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Spring European Council

Volume 490: debated on Monday 23 March 2009

With permission, Mr. Speaker, I shall make a statement on the European Council held in Brussels last Thursday and Friday, which I attended with the Chancellor and the Foreign Secretary, and which once again emphasised the importance of European and international co-operation to address this financial crisis.

In October and November, all European and then G20 countries agreed to recapitalise the banks. In November, both the European Union and the G20 agreed on co-ordinated fiscal action to support employment and growth. Just as in the previous summit in December, Europe led the way towards a global climate change deal, which we hope to secure in Copenhagen later this year. Europe has now made proposals in advance of the G20 meeting in London to reshape the global financial and trading system and to do what is necessary to build economic recovery across the world.

First, we agreed that the global challenges we face today cannot be met if nations turn inwards to a protectionism that—history tells us—in the end protects no one. Our agreement to

“avoid all forms of protectionist measures”

will require careful monitoring by the World Trade Organisation. The Council agreed to encourage international trade by facilitating more trade credits, and the Council called for a

“swift conclusion of bilateral trade negotiations and of the…Doha Development Agenda.”

Secondly, we agreed measures to put to the G20 for global agreements to reshape the regulation of banks and financial services. We agreed that all systemically important institutions should be subject to appropriate regulation and oversight, and that this would extend to include hedge funds and the shadow banking sector. We pledged to protect the world’s financial system from non-transparent, non-co-operative and loosely regulated jurisdictions, including offshore centres and tax havens. We welcome the progress that has already been made by Switzerland, Austria, Andorra, Lichtenstein and other countries, and look forward to seeing them implement the international standard—[Interruption.]

Order. The way we do things is that we hear the statement that the Prime Minister has to make, and then questions are asked of him.

We call on all countries yet to endorse the OECD standard to do so urgently.

The Council also agreed to improve supervisory co-operation by pushing forward with colleges of supervisors for all major cross-border financial institutions. We also agreed to adopt international principles on remuneration in the financial sector, based on an approach that rewards long-term success rather than excessive risk-taking. We called on the Council and the European Parliament

“to rapidly reach agreement on the legislative acts relating to credit rating agencies, the solvency of insurance companies, the capital requirements for banks, and cross-border payments and electronic money”.

At its next meeting in June, the Council will take its first decisions on regulation and supervision following the de Larosière report. Our policy is that regulatory rules should be set at an international level but that direct supervision is a matter for our national authorities.

The Council was clear that by acting together, the European Union can

“put its financial sector on a sound footing, get credit flowing to the real economy and protect its citizens from the worst impacts of the crisis”,

as well as helping to build a stronger economy for the future. The Council welcomed the Commission’s proposal to double, to €50 billion, balance of payments assistance so that those within the European Union have the support they need to deliver the fiscal stimulus required to ensure their recovery. But with global capital flows in 2008 down by more than 80 per cent. compared with 2007, and with the financing gap for emerging economies this year up to $800 billion, this is not just an issue for central European, eastern European and emerging economies. Because of the continuing risk of contagion, it is an issue for every country in the world. It is vital that we increase the resources available to the International Monetary Fund to ensure that it can intervene to stabilise economies, stop the crisis spreading, and return the global economy to growth.

The Council called for a very substantial increase in resources available to the IMF, and agreed that, for their contribution to this increase, EU member states should as a first step provide on a voluntary basis a fast temporary support of IMF lending capacity in the form of a loan of over $100 billion. The Council called for continued

“international coordination of fiscal stimulus measures.”

It agreed that:

“Good progress has been made in implementing the…Economic Recovery Plan”,

and that while we must ensure fiscal sustainability in the medium term,

“the size of the fiscal effort (around 3.3 per cent. of EU GDP or over €400 billion) will generate new investments, boost demand, create jobs and help the EU move to a low-carbon economy.”

We agreed a further €5 billion to be invested in stimulus projects in energy security, renewable energy and broadband. The agreement provides for at least €220 million of additional investment in UK carbon capture and storage and offshore wind projects.

We have seen an unprecedented fiscal injection in almost every major economy: in France, a package worth €26 billion with further recent measures worth €2.6 billion; in Spain, an infrastructure package worth €11 billion alongside other measures, with the IMF estimating a total stimulus of 2.3 per cent. of GDP; and in Germany, not one but two fiscal stimulus packages totalling €82 billion—1.5 per cent. of its GDP this year and 2 per cent. of GDP in 2010. As the Council concluded, Europe’s determination is

“to do what is necessary to restore jobs and growth.”

