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EU Council

Volume 738: debated on Monday 2 July 2012

Statement

My Lords, this may be a convenient moment to repeat a Statement made by the Prime Minister about the European Council. The Statement is as follows.

“I am sure that the whole House will be deeply saddened by the death of three British servicemen in Afghanistan yesterday. These brave soldiers were demonstrating great courage to prevent Afghanistan once again becoming a haven for international terrorists and helping to keep us safe here in the United Kingdom. The suspected perpetrator is in custody and we will do everything in our power, with the Afghan national security forces, to ensure that justice is done. This tragic incident again demonstrates the very real risks that our soldiers face every day and we will learn all the lessons that arise from it. I know that everyone in this House will want to send their support to our brave troops and their families at this difficult time.

Turning to the European Council, Britain had three objectives at last week's European Council. The first was for eurozone members to take the urgent action needed to deal with the immediate crisis. The second was to secure a comprehensive growth package firmly focused on Britain's priorities and the third was to send a clear message to the rest of Europe about what Britain expects from the budget negotiations to come.

Under the previous Government, we could have been liable for financial support for these measures, as members of the EU bailout fund. But this Government have repatriated that power, so the British taxpayer is not involved.

On longer-term issues, eurozone members agreed important steps towards closer integration following a discussion of a report by the president of the European Council and others. It is vital for Britain—and for the strength and prosperity of the whole European Union—that they do this in the right way. I secured agreement that as this work goes ahead the “unity and integrity of the single market” will be fully respected. On the specific proposal of a banking union, I ensured that Britain will not be part of any common deposit guarantees or under the jurisdiction of any single European financial supervisor. I am very clear that British taxpayers will not be guaranteeing any eurozone banks and I am equally clear that, while we need proper supervision of our banks, British banks will be supervised by the Bank of England, not the ECB.

The original draft of the growth compact included a whole section on economic and monetary union which implied that a banking union might apply to all 27 countries. A number of countries worked to ensure that that whole section was removed.

We want a budget that is focused on growth not a focus on growth in the budget. EU members as a whole are €3.5 trillion more in debt now than when the last budget was negotiated and we have to face up to that tough reality. I made it clear that without the British rebate we would have the largest net contribution in the EU as a share of our national income. Without the rebate, it would be double that of France and almost one and a half times bigger than that of Germany. So the British rebate is not up for renegotiation. It is fully justified.

On foreign policy, the Council welcomed the EU oil embargo against Iran which came into force yesterday. On Syria, we called for united action by the UN Security Council to add more robust and effective pressure on Assad’s regime, including the adoption of comprehensive sanctions.

Europe is changing rapidly and fundamentally, and this presents real challenges for all countries. Those inside the eurozone have to face fundamental choices about whether to limit their national democracy and provide financial support to the weaker members, and like others outside the eurozone, in Britain we also face big choices too.

As Europe changes to meet the challenges of the eurozone, so our relationship with Europe will change too. There are those who argue for an in-out referendum now. I do not agree with that because I do not believe that leaving the EU would be best for Britain. But nor do I believe that voting to preserve the exact status quo would be right either. As I wrote yesterday, I do not believe that the status quo is acceptable. But just as I believe it would be wrong to have an immediate in-out referendum, so it would also be wrong to rule out any type of referendum for the future.

The right path for Britain is this. First, we must recognise that in the short term the priority for Europe is to deal with the instability and chaos. Secondly, over time we must take the opportunities for Britain to shape its relationship with Europe in ways that advance our national interest in free trade, open markets and co-operation. That should mean, as I argued yesterday, less Europe not more Europe: less cost, less bureaucracy, less meddling in issues that belong to nation states.

Thirdly, all party leaders will have to address this question. But it follows from my argument that far from ruling out a referendum for the future, as a fresh deal in Europe becomes clear, we should consider how best to get the fresh consent of the British people.

Finally, as I have said, as the eurozone moves to a banking union, we must ensure that Britain can take responsibility for sorting out its own banking sector. On the unfolding banking scandal here in the UK, we need to take action right across the board, introducing the toughest and most transparent rules on pay and bonuses of any major financial centre in the world, increasing the taxes banks must pay, ensuring tough civil and criminal penalties for those who break the law, and above all, clearing up the regulatory failure left by the previous Labour Government.

