamber for the first time in three years. I appreciate that there are other attractions taking place at the moment, most noticeably the inaugural address of the 44th President of the United States, but Parliament rightly attaches great importance to the protection of the financial interests of EU taxpayers. Even though this debate might be relatively sparsely attended, I am sure that there will be other opportunities to address some of the issues that have been talked about today.

The Economic Secretary has started generously, and that is characteristic, but what value can we put on any of these documents, and what confidence can we have in them, when the EU is totally unable to get its accounts audited? The reasons for the lack of audit are not minor errors, but major deficits and major spending errors in each of the main heads. What confidence can we have in any of this? Is it not just nonsense?

It is not nonsense; it is an important part of the scrutiny process. The hon. Gentleman got to the nub of the question, and in a few moments I will address directly the issues that he raised

This is a timely debate, because on 10 February, European Finance Ministers will meet at ECOFIN to make their recommendations to the European Parliament on the discharge of the 2007 budget. I look forward to hearing hon. Members’ views today; I am sure that they will be useful in helping to shape the UK’s position in the run-up to those Council discussions.

Regrettably, today we are faced with the inability of the European Court of Auditors to give a positive statement of assurance on the EU’s accounts for the 14th consecutive year. I want to be clear from the outset that the Government consider the situation entirely unacceptable. It is simply not good enough that the majority of the EU budget suffers from a material level of error; errors affect more than 2 per cent. of expenditure in most policy areas. On expenditure on the structural and cohesion funds, the court estimated error of 11 per cent., or approximately £4 billion. That is a particular concern, as is the Court’s opinion that the member states’ and the Commission’s supervisory systems are only partially effective in ensuring the legality and regularity of transactions in that significant area of EU budget expenditure.

It is disappointing that the Court was unable to give a positive opinion on agricultural expenditure; last year, it anticipated that it would be able to do so. In that area, it estimates that the material level of error still lies between 2 and 5 per cent., which is between €1 billion and €2.7 billion. European Union taxpayers deserve better.

It really is not good enough for the Minister to say, “It’s not good enough of the European Union.” Surely the problem is that each year the accounts are not signed off, but the following year the UK Government give even more money to the European Union. In what other case would the Treasury agree to give ever more money each year to an organisation that had not had its accounts signed off properly? Surely the answer is for the UK Government to say, “We won’t give you any more money until you get your accounts signed off properly.”

I certainly agree that European Union taxpayers deserve better. Before turning to some of the key actions that we believe are needed to deal with the recurrent problem, I want to mention the improvements that have taken place in recent years. In many instances, they are in large part due to the UK’s continued pressure on financial management issues.

The European Court of Auditors has again been able to give a positive opinion on 40 per cent. of EU budget expenditure. That compares to 35 per cent. in 2005 and just 6 per cent. in 2003. It is not good enough, but still a significant improvement. This year, the Court for the first time gave a positive opinion on the reliability of the EU’s accounts with no reservations. The accruals-based accounting system introduced by the Commission in 2005, with our support, is now fully on stream and is successfully giving the Commission greater control of its day-to-day finances, enabling it to produce more accurate financial information. The estimated level of error for agricultural transactions outside rural development programmes remains “immaterial”, and the whole European agricultural guarantee fund, which makes up the majority of agriculture expenditure, has received a positive statement of assurance from the Court.

When can we expect pragmatic progress on reform of the common agricultural policy, and when that progress takes place, what financial benefits will there be for the UK? What savings will be passed on to the UK? What cuts can we make to the amount of money that we are providing to subsidise agriculture in the rest of Europe?

As the hon. Gentleman is aware, it is a long-standing policy of the Government to seek fundamental reform of EU finances. Spend on agriculture accounts for 40 per cent. of the EU budget; we do not believe that that faces modern realities, and we will continue, through the review process that is under way, to ensure that we negotiate and make our points clear.

When we agreed to the massive increase in contributions to the EU, was it not the Government’s position that we did so only because, during the French presidency, the CAP was to be reformed and there would be a massive reduction in expenditure? That just did not happen.