The Council also reached important conclusions on energy security and climate change, on the eastern partnership and the relationship with the United States. The Council remains committed to working for a worldwide and comprehensive climate change agreement in Copenhagen. Following the December council, Europe became the first continent in history to make legally binding the detailed policies required to set itself on a path to a low-carbon economy. There is a commitment to a 30 per cent. reduction in emissions, provided that other countries make comparable commitments according to their capabilities. But our success in Copenhagen will depend on unlocking negotiations with developing countries. The Council therefore agreed that within the framework of a future comprehensive climate agreement, the European Union will take on its fair share of financing for green technologies, reducing deforestation and protecting the poorest from the impacts of climate change.

The global economic downturn is no time to walk away from our commitments to the developing world. The Council agreed that Europe should continue to play a leading role in supporting developing countries in order to avoid jeopardising the progress achieved in recent years and undermining their economic and political stability. The Council agreed that commitments to increase development assistance and to deliver on the millennium development goals must be honoured. The Council also emphasised the importance of promoting stability, good governance and economic development in the eastern neighbourhood.

Finally, in looking ahead to the informal EU-US summit to be held in Prague next month, the Council welcomed the inauguration of President Obama and reaffirmed the strategic importance of transatlantic relations. At this moment of international economic crisis, we are showing that Europe and the world can work together to achieve co-ordinated interest rate cuts, substantial fiscal stimulus, banking reform, new rules for tax havens and new rules for remuneration. I commend this statement to the House.

Before asking the Prime Minister about his statement today, may I ask him about reporting back to the House on the outcome of next week’s G20? Given that it is taking place on the day when the House rises, will he consider making a statement that evening?

Before turning to the economy, I welcome what the Prime Minister says in the communiqué about the climate change agreement in Copenhagen. I also agree with what he says about the importance of not walking away from developing countries at this time.

On the economy, I want to ask about trade, financial reform and the recession in Europe. First, on trade, this communiqué talks about the importance of the Doha round, but frankly, so did the last one and the one before that. Since then we have seen “Buy America” programmes from the US Congress, higher agricultural tariffs in India, French Ministers boasting of repatriating jobs from Slovenia back to France and the Prime Minister talking about “British jobs for British workers”. The task of the London summit should be urgently to agree the key issues of the Doha round. That should be the key aim. Will the Prime Minister confirm that the existing trade rules in fact allow countries to double their revenues from tariffs? Is freezing existing tariffs not a pretty minimum acceptable outcome for the London summit?

Secondly, on financial rules and financial reform, we need rules that force banks to hold more capital when the economy is strong. We have been pressing for such counter-cyclical capital requirements for more than a year now. Will this communiqué mean that that actually happens, and do we not need the same sense of urgency when it comes to the supervisory colleges of regulators? The Prime Minister’s office announced that they would be established by the summer, but the communiqué is now talking about it happening by the end of 2009. Can the Prime Minister tell us whether the deadline has slipped?

I agree with the Prime Minister that it is better to have co-ordination than a single European regulator that overrides national regulation, but would it not be easier to resist such a European regulator if he would accept that the tripartite system that he put in place in 1997 simply has not worked and needs reform? Does he not need to admit that clearly and frankly today?

Next, on recession in Europe, the Prime Minister repeatedly lectures everyone in this House and beyond that he is uniquely forging a consensus in Europe on how to deal with recession. Does not that claim now look completely ridiculous? Are there not three examples of that? The first is whether we in Britain can afford a fiscal stimulus, the second what that stimulus should consist of, and the third whether he is any good at actually implementing the measures that he has announced. Let me take each in turn.

There will be a question if you are patient.

Is it not remarkable—that is a question—that today the CBI, which is the organisation responsible for representing businesses large and small, said—[Interruption.] Labour Members should perhaps spend a bit less time filling out their expenses and listen to the CBI. The CBI said that

“a further significant fiscal stimulus is unaffordable and would lead to businesses and households retrenching”.

Instead, the CBI says, the Chancellor needs to

“deliver a clear and credible”—[Interruption.]

Order. Mr. Austin, for a few months you have been quiet, and now you have begun to shout again. You just cannot do that. I keep telling you that you cannot do it. By the way, Ms Thornberry, the right hon. Gentleman is in order. If he were out of order, I would be the first to tell him. It would not be you telling him, it would be me. How is that?