The British people want to see two things. They want to see that bankers who act improperly are punished and they want to know that we will learn the broader lessons of what happened in this particular scandal. On the first, the Serious Fraud Office is looking at whether there are any criminal prosecutions that can be brought, and it is using the full force of the law in dealing with this. On the second, I want to establish a full parliamentary committee of inquiry involving both Houses and chaired by the chairman of the Commons Treasury Select Committee. This inquiry will take evidence under oath, have full access to papers, officials and Ministers, including Ministers and special advisers from the previous Government, and it will be given, by the Government, all the resources it needs to do its job properly. The Chancellor will be making a full Statement, but this is the right approach because it will be able to start immediately, it will be accountable to this House, and it will get to the truth quickly, so we can make sure this never happens again.

I commend this Statement to the House”.

My Lords, I thank the Leader of the House for repeating the Statement by the Prime Minister on the outcome of the European Council meeting.

On the tragic news from Afghanistan, all our thoughts are with the families and friends of the soldiers concerned. This news reminds us once again of the risks our troops face daily and of our duty to do everything we can to protect them.

The Prime Minister in the other place included in his Statement on Europe a statement on banking. Leaving aside the admirable vote of confidence in his Chancellor, who is following the Prime Minister's Statement with his own Statement on banking, we on these Benches believe that it is right that the Prime Minister has reconsidered the position that he set out last week on the need for a full inquiry. However, we are not convinced that the way forward on this issue is the Joint Committee that he is proposing. It does not suggest that the Government have grasped the scale of the problem. We know that politicians investigating bankers will not convince the people of this country; nor is it the way we can build the consensus that is needed for real change. After all, there have already been a number of Select Committee reports into the banking crisis.

The crisis surrounding the banks now demands an inquiry similar to the inquiry into press behaviour currently being carried out by Lord Justice Leveson. We appreciate that the Leveson inquiry has been uncomfortable for politicians on all sides, but that is exactly how it should be. We will continue to argue for a full and open inquiry, independent of bankers and politicians, and we will table an amendment to the Financial Services Bill to this effect in order to get a proper inquiry that will be trusted by the people. We do not believe that we will rebuild public trust by having politicians investigating bankers. Like the Leveson inquiry, an inquiry needs to be searching, to expose what has been happening and to get to the truth. Furthermore, as we on these Benches hope will be the case with the Leveson inquiry, it needs to bring forward remedies to stop the practices, whether in journalism or in banks, that the public and all Members of this House oppose. That is how eventually trust will be rebuilt.

I turn now to Europe and the European Council meeting. On Syria, let me associate these Benches with what the Statement said. There was an agreement reached at Geneva on Saturday, but in truth there was little progress. The divisions within the international community on this issue mean that too little is being done to bring the escalating violence to an end. In that context, can the noble Lord, the Leader of the House, update your Lordships’ House on the position of Russia regarding a future for Syria without President Assad?

The European summit took place against a backdrop of the continuing crisis in the eurozone, a global recovery faltering, and a double-dip recession here in the UK. The central challenge is how we can have a Europe not of austerity and unemployment but of jobs and growth. On that central issue, the Government cannot be part of the solution because the Government are part of the problem. They have no answers and nothing to offer. On growth, the Prime Minister used an instructive phrase in his post-summit press conference. He said that,

“just as we had to tackle the euro crisis, so we have to tackle the growth crisis”.

He then added:

“Britain has been driving this debate”.

That really does suggest someone getting increasingly out of touch with reality because as the Prime Minister was speaking figures were coming in showing that the double-dip recession, created in Downing Street, was worse than we thought. The UK is one of only two countries in the G20 to be in a double-dip recession, with long-term youth unemployment having doubled during the past year. The summit agreed extra resources for the European Investment Bank for youth unemployment. Why do the Government appear to support action on this crucial issue in Europe while failing to act here at home? There can be no solution to the growth crisis unless we tackle the crisis of demand in the European economies and globally. Did the Prime Minister advocate any measures at the summit to bring this about?

