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Convergence Programme

Volume 753: debated on Wednesday 9 April 2014

Motion to Approve

Moved by

That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.

My Lords, I welcome this opportunity to discuss the information that will be provided to the Commission this year under Section 5 of the European Communities (Amendment) Act 1993.

As in previous years, the Government inform the Commission on the UK’s economic and budgetary position in line with our commitments under the EU stability and growth pact. The Government plan to submit their convergence programme by 30 April, with the approval of both Houses. The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2013 Autumn Statement and Budget 2014, and includes the OBR forecast. As such it is drawn entirely from previously published documents that have been presented to Parliament.

With the Budget on 19 March this year and the Easter Recess timings as they are, I appreciate that the timetable for this debate has been particularly tight. Against this backdrop, the Treasury has made every effort to provide early copies of the convergence programme document in advance of the debate today, and did so last Thursday. The document makes clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity and reiterates the Government’s number one priority—tackling the deficit.

Stability or convergence programmes form part of the European semester, which provides a broad framework for the co-ordination of the monitoring and surveillance of member states’ fiscal and economic policies, including necessary structural reforms across the EU. The positive value of the European semester is that it is a useful means to encourage other member states to grip the urgent growth challenge across the EU.

The Budget 2014 set out the Government’s assessment of the UK’s medium-term economic and budgetary position. In 2010 we set out clear, credible and specific medium-term consolidation plans to return the public finances to a sustainable path. Our plan makes clear that we will fix the economy and deal with the deficit, cut tax to encourage investment, back businesses, control welfare and invest in skills. We put that plan in place and adhered to it, and we are delivering results with it. The Government’s fiscal strategy has restored fiscal credibility, allowing activist monetary policy and the automatic stabilisers to support the economy and ensure that the burden is shared fairly across society. This long-term economic plan has protected the economy through a period of global uncertainty and has provided the foundations for the UK’s economic recovery, which is now well established.

Since last year, economic growth has exceeded forecasts and has been balanced across the main sectors of the economy, inflation is below target, and the deficit has been reduced year on year. Over 1.5 million private sector jobs have been created and employment is at record levels. Interest rates are at near record lows, helping to keep costs down for families and businesses. The Government are also making significant progress in reversing the unprecedented rise in borrowing between 2007-08 and 2009-10. The deficit has been cut by one-third as a percentage of GDP over three years and is projected to have fallen by a half as a percentage of GDP by 2014-15. The OBR has also forecast public sector net borrowing to reach a small surplus in 2018-19, and has judged that the Government remain on track to meet the fiscal mandate one year early. While the OBR forecast that the underlying structural deficit is falling, it is doing so no faster than was previously forecast, despite higher growth. The persistence of this structural challenge supports the Government’s argument that economic growth alone cannot be relied upon to eliminate a structural deficit, and while we are meeting the supplementary debt target one year late as before, the OBR has revised down national debt in every year of the forecast.

This year’s Budget is fiscally neutral despite lower borrowing across the forecast period, with an overall reduction in tax funded by a reduction in spending. The OBR has revised the UK’s growth forecasts upwards, as has the IMF, and they are now among the highest, if not the highest, in the developed world. However, as the Chancellor has said, the job is not yet done, and the same is true for the rest of the EU. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. Much of the answer to these problems lies in national level reforms such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments, and the UK has an interest in making these reforms happen. However, an ambitious EU-level reform agenda is also a key part of this equation and an essential counterpart to national level reforms. Recent European Councils have underscored the strong commitment of Heads of State or Governments to supporting growth and competitiveness, and I know that the Prime Minister has been driving forward this agenda along with leaders from a substantial group of like-minded member states.