Thank you, Mr. Speaker. I thought the hon. Gentleman was getting better, too, but I am an optimist.

The CBI says that the Chancellor

“needs to… deliver a clear and credible plan for restoring the public finances to health”.

Is not the CBI right and the Prime Minister wrong?

Last week, we had the worst set of public finance figures in our peacetime history. We are forecast to have the largest budget deficit of any G20 economy next year—almost twice as large as for the G20 as a whole. Is the view in Europe not clear? As the German Chancellor says:

“We should not be competing for the most unrealistic fiscal stimulus”.

Is she not right?

Let me put it another way. This week, the Prime Minister goes to south America. Will he confirm that only one country in the whole of south America entered recession with a higher deficit than Britain—not Argentina, not Paraguay, not Uruguay and not Ecuador, which all managed to balance the books better than the Prime Minister? Is it not something when the British Prime Minister has to go to a conference in Latin America to get a lecture on fiscal responsibility and prudence?

The Prime Minister is criticised in Europe for not only affordability, but the make-up of his stimulus. No one else is copying his policy of cutting VAT. Indeed, the consensus in Europe is that it made things worse. The French President said:

“We won’t be repeating Gordon Brown’s mistakes”

and that the VAT cut had “absolutely not worked”. The German Finance Minister said that the debt will take a generation to pay off.

The Prime Minister is not only wrong about affordability and VAT; everyone thinks that he is getting implementation wrong, too. Can he not see that, when his various schemes exist only in a press release, they do not help build confidence and instead destroy it? The home owners mortgage support scheme and the recruitment subsidies for the unemployed were announced months ago, but are still not available. Should he not listen to the German Chancellor, who said that

“if we want to make a real impact, you really must implement the package first before you talk about the next step”?

Instead of listening to his lectures, we should all be clear about what the Prime Minister is delivering—a longer recession than the United States or the eurozone, the fastest rise in unemployment since records began and the worst public sector deficit in British peacetime history. When will the Prime Minister understand the need for change? Should that change not start with his acknowledging properly and apologising for the mistakes that have led this country to that position? Is it not time to start now, with “Sorry”?

I will deal with each point in turn, but is the central point not that, in the face of a global recession, unemployment and a loss of output, alone in Europe and alone in the rest of the world, isolated even from the Conservative party in Europe, the Conservatives’ only response to the recession is to cut public services and public spending, except for the £200,000 that 3,000 people will get in inheritance tax?

Our priorities are to raise the pension for everyone, which we are doing; to raise child benefit for everyone, which we have done; and to ensure a VAT cut for everyone. The Conservative party’s policy is a £2 billion tax cut for the smallest number of people in Britain—the 3,000 people who will benefit from an inheritance tax cut. Is it not time for the Conservatives to face up to the fact that their policy is a 6p a week cut in the licence fee for the many and a £200,000 cut in inheritance tax for the few? Usually in times of difficulty, the few who have money help the many; only the Conservative party says that, in times of difficulty, the many should come to the aid of the few. [Interruption.] What am I on about? I am on about the Conservative policy, which Conservative Members say is a priority. At a time of crisis, they say that there is nothing for pensions, nothing for child benefit, nothing for public services except cuts, but tell us today that they are going ahead with an inheritance tax cut, which will help 3,000 people and give them £200,000 each. At least the shadow shadow Chancellor spotted that that was a difficulty, but he is not here because he is so out of synch with the Conservative party. He disagrees on VAT, the married couple’s allowance, Europe, and now the inheritance tax cut. The Conservative party is out of touch with the rest of the country. [Interruption.] They will have to face up to that one day—their priority is an inheritance tax cut for the few, whereas ours is to help the many.

As to trade—[Hon. Members: “Hooray.”] I know that the Conservatives are grateful that we have moved off what I will be coming back to in a minute. As to trade, we are working with the developing countries to see whether we can get a trade deal, but I have to tell the right hon. Gentleman that the problem is not Britain or Europe. The problem on the trade deal—as he would see, if the Conservatives were serious about it and if they wanted to face up to it—is that we have to get an agreement between America and India on very difficult and sensitive negotiations, which we are trying to move forward.

As for the colleges of supervisors, which the right hon. Gentleman mentioned, I have to tell him that instead of none having been established, as he said, 25 colleges of supervisors have been established to cover the financial institutions right across the world.