There has been reform, although in the UK’s view there needs to be further reform. The hon. Gentleman will be aware that the EU budget is going to go down in this financial year, compared to the previous financial year. I would have thought that he would welcome that.

Will the Minister comment on page 210 of the pre-Budget report, which shows in a small footnote that our net contributions to the EU budget are increasing from £2 billion this year to £6.5 billion in two years’ time? In the light of the appalling mismanagement and waste shown by the European Court of Auditors, to which he has just alluded, can he instance any other Government programme that is increasing by that magnitude?

I do not have to hand the detailed figures that the right hon. Gentleman has quoted, so I cannot verify or comment on them. However, if I can find an opportunity to look at them during the debate, I will certainly respond to him in closing it.

I must emphasise that the disappointing error rates highlighted in this year’s report should not be mistaken for widespread fraud in the European Union budget. As the 2007 “Fight Against Fraud” report makes clear, overall levels of estimated fraud remain relatively low, at approximately 0.2 per cent. across the 2007 budget, affecting 0.1 per cent. of agriculture spending and 0.3 per cent. of structural and cohesion fund spending. No level of fraud or corruption can be tolerated, and I welcome the increased activities of the European Anti-Fraud Office to stamp out the fraud that exists.

However, fraud is not the main issue that we face; it is administrative errors that lead to payments that do not fully conform to the regulations in place. It is clear that much more still needs to be done by all actors involved, across the European Community, to reduce the number of irregular payments made each year. We will keep pressing the Commission to do three things. First, it should continue to seek opportunities to simplify the procedures and regulations governing expenditure, the complex nature of which is repeatedly highlighted in the Court’s report as the cause of so many errors. Secondly, we want more done to ensure that effective internal control standards are rolled out across the board. Thirdly, we want the Commission to work with programme co-ordinators and the ECA to agree a common interpretation of programme requirements early in an expenditure period.

Equally important, however, is the crucial role that member states have to play in the process. Agricultural and cohesion fund spending make up more than 80 per cent. of EU expenditure, most of which is managed at the member state level. Only when member states take full responsibility and act to reduce the number of errors in the transactions that they manage will a positive statement of assurance be obtained. The UK will continue to keep up the pressure and to lead by example on that front. We did so recently, in July, by publishing the first annual consolidated statement on the use of EU funds in the UK, along with the National Audit Office’s full audit report, which gave an unqualified opinion on the regularity of transactions in the United Kingdom.

That initiative will improve the accountability to Parliament of the use of EU funds in the UK and help to provide increased assurance on our use of such funds to the UK taxpayer. It will also highlight any weaknesses in our control and management systems, helping us continually to improve our management of EU funds. The UK’s statement, along with those published by Denmark and the Netherlands, has been welcomed by the Commission and the ECA, and we will continue to encourage other member states to follow suit.

Finally, it is important that we continue to make the case for more effective and efficient expenditure. As well as having to be spent properly, taxpayers’ money must be spent well. We believe that some measures could be taken immediately to improve matters. Better use should be made of the European Court of Auditors’ performance reports, to inform the budget-setting process and to ensure that money is allocated where it will deliver results. We also believe that a clearer link is needed between high-level priorities and the budgetary implications in the Commission’s annual policy strategy, to enable more effective scrutiny of allocations proposed by the Commission.

The Minister might be aware that I am the chairman or vice-chairman of several all-party parliamentary groups dealing with Africa, in particular the all-party group on water and sanitation in the third world. Does he accept that the increase in the number of cases in Africa in which OLAF has had serious difficulties is a matter of grave concern? Effectively, when the external aid is itself subject to fraud on the scale that appears to be evident in Africa, it means that people there are not getting water and are dying of cholera. Does the Minister not agree that the necessity to link up with the Department for International Development is essential?

I certainly agree that links with DFID are very important, and of course fraud is simply unacceptable, wherever it takes place. The hon. Gentleman referred to the budget for Africa. The EU’s international budget has been the subject of substantial discussion, and the European Court of Auditors looks at it just as it looks at the other elements of EU expenditure. The United Kingdom’s objective is to ensure that we continue to make progress on ensuring that the Commission is spending money in the right areas, spending it efficiently and effectively, and cutting down on error. Also, as I said earlier, we must ensure that the individual member states that co-manage much of the European funding spend that money in the right directions, take full responsibility and cut down on error.