As I reminded the House a year ago, deploying EU-level policies in support of economic growth, such as the single market, regulatory reform and EU-level free trade agreements, can achieve maximum growth impact at the least cost. The need to address Europe’s growth challenge comprehensively by tackling overall low productivity, lack of economic dynamism and flexibility is more pressing than ever before, and it is in our interests to make urgent progress. That is why the UK will continue to push this agenda at the highest levels and encourage the new Commission to take structural reforms seriously. I am today requesting that, in line with Section 5 of the European Communities (Amendment) Act 1993, this House approves the economic and budgetary assessment that forms the basis of the convergence programme. Following the House’s approval of the assessment, the Government will submit the convergence programme to the European Commission. It will make its recommendations to all EU member states in early June. These recommendations will then be considered by the ECOFIN Council on 20 June and agreed by Heads of State or Governments at the European Council on 26 and 27 June.

To reiterate, the convergence programme contains no new information, only information that has previously been presented to Parliament—information from the OBR’s economic and fiscal outlook and from the Budget, which sets out the Government’s strategy to return the UK to sustainable growth. I commend the assessment to the House.

My Lords, can the noble Lord remind the House of what exactly is the UK’s convergence programme? With what is the United Kingdom economy supposed to be converging, and why? As we are never going to join the euro, are we not wasting time? While I am at it, could the noble Lord remind us what is the European semester? But above all, why do we go on submitting the state of our economy to an institution which has not had its own accounts signed off, even by its own internal auditors, for the past 18 years? By its own estimation, at least £120 billion per annum goes walkabout and in each of its institutions the Mafia is rife and active.

In short, what is the point of this debate and, more generally, what is the point now of the European Union at all?

My Lords, the Minister will be pleased to know that I shall not be resisting the Motion. I am reassured by his assurance that there is no new information in the documentation being provided, but will just spend a few minutes commenting on that information and what it says.

We have been presented with a quite a glowing picture. In particular, if one did not listen too carefully, one could be left with the impression that the reduction in the deficit has been achieved as per the 2010 emergency Budget and the subsequent Autumn Statement. My recollection is that the intention was to have eliminated the deficit by now. The noble Lord can correct me if that is not the case.

We have heard that things are going well, but this is not how people up and down the country are feeling. They are facing a cost of living crisis. Working people are £1,600 a year worse off. The OBR has confirmed that people will be worse off in 2015 than they were in 2010. Energy bills are up almost £300 since the election, while childcare costs have spiralled since 2010. The number of young people out of work for 12 months or more has nearly doubled since this Government came into office. We have a record number of people who want to work full time but are being forced to work part time. Families will be £974 worse off by the next election as a result of tax and benefit changes. After three years of flatlining, it is good that we finally have some growth. However, for millions of people, this is no recovery at all. There is much more that could be done to help working people but the Budget was just another missed opportunity.

We should be getting young people back into work. Despite the Government’s rhetoric on full employment, there are no new policies to deliver this. The Work Programme is so unsuccessful that people are more likely to go back to the jobcentre than find work. Only 5% of disabled people on the Work Programme have found work through it. We need a compulsory jobs guarantee to ensure there is a paid job for every young person under 25 who has been out of work for a year.

We also need practical measures to tackle the cost of living crisis, such as tackling rising energy bills or helping families with childcare costs, within this Parliament. We would expand free childcare for working parents of three and four year-olds from 15 to 25 hours a week.

We should be cutting business rates for small and medium-sized enterprises. The Government are focusing their help on the 2%—the largest multinationals—and not doing enough for 98% of British businesses, the small and medium-sized enterprises. We need action from the Government to ensure a strong, sustained and balanced recovery. Manufacturing, construction and infrastructure investment are all down. Consumers are having to dip into their savings, and the OBR predicts that growth may well slow in the future when those savings run out. Indeed, the OBR sees households’ gross debt to income ratio rising from 124% in 2014, which was a 10-year low, to 165% in 2019, which is near to pre-crisis levels of indebtedness. Exports are falling, not rising. Nothing in the Budget tackles the productivity crisis that has emerged in recent years.