As far as delivery of policies is concerned, the right hon. Gentleman might want to notice that 90,000 companies are already benefiting from the schemes that we have put in place. He might want to know also that large numbers of people are benefiting from the greater support that we are giving in income support to those who are unemployed and who need help with their mortgages. None of those policies is supported by the Conservative party.

As for the right hon. Gentleman’s quotations of Chancellor Merkel, President Sarkozy and other European leaders, is it not remarkable that he is trying to quote them in evidence the week after he walked away from the European People’s party and linked up with the Czech forum, which says that there is no problem with climate change, and the Polish party of law and order—[Interruption.] I have to say to the Conservatives that they are isolated from the German Christian Democrats, that they are isolated from the French Conservative party of President Sarkozy and that they are now isolated from the party of Mr. Berlusconi in Italy. The Conservatives are out of touch with the European mainstream—so much so that the President of the Commission has criticised them, as has the President of the Parliament, and the chambers of commerce have said that it is a matter of regret that they are moving to the fringes in this country.

As for the delivery of policies, let me be absolutely clear that in every area in which we are working, we are trying to move forward, but that requires money. The only party that is refusing to support a fiscal stimulus is the Conservative party. It is the Conservatives who are out of step with Europe; it is they who are out of touch with public opinion; and it is they who are out of their depth when it comes to dealing with the economy.

I thank the Prime Minister for his statement, in which there is much to welcome. The principle of a common European framework of regulation in financial services is a significant step forward, and one that we have been advocating for many years. There will continue to be differences in detail—he alluded to them himself—but the principle of cross-border regulation of cross-border finance will be welcomed by all but the most small-minded Eurosceptics. The eastern partnership with countries such as Georgia and Ukraine is also welcome, not least because of Russia’s sometimes belligerent attitude towards its neighbours.

I remember in years gone by that the whole of Europe would groan every time the Prime Minister made another tub-thumping speech about how superior his policies were to everybody else’s, so it is good that the idea finally appears to have dawned on him that he does not have all the answers and that he might even have a thing or two to learn from our European Union neighbours. Is the problem not now that, even with a touch of new-found humility, it is hard for him to lead at the G20 summit and in the European Union, because he does not practise at home what he preaches to them abroad? Would his rhetoric about stopping protectionism not pack more of a punch if he had not indulged in populist rhetoric about “British jobs for British workers”? Would his words about cracking down on tax havens not be more compelling if he had not presided for 12 years over industrial scale tax avoidance by British banks and big businesses here in Britain?

When the Prime Minister tries to act as President Obama’s agent in Europe and persuade his European counterparts to issue another fiscal stimulus, would those leaders not listen to him more if he had not blown £12.5 billion on his wasteful VAT cut? Would those leaders not be more likely to listen to his recommendation that economic recovery must be driven by green investment if he was actually making those investments at home, rather than talking—as he did the other week—about 400,000 fantasy green jobs, which he has no idea how to create? If he had used the VAT money, as we proposed, to invest in public transport and in a transformation of our housing stock, he could have created 100,000 new jobs starting right now.

It is becoming increasingly clear that it will be difficult for Britain to afford a sustained, major new fiscal stimulus to boost our economy. Is it not therefore clear that we must take drastic action to ensure that we stop wasting any more money on things that do not create jobs? Will the Prime Minister commit immediately to cancelling the VAT cut and investing what money there is left in green transport, in the insulation of our homes, schools and hospitals, and in jobs? Did he not wonder, as he looked round the table at the other EU leaders at the summit, why not one of them had copied his cut in sales tax? Will he admit that they were right to choose to invest money in jobs instead?

The right hon. Gentleman wants us to spend money on insulating homes, and we are doing that. He wants us to spend money on investing in schools, and we are investing more than in any previous year. He wants us to invest money in hospitals, and we are doing more than we have done. I thought that he would support the £44 billion of public investment that is being put into the economy, instead of failing to support it today.

As far as tax havens are concerned, in every Budget since 1997 we have tried to crack down on the use of tax havens. We have taken action that, since 2005, has secured £14 billion of funds that would otherwise have been lost in tax avoidance. We know that we have to get a global agreement, however, and that is why we are pressing other countries to sign up to the international standards that are necessary. That means that Switzerland, Liechtenstein, Hong Kong and Singapore—areas that have been regarded as tax havens in the past—have got to come within the net. [Interruption.] And, yes, other parts of the world have got to come in, and I hope that the Opposition will join us in demanding that.