More fundamentally, we need to continue to work tirelessly to refocus spending—a point made earlier by the hon. Member for Castle Point (Bob Spink)—to meet the challenges of the 21st century, through the review of the budget process that is now under way. In our view, a budget that devotes such a high proportion of spending to the common agricultural policy clearly remains in need of far-reaching reform, and we will continue to make those points very strongly.

Before I finish, I want to address the point about the depreciation of sterling that a number of hon. Members raised during the previous debate.

I have waited until my hon. Friend reached his final remarks before asking him a question that is pertinent to the intrinsic message that he has been sending out today, which is that the efficient working of the European Union depends on three things: oversight; transparency; and proper regulation and efficiency. Are the Government considering taking the burden of the lessons relating to the internal regulation of the European Union and applying it to external institutions at European level, including the banks? Are there not lessons to be learned from the documents that we have been reading today, on the subject of this debate, which would encourage us to move towards some kind of controlled exchange—at European level as well as in regard to sterling—incorporating oversight, regulation and, essentially, transparency? Will he consider looking at that proposal at Government level?

I know that my right hon. Friend has done a lot of work in this area, and that he has strong views on these matters, which he is putting forward across other parts of the Government at the moment. Clearly, what we are talking about here is the financial management of the EU budget and its spending. He rightly made a point about the banking system, and he will have seen the announcement that the Government made only yesterday on further support to ensure the stability of the banking system and the continued lending that we believe to be absolutely necessary. Clearly, there are lessons to be learned internationally as well as nationally from the financial crisis, but as they were touched on in the preceding debate, I will not deal with them substantially here. Nevertheless, my right hon. Friend makes an important point.

I said that I wanted to speak about the depreciation of sterling and its effect on EU budget contributions. I think that there is perhaps some misunderstanding among some Members as well as among people outside about the impact of sterling’s recent depreciation on our contributions to the EU budget. That depreciation will lead to a small increase in UK gross contributions, but it is likely to be more than offset by an increase in the sterling value of UK receipts, which will mean that the UK benefits rather than loses out in net terms.

It is not the case that if the pound depreciates by 20 per cent., UK contributions increase by 20 per cent. The actual effect is much smaller. Let me explain why. UK and other member state contributions are not fixed in cash amounts, but are based on country contributions, largely made as a fixed proportion of their gross national income as measured in euros. Depreciation of sterling therefore acts to reduce our budget contributions in euros, creating a budget shortfall that all member states must make up in proportion to their GNI. While the UK incurs some costs, they are offset considerably by the remaining member states. We pay our GNI share of the shortfall—not 2 per cent., but our GNI share, which is likely to be roughly 12 per cent. of the total budget, so it amounts to a 2.5 per cent. additional contribution. On the other hand, there is generally a one-to-one effect on receipts, so a 20 per cent. depreciation of sterling will see UK receipts rise by 20 per cent. Although contributions are larger than receipts, the net effect will be far less than 20 per cent., meaning that we are likely to gain overall. I hope that that is helpful in explaining the overall budgetary position.

It is useful to hear that from the Economic Secretary, but I have here a document signed by him that says that in 2009-10, our budget in the EU will increase by €670 million, which seems somewhat at odds with what he just said.

Order. I am sure that this is extremely interesting to the House, but it is actually moving outside the scope of the several documents that we are supposed to be debating.

I will therefore not pursue this matter; I am sure we will have further opportunities to do so. I felt it important to correct the misperception out there at the moment that the recent depreciation of sterling will have a significant impact meaning that we will have to pay more to the EU budget, which is not the case.

I have outlined the key points that we intend to take to ECOFIN.

rose—

Before I finish, I give way for the last time to the hon. Gentleman.

I was grateful to the Minister for his explanation regarding depreciation, which I thought was germane to financial management in Europe. On financial management, given that the recession will be harder and deeper in the UK than in much of the rest of Europe, and as the UK is subsidising the rest of Europe through the EU recovery plan, will the Minister remind us just how much the UK will be putting into the EU recovery plan to finance other states that are doing better than us?