On the banking regulator, what specific legal safeguards will the Government seek to secure between now and December’s final proposals to protect Britain’s interest in the single market? On the eurozone and bank recapitalisations, it is welcome that direct help can be provided to eurozone banks, but do the Government really believe that the funds that eurozone countries are making available are adequate? On the Patent Office, the Prime Minister says that the outcome is a sign of his success, but, as he argued for the office to be headquartered in London, how could the decision to base it in Paris be a diplomatic triumph?

I turn finally to the Prime Minister's position—or should I say positions?—on Europe. On Friday, the Prime Minister ruled out a referendum on Europe, saying:

“I completely understand why some people want an in/out referendum … I don’t think it’s the right thing to do”.

However, hours later, 100 Conservative Back-Benchers in the Commons and the former Defence Secretary called for an in/out referendum. Then, mysteriously, on Sunday, the Prime Minister hinted that he was ruling in a referendum. The Foreign Secretary then went on television and said:

“The Prime Minister is not changing our position”.

Three days, three positions. First, it was no; then it was yes; now it is maybe. Can this House have some clarity about the Government’s stance? First, has there been a change in the Government's position? Secondly, the Prime Minister spoke about a referendum being connected to the renegotiation of powers. Are the Government now saying that they might be in favour of withdrawal from the European Union if they do not get these powers? That would be a new position. Is it the Government’s position? Thirdly, can the Leader of the House explain the following? The Prime Minister said last October that,

“there is a danger that by raising the prospect of a referendum … we will miss the real opportunity to further our national interest”.—[Official Report, Commons, 24/10/11; col. 27.]

Why is the Prime Minister doing precisely that now?

Will the Leader of the House confirm that the Prime Minister’s raising this issue has nothing to do with the national interest? He is doing so not to sort out the crisis of growth here at home or across the EU, or to tackle the disgrace of youth unemployment, but in an effort to manage the divisions in the Conservative Party.

Five years ago, then in opposition, the Prime Minister said that his party should stop banging on about Europe, but now he is the man getting out the drum. The country is confused about this Government and Europe—a veto that never was, a referendum which may happen, but not now. This is a party, the party opposite, talking to itself and not to the country. Britain deserves better. It is time that the Government started doing better for the people of this country.

My Lords, perhaps I may clarify to my noble friend that there will be two Statements this afternoon, the second of which will be repeated by my noble friend Lord Sassoon, as is laid out on the screens, and will come immediately after Back-Bench time on this Statement.

As ever, I thank the Leader of the Opposition for her remarks. She asked plenty of questions and I shall try to deal with them fully. She expressed dissatisfaction at the Prime Minister having said that there should be an inquiry into banking and the LIBOR problem, because it was the wrong sort of inquiry. She said that her party would put down an amendment to a Bill before this House. She expressed disappointment with what the Government were doing, which is a pity, because I would have thought that one place where there is a good deal of expertise was in Parliament. To have a Joint Committee of both Houses looking at this matter, with Members of our Economics Affairs Committee sitting with their colleagues in the House of Commons, should surely be enormously welcome. It should also be able to respond quickly. We hope that it will get to work straightaway, call witnesses over the next few months and report by Christmas so that recommendations can be included in the Vickers Bill in the New Year. That seems to be an appropriate way forward.

The noble Baroness asked for our thoughts on Syria. She correctly recognised what a difficult situation it is. The situation remains grave, with hundreds of people dying every week. However, the Foreign Secretary was engaged this weekend in intensive talks in Geneva on a transition plan which included the Foreign Ministers of Russia, China, and other countries. The result is one step forward, which is worth having. We agreed with Russia and China that there should be a transitional unity Government in Syria, which should be made up of people from the present Government, the opposition, and other groups on the basis of mutual consent. It would of course exclude President Assad. We must now try very hard to bring this about. We are putting a great deal of energy into doing so, but nobody is under any illusions of just how complex all of this going to be, given the situation that exists in Syria.