As far as the low-carbon recovery is concerned, the right hon. Gentleman should know that we are investing, and ready to invest, as I announced today, in major projects of energy infrastructure—[Interruption.]

Order. Mr. Mackay, you are another regular who seems to want to shout across the Chamber, particularly at the Prime Minister. You are down to ask a question, but you cannot keep shouting and then expect to be called.

As I was saying, the right hon. Member for Sheffield, Hallam (Mr. Clegg) can be sure that we are investing in low-carbon projects, and that we want to continue to do so. On the fiscal stimulus, I am not surprised that he is opposing it now. The reason for that is that he is committed to £20 billion of public spending cuts.

Is it not appropriate that the Prime Minister should seek consensus within the European Union, within the group of 20 and with the United States of America at the meeting in Prague next month in relation to the first global recession, and that he should link it with climate change proposals and, not forgetting the less developed world, with the millennium development goals? Is it not a pity, or even a tragedy, that the whole House cannot support that consensus?

This is a global problem that requires global solutions. I do not think that anybody in our country is in any doubt about that. There are four problems that must be solved if the global economy and our global society are to work better in the future. The first is financial instability, and that is why we are proposing the measures that we are proposing. The second is climate change and the need for energy that must be met in the future, which is why we are looking forward to a Copenhagen agreement. The third is security for people in a world of greater mobility and yet greater terrorism, and we have to deal with that as a global problem as well. The fourth is the poverty and inequality that led us to propose the millennium development goals in the first place. Everybody knows that those problems cannot be solved by Britain, America or any other country alone; they can be solved only by the world working together.

I saw pictures at the weekend of the Prime Minister engaging in a lot of back-slapping and bonhomie with President Sarkozy of France. Does he think that, as a result of his conversations, President Sarkozy will implement a VAT cut, as we have here?

The right hon. Gentleman is the first to say that we should not all do everything in exactly the same way in Europe. It is important to get a fiscal stimulus, but it is also important that countries choose the way in which they want to do that, as he will always acknowledge. We have chosen to do certain things, as have the French and the Germans. What is common, however, is that they are in favour of a fiscal stimulus and not, like the Conservatives, in favour of public spending cuts.

Is it not time that the whole House, including the Opposition parties, recognised that the Government have been absolutely right to attach the highest priority to stabilising the banking system? Is it not the case that the more we learn about the Royal Bank of Scotland, the more we realise that its shareholders and customers are entitled to become angrier and angrier? In view of the reports in certain newspapers, it is really no excuse for independent directors to say that they might have lost their jobs if they had stood up to the senior officers; surely that is the purpose of having independent directors.

My right hon. Friend is absolutely right. Independent directors are there not to rubber stamp decisions made by management, but to question them and to hold management accountable. I think that the Walker review, which is looking at the role of directors and people who sit on the boards of financial institutions, will conclude that a change of behaviour in the boardrooms is necessary. I think the whole country is angry at the practices we have seen in the Royal Bank of Scotland, and we condemn them.

On Second Reading of the Bank of England Bill in November 1997, the Prime Minister may remember that I strongly opposed the triangular regulation of our banks, which has proved such a disaster. In today’s circumstances, facing as we are the danger of mass unemployment for years to come in this country and throughout Europe, may I repeat what I indicated before the pre-Budget report—that I am a strong believer in fiscal stimuli, well chosen in every advanced country in the world, together with quantitative easing to maintain consumer demand, if we are to avoid the terrible mistakes made in Germany 80 years ago by Chancellor Bruning, from whom the present German Chancellor has mercifully learned the right lessons?

I am grateful to the hon. Gentleman for his comments. When the private sector fails, and when banks fail and falter, it is the Government’s duty to step in. If we are to have the level of economic activity in the economy that we want, there needs to be monetary activism, as the hon. Gentleman proposed, and also fiscal activism. I cannot see how the Conservative party can continue to resist the idea that we should have, as we are having, a fiscal stimulus in the economy. The CBI supported our fiscal stimulus and wanted it to happen in November when we announced it. It has supported the measures we have taken.

I welcome the fact that the European Council has adopted many of the ideas that the Prime Minister has advocated consistently now for months—a co-ordinated response on regulation and, yes, on a huge fiscal stimulus. Is it not extraordinary to get the same vacuous and juvenile posturing from the Leader of the Opposition when unemployment is 7.6 per cent. across the European Union and expected to rise to more than 10 per cent., with about 5 million jobs still to be lost across the EU? What we need in that context is huge public investment: the Tories simply will not learn the lessons of the 1930s and, yes, their own failure in the 1980s to tackle these problems through the power of government, using a fiscal stimulus to do so.