Order. I think that my ruling on how germane that subject was should be accepted by the House.

I am sure that the hon. Member for Castle Point raised those points in the previous debate, which dealt principally with the economic recovery plan. The issues that we have debated today are important when it comes to the effective and efficient management of EU budgets—by the Commission itself and by individual member states.

Although some improvements have been made, further major improvements—which I have described today—are clearly required. We intend to take them to ECOFIN, and to include them in the ongoing financial management discussions that we hold in the Commission and the other usual forums.

I look forward to hearing hon. Members’ views today.

I shall bear your strictures in mind, Mr. Deputy Speaker. I think that a number of Members will wish to speak—those, that is, who have not been distracted by the inauguration speech of President Obama. The challenge for us, of course, is to find the words and phrases that shall resonate throughout the world and through future generations. Are we capable of doing so? I suspect that the answer is “No we can’t”, but none the less we have an important issue to debate, and I am grateful to the European Scrutiny Committee for enabling us to do so on the Floor of the House.

This is not the first occasion on which I have represented my party in these debates. It is, I think generally, with a degree of weariness that we address this issue—that probably applies to Labour Members as well—because yet again we are faced with the European Court of Auditors’ failure to sign off the European Union’s expenditure. Once again the Minister says that that is unacceptable, and once again the Opposition say that it is unacceptable. The Minister has outlined some of the ways in which the Government seek to address it, but, if we are honest, all of us expect to be here—or upstairs in Committee—in the same position next year, with the European Court of Auditors having failed to sign off the 2008 accounts.

There is that sense of weariness, but there is also a sense of frustration. I think that that applies regardless of one’s views on the European Union. It is hugely frustrating that, at a time when we are all tightening our belts—households, businesses and indeed Governments, although some of us perceive greater urgency than others in that regard—huge amounts of European Union funds are still being wasted by the EU and by member states. The fact that that money is not being spent wisely is all the more significant in the light of the point made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) about the increase in our contribution.

I have no intention of becoming involved in the debate about the impact of depreciation generally, and I am grateful to the Minister for his helpful explanation to the House, but the fact remains that—as has already been pointed out—we have seen an element of our rebate negotiated away, and it would be helpful if the Minister could update the House on that. When we discussed the value of the rebate that had been negotiated away, this time last year and in the debate on the legislation that formalised the arrangement, the cost was estimated at £7.4 billion over the next accounting period of six years. I hope that when he winds up the debate the Minister will have an opportunity to give us some idea of the updated cost of the rebate surrender, because I suspect that there is such a cost, and the fall in the pound is expensive to United Kingdom taxpayers in that context.

The first question that we must ask ourselves in relation to the European Court of Auditors is “Have things got better?” Every year some improvement is expected, but it appears that the answer is no. Since 2006-07 the value of irregularities has increased from €804 million to €1,048 million, and over the same period the value of fraud has increased from €189 million to €209 million. I take the point that, for the vast majority of the money involved, the problem is not fraud; it is irregularity, but it is not always clear when one becomes the other. Some reporting from member states simply states that something is an irregularity, and there is insufficient explanation of what constitutes fraud, so it is not always clear.

Under the individual budget headings, the number of irregularities in the structural and cohesion funds has increased by 19.2 per cent. to 3,832, and the value of those irregularities has increased by 17.7 per cent. to €828 million. On agriculture, the Minister, to be fair, highlighted that last year’s Court of Auditors’ report anticipated that the irregularities would be addressed. Indeed, the then Financial Secretary, the right hon. Member for Liverpool, Wavertree (Jane Kennedy), spoke about the matter last year and highlighted it as one about which we could be optimistic. But serious irregularities are found in one fifth of all payments sampled in that very sector, which was supposed to be improving.

Some people defend the Commission by saying that the problem is all the fault of member states. I, for one, acknowledge that there is an important role for those states, and that there are failures at that level, but the Commission is ultimately responsible for the legality and regularity of transactions underlying European Community accounts; it designs the paperwork that is too complex to understand; and it fails to check that the paperwork is properly completed. The European Court of Auditors is clear about that. It says that the Commission is unable to demonstrate comprehensively for 2007 that supervisory and control systems are sufficiently effective in mitigating the risk of error in certain policy areas. The Commission has a role, but is failing to perform it.