The noble Baroness, the Leader of the House—

Sorry, the noble Baroness the Leader of the Opposition, the former Leader of the House, also talked about the Europe of jobs and growth. She said that the Prime Minister could not deliver this in the United Kingdom, and asked why he therefore thought he could deliver it in Europe. That is to completely misunderstand what this Government have been doing, and, of course, to misunderstand quite deliberately. We want to rebalance the economy, with private sector growth taking the place of government deficits. We want prosperity shared across all parts of the UK. We want to become a world leader in advanced manufacturing and knowledge-based industries and services, and to remain the world’s leading centre for financial services. We have done this by cutting corporation tax, ensuring access to finance, dealing with the red-tape challenge, and many other brave and sensible pieces of action which will take the Government forward, from where we were under Labour’s misrule towards long-term growth and prosperity based on real jobs.

The noble Baroness asked about the European Patent Office. She said that it was not going to be based in London. This has been discussed and debated for over 23 years. It is an area in which Britain excels. The Council has decided that the patent office should be based in three parts of the European Union: in London, Paris and Munich. The most significant part of it as far as we are concerned—pharmaceutical and life science industries—will be based here in London. It will bring a turnover of over £100 million-worth in legal services into the United Kingdom.

Much of what the noble Baroness asked about concerned the referendum. I have believed for a long time that the real muddle on European policy lies in the party opposite, and not in our party at all. We said that an in/out referendum is not the answer right now, and we stick to that. A referendum on a choice between the status quo and coming out completely when Europe is changing would be the wrong choice. It would be a bad time to make a decision. Europe is changing a great deal, probably more so currently than it has done for very many years. Indeed, it is entirely right for my right honourable friend the Prime Minister to look at how we want to change our relationship with Europe, and as the end point becomes clear, to consult the British people either in a general election or a referendum. I regard that as a very strong position. If the Labour Party disagrees with consulting the British people, they should say so.

My Lords, first, I welcome the sentiment expressed by the Leader of the House and the Leader of the Opposition about the death of the three British soldiers in Afghanistan. Our prayers and thoughts will remain with their families and friends.

I have two questions for the Minister. On the compact for growth and jobs, which will release €125 million for immediate investment, the noble Lord was broad enough to explain the area that may benefit Britain. Could he be more specific about what the real benefit to Britain will be from that money? Secondly, it is proposed that a group of eurozone members might pursue various measures, such as a financial transaction tax, through enhanced co-operation among themselves. If they do, will the Government ensure that Britain’s rights under the single market are maintained?

My Lords, my noble friend’s last point is crucial. There was real concern at the European Council and suggestions from other countries that a European banking supervisory system would be precisely that—for all the banks in Europe, including those in the United Kingdom. My right honourable friend the Prime Minister and others said that that should not and could not be the case, and we ensured that the final terms of the agreement ensured that British banks would not be a part of that but would continue to be regulated by the Bank of England. Within the eurozone area, it is of course entirely appropriate that they look at ways to improve banking supervision, ensuring deposits and working more closely together. That, too, should be welcomed.

As for growth, we are all pointing in the same direction. We want deregulation. We want a clearer completion of the single market, particularly in digital and energy. That will have an important impact on the European economy and, in particular, on the United Kingdom economy.

My Lords, does the Leader of the House accept my welcome that the lessons of last December seem to have been learnt on this occasion and that the Prime Minister has recognised that the right way to protect British interests is to stay at the negotiating table, not to reject any participation in negotiations? In my view, that is highly welcome.

As the Prime Minister begins to dance with wolves on referendum issues, does the noble Lord agree that it does not make much sense to parody the situation and the choice before us by talking about more Europe or less Europe? If we read the European Council conclusions, which I am glad the Prime Minister subscribed to, we see a great deal of more Europe in them in relation to the single market. There are references to patents, to the digital single market and to the single market in services, all of which require more Europe. It makes no sense at all to say that the British position is in favour of less Europe.

On Syria, does the Minister recognise that the Russian situation may not be one that we can work our way around? I am not criticising for one minute the attempt made in Geneva to achieve common ground, but it is doubtful whether that achievement is real or just apparent. If it is not real, it will surely be necessary to go to the Security Council to table a resolution imposing measures on the Syrian regime if it does not observe and honour the provisions of the Annan plan and put it to a vote, come what may. The only way you can find things out in the Security Council is by eventually putting it to a vote. If the Russians wish to veto it, they will do so, and that will be their responsibility.