My right hon. Friend is absolutely right. It is right at this time to use the Government’s powers to help people who are unemployed, to help mortgage holders with their mortgages and to help small businesses get the funds that they need. Of all the parties I know across Europe, only this Conservative party is saying that there should be public spending cuts: the German, the French and other conservative, right-wing Governments have supported fiscal stimuli. The Tories cannot walk away from the fact that they are the only party calling for public spending cuts.

During the course of the Council, was there any discussion of the impact of the present financial crisis on defence budgets? Was there any discussion of the extent to which the countries of Europe are not fulfilling their obligations to NATO? In that regard, was there any discussion of increased defence co-operation and, in particular, the need to embrace the principles of force specialisation, interoperability and common procurement?

These matters are more appropriate for the NATO summit on 2 and 3 April. I hope that the right hon. and learned Gentleman will understand that there will be a big discussion of all those issues at that summit. I think he will find that we are meeting our obligations; I think he will find that our defence budget has continued to rise; and I think he will find that other countries of Europe are aware of their responsibilities.

The Prime Minister is right that the restoration of confidence in the financial sector and reforms depends very much on increasing transparency, oversight and regulation. With that in mind, will he turn the minds of his colleagues to the least transparent and least regulated part: credit default swaps? In that area at least, will he attempt to get as much unity as possible for a clearing-house mechanism that can introduce transparency and regulation, rather than the current free-for-all with over-the-counter dealings?

I am grateful to my right hon. Friend, who has taken an interest in the matter and written to me about the issues. We have looked at credit default swaps, and will continue to look at the risks and dangers that they pose. Obviously, the best way of dealing with such a problem is international action. We will consult with our colleagues at the time of the G20.

Does the Prime Minister recognise that his financial stimuli and counter-cyclical investments have helped some parts of the UK, particularly the financial sector in the south-east of England, unfortunately without much benefit outside that area? When he next talks about public, taxpayers’ investment, will he consider the effects on the rest of the UK? Precious little is filtering through to other parts of the UK, as we saw in last week’s unemployment and job creation figures.

Every pensioner in the United Kingdom got the benefit of the pension rise, every family got the benefit of the child benefit rise that started from the beginning of January, and every family has got the benefit of the cut in VAT, which extends to the whole of the United Kingdom. Also, every community is getting the benefit of further public investment, which we have instructed to be advanced to help keep jobs in our economy. So I disagree with the hon. Gentleman: the benefits that we are trying to spread to the whole of the country to deal with the crisis include benefits to Wales.

In his statement, the Prime Minister rightly highlighted the need to have economic stability, good governance and economic development in the eastern neighbourhood. Were there any discussions on some countries, particularly Romania, which, although they are in the European Union, still have considerable internal problems with good governance, about how they can be helped with not only their economic problems but their internal governance problems?

As you know, Mr. Speaker, some changes have taken place in Romania, and it is important to remind it of its responsibilities. If it signs up, as it is doing, to the European Union, it must meet the test of democracy. The European Union has that explicit test to enable members to join, and Romania is not excluded from that test.

In discussing the financial crisis with his colleagues at the Council, did the Prime Minister draw to their attention the important report of the National Audit Office on the nationalisation of Northern Rock? Did he consider with them the lessons that can be learned from the report’s finding that in 2004 the Treasury over which he presided was specifically warned that we were ill-equipped to deal with a systemic banking crisis, but decided that the issue was not a high priority? Does he now regret his failure to take that warning seriously?

Long after 2004, we did a number of exercises with the American authorities about what we would do in situations in which individual banks collapsed and about whether there was a systemic crisis as a result. Far from not taking action, we did take action and looked at what the global repercussions of individual bank failures would be. We talked to the United States Treasury and Federal Reserve and the regulators. The right hon. and learned Gentleman must recognise that Northern Rock, among other companies in the United Kingdom, was buying assets, from the United States of America, which were at that time labelled triple A but which turned out to be absolutely worthless. So there is also a failure in international regulation, which must be dealt with. I hope that he will agree that the measures that we are taking at the G20 are the right ones to take.