There is too much inconsistency and too many short-term measures and not enough consistency and stability for business to plan for the long term. On housing, we need a “help to build” scheme to counterbalance the Help to Buy scheme. There is a serious risk of a lop-sided recovery unless we match the boosting of demand with the boosting of supply. A “help to build” scheme focused particularly on ensuring that small and medium-sized construction companies can do better is one way to make a difference.

In the other place, the Chancellor said that,

“we are getting on top of our debts”.—[Official Report, Commons, 19/3/14; col. 781.]

The coalition Government would like us to forget their broken promises on borrowing and the deficit. They have had to borrow nearly £190 billion more than they planned in 2010 over the five years of this Parliament. The Government have added a third to the national debt, which now stands at £1.2 trillion, and three years of economic stagnation will leave the next Government with a budget deficit of £75 billion. They have borrowed more in the past four years than the previous Government did in 13.

There is a reason why the Tories cannot deliver for the many. They have the wrong priorities. They are giving an average £100,000 tax cut to millionaires. They have offered a marriage tax allowance that will help only a third of married couples, rather than, say, a 10p starting rate of tax, which would help millions more families. There is a fairer way to tackle the deficit and the Government’s failure to keep their promise about balancing the books, and to do this Britain needs a Labour Government.

My Lords, I am grateful to both noble Lords who have spoken in today’s debate. In a short speech, the noble Lord, Lord Pearson, succeeded in asking very fundamental questions about Britain’s position in the EU. Without spending too much time on his final, semi-rhetorical question, I should like to respond to his earlier questions about the convergence programme and the European Semester.

The convergence programme stems from the Lisbon treaty, which requires the UK Government to report regularly to the European Commission on the economic situation and forecasts in the UK. The report is drawn from previously published material, as I said. It is part of a Europe-wide programme. Under the stability and growth pact, all member states are required to submit either stability programmes, for euro-area member states, or convergence programmes, for non-eurozone member states. The European Semester is a common timetable for the submission and consideration of fiscal policies via the stability or convergence programmes and macroeconomic policies via national reform programmes.

The noble Lord asked: what is the point of all this? As the crisis in much of Europe has shown, it is in everybody’s interests that member states do not run up excessive deficits, because if they do the consequences of putting those deficits right are not confined to those member states. The UK economy suffered very significantly because of the eurozone crisis. To pick up one of the points made by the noble Lord, Lord Tunnicliffe, this is one of the reasons that the forecasts we made in 2010 were blown off-course. Given the very high proportion of trade we have with the eurozone countries, we are very much dependent on those countries prospering and therefore it is very much in our interests that they keep their public sector finances under control.

It is a detail, but the Minister said that the requirement comes from the Lisbon treaty. I thought that it had come from the Maastricht treaty, which we put into law in 1993. Am I mistaken?

The difference, I believe, is that the Lisbon treaty requires the convergence programme to be submitted to the Commission in the form that we are describing today, whereas the underpinning requirements about budget deficit and levels of growth were in the Maastricht treaty. What came out of Lisbon were the very specific mechanics of trying to co-ordinate via the submission of national plans every year which the Commission can then scrutinise and comment on.

I hope the Minister will forgive me, but I put a little bit of study into this. Article 103 of the Maastricht treaty—which may have been elaborated at Lisbon—states pretty bluntly:

“In order to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment. For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary”.

I thought today that we were responding to that part of that treaty. I want to draw out the point that our being here this afternoon at this late hour is the fault of all Governments, not perhaps just one.

Before the Minister replies, perhaps I may say that I support the noble Lord, Lord Tunnicliffe. He is of course right that the whole process in the Maastricht treaty was, I am afraid, waved through by the Conservative Government under Mr John Major when, if your Lordships remember, he was winning game, set and match. I am grateful to the Minister for his answer, but I would still like to press him on why the United Kingdom has to take part in this demeaning and absurd process. I understand that it might be useful for the countries which have unfortunately joined the extremely destructive process of the euro and everything that goes with that, but why should we, if indeed our economy is recovering in the way that the Government claim, have to go cap in hand to Brussels and discuss with them anything that we want to do, especially as we are, luckily, thanks to the Treasury, not in the euro?