I shall take those points in order. The noble Lord welcomed the fact that the Prime Minister wants to work together with his European partners. Of course, that has always been the case, including last December, when my right honourable friend was ready to support treaty change for the 27 in return for specific and practical proposals, which we put forward to safeguard the integrity of the single market. These proposals were not an opt-out for the UK, as some have suggested; they would have applied to the EU as a whole. However, other countries blocked them, and without those protections it was entirely correct that my right honourable friend used his veto.

Of course, there are some vital parts of the EU that have a positive impact upon the United Kingdom, and we should seek to preserve these. Equally, it is right for the Government to conduct a national audit of what the EU does and what the implications are for this country. Extensive preparatory work is progressing, and when that is complete we shall make a further announcement to Parliament.

As for Syria, I see entirely the force of what the noble Lord has said about putting down a UN Security Council resolution. It is, of course, a delicate matter. I do not think that the issue has advanced as far as that, but the option must be open to the Security Council to put forward a resolution.

My Lords, is it not clear that the present situation in the eurozone is unsustainable, that it remains unsustainable despite the changes agreed with the European Council, and that sooner or later—sooner better than later—countries that are part of the monetary union will have to decide whether they are going to enter into a full-blooded political union or whether they should dissolve the single currency altogether? If the former, which I do not think it will be, there is no way this country can remain part of the European Union. If the latter, as I hope, and the single currency is dissolved, we can remain in the Union and I hope they will have learnt their lesson.

On the LIBOR scandal, I welcome a proposal to set up a Joint Committee of both Houses under the chairmanship of my excellent former special adviser. I am particularly glad that it will be a Joint Committee that includes Members from this House.

My Lords, on the first question, I do not know whether the eurozone is unsustainable. I do know that there is a crisis that needs to be resolved, and the sooner it is resolved the better. Our view is that at the end of last week a bold step was taken in the direction of trying to solve the crisis. Certainly, the financial markets liked it. Whether it is going to be enough, quickly enough, it is too early to tell. As the Government have said, there is a remorseless logic to how the eurozone operates, which is why we decided not to join it.

I am glad that my noble friend welcomes the Joint Committee on LIBOR and the banks. I think he is a member of the Economic Affairs Committee of this House, so he may well find himself a member of that Joint Committee, which would see a reversal of the roles between its chairman and him.

My Lords, could I clarify the Prime Minister’s position on an in/out referendum? My noble friend the Leader of the Opposition asked the question and the Minister did not seem to be clear in his answer. Is the Prime Minister’s position that he is opposed to an in/out referendum, full stop?

Could I also, I think, congratulate the Government? The Minister seemed to confirm what was reported in the Times last week, but which I did not see anywhere else, that the Government and the Prime Minister have agreed to give €1.3 billion to the European Investment Bank to help growth in Europe. It seems an odd thing to do, given that I would have thought that the Prime Minister’s primary consideration was to promote growth here. However, I would welcome such a proposition. Could the Minister confirm this?

First, my Lords, I thought I had made it pretty clear that the Prime Minister and the Government are not in favour of having an in/out referendum now. It is not the answer right now, but who knows? I would not support one, and I do not think that the Government would, because it is not the right choice to make. The right choice to make is that since Europe is in flux we should see where it ends up and where the relationship changes, if it does. We already have provision, agreed by Parliament, that when power moves from the United Kingdom to Europe there should be a referendum, so referendums should not concern us very much. However, if that relationship changes, perhaps the right thing should be to consult the British people, either in a general election or in a referendum.

As for growth, we were very much part of the group that called for a credible EU growth agenda. The European Council endorsed our growth priorities on Friday. For instance, we secured agreement for the immediate implementation of actions to eliminate unjustified barriers on services. This alone could add 1.6% to EU GDP over the next few years.

My Lords, is not the use of “growth” incredibly mistaken in the context not only of my noble friend’s Statement but of the European Council’s conclusions, which I have before me? Indeed, the first paragraph of the Council’s conclusions states:

“The European Union will continue to do everything necessary to put Europe back on the path of smart … and inclusive growth”.