Forty per cent. of the jobless in the United Kingdom are under 25, and we face the prospect of rapidly rising unemployment this year, especially as young people leave education. What did my Friend learn from his counterparts across the European Union about what can be done specifically to help young people into work?

I can tell my hon. Friend what we are doing. We are determined to ensure that school leavers who leave in the summer are given the best possible chance to obtain training or jobs, or to stay on in further education if that is what they wish to do. We will be introducing measures to ensure that as many young people as possible are given that benefit, and I am sure that the same will be happening in other parts of Europe.

Did the Prime Minister have a chance to discuss with his colleagues at the Council the five European Union directives that are in the pipeline, all of which could impose considerable costs on employers? I am sure he agrees that at a time of high and rising unemployment, the last thing that we ought to be doing is imposing additional costs on employers, whether they are in the public or the private sector. Would he consider giving a lead in Europe in calling for a moratorium on regulation that imposes costs on employers until the recession is over?

Environmental and other regulations have been put forward by the European Union. Part of our promise of a low-carbon recovery is that we will be able to make progress on the environment. I will of course look at what the hon. Gentleman called the five regulations—although he did not name them—and will write to him.

The European Council’s pledge to protect the world’s financial systems from opaque and unco-operative tax havens is naturally good news, but will the Prime Minister tell us how he intends to implement that in our own country? We have four major banking groups. Two are effectively under national ownership and might be expected to respond to leverage on co-operation, but the other two—HSBC and Barclays—have long promoted tax evasion and avoidance schemes using offshore tax havens. How will the Prime Minister secure their co-operation?

Tax evasion is illegal, and we are dealing with it in the ways in which we can. If anyone has evidence of tax evasion, they should supply it to the prosecuting authorities. As for tax avoidance schemes, every Budget attempts to deal with the problems that arise from tax avoidance. We introduced new rules in 2005, and, as I have said, about £14 billion in revenues has been saved as a result. However, anyone who has any evidence of tax evasion should tell us.

Whatever people’s degree of enthusiasm for the European Union, it is commonly accepted that the free movement of people, goods, services and capital is a huge achievement, and that anything that undermined it would be very destructive of prosperity. In the light of that, when we reach the G20 may we have not just another mantra about the evils of protectionism, but a promise of some action to promote free trade and combat protectionism? Will we see an agreement among our leaders that they will stop this competitive playing to the protectionist gallery, which simply encourages sentiments that will destroy jobs, and to which the Prime Minister himself is not immune?

The right hon. Gentleman is absolutely right. At the G20 we will receive a report from Mr. Lamy, the head of the World Trade Organisation, about any protectionist measures that have been taken by individual countries over the last few months. The WTO will continue to monitor that protection, and will report to us regularly. As for the promotion of trade, we are anxious to facilitate trade by making available what has been missing for many months: the level of export credits and trade support that is necessary for world trade to resume, and for us to secure the growth in world trade that is necessary for recovery.

Will my right hon. Friend help the House by answering this question? How many jobs would be secured by a cut in inheritance tax?

If we were looking for job creation measures, that would not be at the top of the agenda. I remind Members that while the Conservatives are proposing public spending cuts in every other area, they are proposing to spend £2 billion on the estates of a very small number of people. I believe that they should think again.

What reassurance and hope can be offered to those who, 20 years ago, were citizens of the Warsaw pact and placed their hope and their trust in responsible capitalism, but who now feel that their world is falling about them, and feel totally disillusioned?

The hon. Gentleman is right. We have a huge problem in parts of eastern and central Europe, because German banks, Austrian banks, Italian banks, Belgian banks and even British banks are having to withdraw, or are withdrawing, to their own home bases. What we therefore need is an international effort to help individual countries that do not have resources of their own with which to rebuild their banking systems. That is why the European Union has raised its balance of payments assistance to those countries, and that is why when we meet at the G20 we will want the International Monetary Fund to have the additional resources that are necessary to deal with crises. But we do not want just to deal with crises; we want to prevent crises, so we will have to look at better mechanisms by which we can help those countries of central and eastern Europe that are being let down by the current financial crisis.

I strongly welcome the Prime Minister’s belief in more transparency. In that spirit, can he now tell us how much taxpayers’ money is at risk in bank support and bank guarantees and in all the off-balance-sheet devices this Government have gone in for? The British public have a right to know how much of their money is at risk.

This is the man who told us:

“We see no need to continue to regulate the provision of mortgage finance”.