A spokesman for the Commission has said that it is not all its fault, and that blaming it is like blaming a referee for all the fouls committed in a football match. I am a football fan and that may be a fair analogy, but when players in a football match are kicking lumps out of each other and the referee fails to enforce the rules adequately, the referee is responsible and should not be allowed to continue to referee matches. The Commission is failing in its responsibilities.

When the UK held the presidency, it said that it would focus on fraud and irregularities, but years later there has been little progress. When the noble Lord Kinnock was the Commissioner responsible for such matters, he said that he would tackle the problem, but his most notable action was to sack a whistleblower who identified fraud and irregularity. A key objective of the Barroso Commission has been to address the matter, but it has failed.

The Court of Auditors, in the context of the action plan developed by the Commission, which it tried to implement and to which it points to show that progress is being made, said that

“the Commission is not able to demonstrate that its actions to improve supervisory and control systems have been effective in mitigating the risk of error in large parts of the budget. The court does not yet find evidence to support the impact of the action plan claimed by the Commission.”

Indeed, one MEP estimated that it will take 20 years to obtain a statement of assurance. When does the Minister think such a statement will be delivered on European Union expenditure? How long must we wait?

I said that there is a role for member states. How does the Economic Secretary think the Government are performing with regard to irregularities in EU spending? The only cohesion spending programme sampled by the Court of Auditors showed that the UK has only a partially effective financial control system. This time last year, we debated in some detail the finding that European regional development funds in the north-west of England had not been spent appropriately, and the Commission was seeking to claw back some £20 million. The BBC and The Times reported in November last year that the Commission was seeking to claw back in total—this does not apply to just one year’s expenditure—some £190 million. Can the Government confirm that that is the case? What is their estimate of the funds that may be clawed back by the Commission and how satisfied are they generally that they can spend European Union money without irregularity or fraud?

Once again, there have been significant failures by member states and the Commission, and there is a depressing lack of progress. When will something be done? The widely held view is that there is something endemic, and perhaps institutional, about the problem. Member states raise taxes, and make contributions to the European Union which are then divided among member states to be spent, but there is an essential lack of ownership of the expenditure from the European Union. No one really believes that it is theirs, and the same level of care and attention that one hopes is given to member states’ own money is not applied to anything like the same extent to money from the EU. Consequently, there is failure after failure, irregularity after irregularity, and levels of fraud that shame member states and the Commission.

One area that the EU has signed up to do something about is tax havens and ensuring the legitimate use of money. President Obama has also made some straightforward statements about that. Is that not something that the EU should press as a matter of urgency, because it involves not just money that is spent formally through the budget, but money that works its way through the system, often through those tax havens?

I am grateful for that observation. It is right to tackle tax havens and to share information with offshore centres as much as possible. That effectively means obtaining information about what happens in those centres. Whether that is a European issue, or whether it is best done by member states, it is clearly important. I do not know how central that is to our debate today, but I am grateful to the hon. Gentleman for his observation.

We sometimes go through the motions in such debates. None the less, the issue is hugely important. British taxpayers are becoming increasingly frustrated, and look to the Government to do something about it, but year after year we return to the issue with little sign of progress and no clear sense of direction from the Government. One detects weariness on the Government’s part that there is little that they can or will do. That is unacceptable. Greater efforts should be made, and there is a need for greater transparency in the system.

My hon. Friend has made the good point that reform is required. Of course, reform was mandated seven years ago in the Laeken declaration, when it was realised that Europe was too remote, bureaucratic and wasteful. Does he find it extraordinary that the Lisbon treaty and the European constitution out of which it grew have nothing to say about the matter? The acknowledged weakness, which has become a scandal, was not addressed in the very instrument—the Convention on the Future of Europe—that was told to reform Europe. Will my hon. Friend, in what are clearly his closing remarks, commit himself and our party to undertaking a genuine reform process, which goes to the root of the problem, rather than simply building stronger and more powerful institutions that are even more remote from the citizen?