Perhaps my noble friend can explain the difference between growth and “smart … and inclusive growth”. Furthermore, I would be very grateful to know precisely what the Prime Minister’s definition of growth is, because I have been confused in recent weeks by his understanding of it. Growth in the long term in the European Union can be sustainable only by continuing to liberalise every country within it and by introducing supply-side measures. If my noble friend agrees that the Prime Minister accepts this principle, can he please let us know what supply-side measures the Prime Minister has been trying to persuade his European colleagues to implement in recent weeks?

My Lords, I, too, read those words from the conclusions of the Council’s meeting, which say:

“on the path of smart, sustainable and inclusive growth”.

I suspect that in different countries within the EU, it means rather different things. The conclusions go on to say that it should provide,

“a coherent framework for action at national, EU and euro area levels, using all possible levers, instruments and policies”.

It then directs the reader to the annexe.

That leads me to my noble friend’s second question. I entirely agree with him that growth in Europe will come from sustaining, liberalising measures within the European economy. Again, we have been at the forefront of that by arguing for sound money, for spending European money better and more wisely, and wasting less of it, for decentralisation and for reducing bureaucracy. All these measures are the kind of things that have worked in the past and will work again.

My Lords, the Statement refers to the British rebate. If there are proposals for changes to Britain’s rebate, can the Leader of the House say whether they would they have to be agreed by veto or QMV? My second question concerns the growth arrangements that four countries agreed on before the summit. Will Britain be making a contribution to that and will it add to the £150 billion to which we are committed through the ECB and the European Investment Bank? Finally, does he agree with Dr Liam Fox that Britain should negotiate a new relationship with the European Union and, indeed, that,

“life outside the EU holds no terror”?

My Lords, on that last point, there is no proposal for the United Kingdom to leave the EU, so the whole question simply does not arise. No analysis has been made, nor is likely to be made, of what life would be outside, and my right honourable friend has no intention of proposing a referendum on whether we should be in or out of the EU. There are substantial benefits to our remaining a member.

Yes, we are committed to funding aspects of the European Investment Bank. Many of these have been debated and discussed in the past.

Finally, the British rebate is absolutely fundamental to our monetary relationship with the EU. We will not agree to giving it up. The noble Lord asked me whether, if it were to be changed, it would be under unanimity or under QMV. I think that I am right in saying that it would be under unanimity; if that is not the case, I shall write to him.

Does my noble friend accept that we will be more likely to get the rest of Europe to help us, and do the things that we want in terms of growth, if occasionally we emphasise the advantages of our membership instead of constantly suggesting that all sorts of things have to be changed? Will he please ask for a bit more positivity in our discussions about Europe?

There are many of us on all sides of the House who no doubt would like to be positive about the EU, but there a number of aspects to change over the course of the past 15 years that we do not believe should be dealt with at a European level; we would like to repatriate some of these things back to the United Kingdom. I know that my noble friend Lord Deben may not be entirely in agreement with all of that, but dare I say that when we have seen this audit of competences, there may be more agreement around the House as to what should be done at a national rather than a European level than seems to be the case at the moment?

My Lords, I have listened very carefully to the Leader’s explanation of the Prime Minister’s position on a referendum. I think that I am an average member of the public and I still have not got the faintest idea what his position on a referendum is. Does he seek a fundamental renegotiation of the terms and conditions of our membership of the European Union, which he would then like to put to the people in a referendum? In which case, I ask the Leader what shred of evidence his leader has from his prime ministership of two years’ standing that any other member of the European Union is prepared to agree to a fundamental renegotiation of Britain’s position within the European Union. Should he fail to get a fundamental renegotiation, will he then put that failure to the British public in a referendum? Presumably, his recommendation then would be that we should say no, and come out.

My Lords, I do not think that the noble Lord was trying to be helpful there at all. He was making his own case and asking questions on his own terms. The plain fact of the matter is that there is currently a fundamental reorganisation within Europe, a reappraisal of different relationships, particularly within the eurozone, which is inevitable, given the crisis that has engulfed the eurozone countries. It may, therefore, lead to a renegotiation; whether or not that is fundamental, it is too early to say. All that my right honourable friend the Prime Minister was saying is something that I think is glaringly obvious: if, under those circumstances, we wanted to change our relationship with Europe, and if that end point became clear, why on earth would we not wish to consult the British people, either in a referendum or at a general election?