This is the man who kept pressing us to deregulate more and more. The problem we have to face is that we have to intervene to save both the banks and the financial institutions so that people’s savings are safe, and I hope the right hon. Gentleman will agree that one thing is that, despite all the difficulties we have seen, people’s savings have been safe.

The Prime Minister may know that today the hapless Lord Myners has signed off the European Commission’s endorsement of the de Larosière report for the creation of a Europe-wide banking and financial rules framework, which—contrary to the statement the Prime Minister has just made—involves in practice majority voting and European Court jurisdiction, thus eliminating national control and jurisdiction. The Government have welcomed this report; Lord Turner has welcomed this report. Will the Prime Minister come clean and ensure that Parliament, and not the European Union, controls our banking and financial services?

I have with me a copy of the letter that the Chancellor sent to the Czech Republic, which has the presidency of the EU at present. It says that, under our proposals,

“it would not have powers over national supervisors, for example to change supervisory decisions, and it would not prescribe detailed supervisory practices.”

That is our position.

The published conclusions of the Council differ hardly at all from the conclusions circulated prior to the meeting, which were available on the Danish Parliament website, before the Prime Minister ever got to the meeting, but there is one matter that did change: the size of the bail-out to other EU economies, which has now risen to €50 billion. What is the potential exposure of the British Treasury and taxpayer to this size of bail-out?

First of all, I have a copy of the conclusions of the European summit and they did change substantially from the original draft provided by the Czech presidency, and I think the right hon. Gentleman must recognise that, even on the de Larosière report, the conclusions are different from what was originally put into the text. The balance of payments facility is a European Union loan of €50 billion that is to be made available. As far as the IMF loan is concerned, we will make up our mind what our contribution will be once we analyse what other countries are doing and what Europe as a whole will do, and we will make that known before the G20.

But with such enormous debt chasing a finite capacity to lend, some commentators are now talking about what Steve Bundred of the Audit Commission has called the Armageddon scenario in which there is simply not enough money to provide for the borrowing that is being sought. Did the European Council consider this to be a serious possibility, and if so, what is Britain’s strategy to deal with it?

I have never heard an Opposition who want to talk the country down as much as this Opposition. During this whole exchange, we have had anti-European after anti-European speaking. Now, on this occasion, we have a pro-European who is now becoming anti-European as a result of things that are happening. When markets fail and banks are unable to do their job, Governments have got to step in. That is the philosophy under which we are working, and I wish it was the philosophy of the Conservative party, too.

The Prime Minister has congratulated Switzerland and others on moving towards OECD standards of transparency. Will he confirm that British Crown dependencies and overseas territories already meet those standards?

We must all welcome the Prime Minister’s positive programme of action to tackle the global economic crisis, but will he do more to reduce the subsidy that Britain gives other EU countries through the net cost of our EU membership and the £40 billion trade deficit between this country and other EU countries, which costs this country many jobs?

It is in the interests of the whole world that these imbalances—they are imbalances not only within Europe, but around the world—are corrected. Originally, in the 1940s, when Keynes was involved in setting up the International Monetary Fund and the World Bank, he wanted a situation to develop where people were under an obligation to correct imbalances that arose in one continent or in one country. These are matters that I think he would agree have got to be looked at, not only at a European level, but internationally. We are trying, as the hon. Gentleman knows, to persuade China to take more exports from the United Kingdom, and that would be one way in which the imbalances could be reduced.

The European Council deserves our support in putting pressure on unco-operative tax havens. Why did the Prime Minister not mention Bermuda when naming the various countries that are tax havens? Has it anything to do with representations from Lord Myners?

All tax havens are now under pressure. People will not see their money as safe in these havens after the experience that people have had over these past few months. [Interruption.]

This is a matter on which the world can now come together for the first time; never before have we had the will to take action to bring unco-operative tax havens under proper jurisdiction. That is something that I believe should happen, and we should be crediting this Government with the decision to push that it should.

My right hon. Friend the Member for Witney (Mr. Cameron) asked right at the beginning about the forthcoming G20 summit; why has the Prime Minister arranged Parliament so that he cannot report back to it? Is it not a fact that he is running scared?

I think the timings of the parliamentary recess were agreed far before those of the G20. I worked very hard to get a date that was suitable to the American President and to other world leaders, and we finally agreed that the date was the date that we chose. I think I am fair in saying that the date for this summit has to be set with a view towards bringing together the whole of the world, and that is what we have done.