My Lords, perhaps I may deal with the point made by the noble Lord, Lord Tunnicliffe. Obviously, the Motion that we are debating today stems from Maastricht, but the codification of how it was to be done is to be found in Articles 121 and 126 of the Lisbon treaty—I am sorry that I do not have them before me to read out to the House.

The noble Lord, Lord Pearson, describes the process of submitting the forecasts as “demeaning”. Certainly, there is nothing demeaning about the state of the British economy. We are very happy to send the forecasts to anybody. However, as I said, just as we depend in no small measure on the economic success of the rest of the EU, so the rest of the EU, as he is very fond of reminding the House, depends on our economic success. We are part of a single market and, again as the noble Lord often reminds the House, we contribute to a budget one of the main purposes of which is to promote growth across the EU. So it is only sensible that the EU as a whole looks at how Governments are meeting their commitments by running a successful, stable and growing economy.

The noble Lord, Lord Tunnicliffe, raised some pretty familiar criticisms of the state of the economy. I always find it slightly amusing when members of the Labour Party, which consistently wanted to spend more at every point during this Parliament, object to the fact that the deficit is higher than it might be. If they had spent £12 billion a year by cutting VAT, as they proposed, the accumulated deficit would by now almost certainly have been greater. It is bizarre for the Labour Party, which has been pushing for higher expenditure—that would necessarily mean a bigger deficit, certainly over the period we are discussing—to upbraid us for following a policy that allowed the economic stabilisers to work and ensured that we did not have further cuts in the face of the European crisis. We allowed the stabilisers to operate in a way that minimises the impact of the crisis on employment—and on growth—and formed the basis for the creation of 1.73 million additional private sector jobs during the course of this Parliament.

The noble Lord says that we have done nothing to get young people back into work. I remind him that youth unemployment fell by 29,000 in the quarter, in the three months to January, and by 81,000 in the year. Excluding people in full-time education, there was a decline of 16,000 in the number of 16 to 24 year-olds who were unemployed over the quarter. The youth claimant count has fallen for 21 consecutive months. On the latest figures, the reduction in the youth claimant count is falling at the fastest pace since 1997. The number of those claiming for more than one year has fallen for the 15th consecutive month, down by 2,300 on the month to 53,400. Youth employment in the quarter rose by 43,000, which is an extremely significant number. Those 43,000 young people who now have a job who did not before would find it extremely difficult to recognise the Opposition’s description of what is happening to the economy.

I absolutely understand the noble Lord’s criticism that some people have suffered in their standard of living. Sadly, that is what happens to some people during a recession. However, I remind him that the Government have taken a wide range of steps to mitigate that fall. Of course, the increase in the income tax allowance to £10,000 is the single most significant one, but I also remind him of the freeze on fuel duty. On jobs, I remind him of the £2,000 national insurance allowance, which will make it easier for small businesses, in particular, to retain or take on additional staff.

The noble Lord also criticised the Government on the basis that the recovery was unbalanced. He will know that manufacturing output was up last year. The forward surveys of manufacturing are more positive than they have been for many years. He will probably be aware that the figures from the RAC, I think, yesterday suggested that in the past month, the area with the highest growth rate in permanent placements was the north. He will also be aware of today’s figures showing that the balance of payments on the latest deficit is down, so we do not have unbalanced growth. Every sector of the economy is growing. Forward forecasts in services and manufacturing are at record levels; in some cases, they are higher than ever before. So the prospect for the period ahead is of not just growth but a greater degree of balance in growth than we have seen for a considerable time.

Ultimately, such sustainable growth is the only way for both the UK and EU member states to pay down their debts and exit what has been, by common consent, a very difficult economic period. The UK is leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the Motion to the House.

Motion agreed.

House adjourned at 5.31 pm.