HL Deb 04 February 1998 vol 585 cc642-4

3 p.m.

The Earl of Clanwilliam asked Her Majesty's Government:

Whether they accept the International Monetary Fund Report No. 147 of December 1996 estimating the following net pension liabilities as a proportion of debt to GDP: of Germany as 110.7 per cent.; of France as 113.6 per cent.; of Italy as 75.5 per cent.; and of the United Kingdom as 4.6 per cent.; and whether these liabilities have changed since the date of the report in relation to the convergence criterion that debt should be limited to 60 per cent. of GDP.

Lord McIntosh of Haringey:

My Lords, the IMF figures are based on a number of assumptions concerning pension entitlements, contribution rates, long-term demographic and economic trends, and discount rates. Nevertheless, they provide useful information about future pension liabilities. I can confirm that the figures quoted in the Question are the IMF's latest estimate of net pension liabilities. The convergence criterion set out in the Maastricht Treaty is defined in terms of existing debt. It does not take account of future liabilities such as pensions.

The Earl of Clanwilliam:

My Lords, I thank the noble Lord for his interesting reply. An existing debt must be paid even though it will arise in future. Does the noble Lord agree that, in the event that EMU is achieved on time, as is likely, and there is not proper convergence, there will be irreconcilable conflicts throughout the Union?

Lord McIntosh of Haringey:

My Lords, the noble Earl asked me a similar question at the end of November last year. My answer was the same as the one I have just given. These future liabilities are not part of the Maastricht criteria, but potential future liabilities are covered by the stability pact and the requirement that member states in EMU should continue to restrain their deficits.

Lord Shore of Stepney:

My Lords, does my noble friend agree that it is strange to exclude pension liabilities from the calculation of debt to GDP? Does he agree that an even more intriguing question is what has happened to the 60 per cent. of GDP to debt ratio? Am I right in thinking that, if that were applied to the present applicants, Italy and Belgium would be immediately excluded since their debt ratios to GDP are over 100? What is the Government's attitude? What approach will they take when they come to consider eligibility for membership in two or three months' time?

Lord McIntosh of Haringey:

My Lords, in response to the first comment of my noble friend, there is no distinction between future potential liabilities for pensions and any other future liabilities. The Maastricht criterion is concerned with existing debt and no particular distinction is made for pensions. In answer to my noble friend's question, during the UK presidency we shall take a constructive attitude to ensure that the criteria are observed and that EMU proceeds successfully.

Lord Marsh:

My Lords, does the noble Lord agree that the main problem is not just the question of future debt—which must be met at some time—but the fundamentally different approach of some of our Continental partners to social expenditure? Does the noble Lord agree that it is that which makes it almost impossible to believe that convergence is easily achievable?

Lord McIntosh of Haringey:

My Lords, it is certainly true that, if and when future liabilities arise, they will have to be dealt with within the deficit procedure provided by the stability pact. But there are many other examples of differences between social policies and how they are funded in European countries, and it is not a requirement of EMU that they should all be pasteurised, so to speak.

Lord Boardman:

My Lords, does the Minister's earlier answer imply that these liabilities do not include pensions now accruing and not being paid, or are they limited, as he suggested, only to pensions which are now being paid? If it is the latter, does he agree that the extent of the difficulty of convergence is even greater than the Question suggests?

Lord McIntosh of Haringey:

My Lords, the future liabilities are for pensions which have not been funded. My instinctive reaction—I shall write to the noble Lord on the matter—is that that applies whether or not pension payment has already started.

Lord Bruce of Donington:

My Lords, can my noble friend confirm that it is the intention of Her Majesty's Government to adhere strictly to the provisions of Articles 5 and 6 of the Maastricht Treaty, which lay down the specific figures? Can my noble friend also indicate whether or not he has received representations from the Commission at this stage to vary those conditions? Such an event is provided for in Article 104c of the treaty and requires the unanimous support of all member states on a proposal from the Commission to vary the terms set out in Articles 5 and 6. Will my noble friend also bear in mind as a final caution that the statistical basis on which these matters are determined is specifically stated to be the business of the Commission?

Lord McIntosh of Haringey:

My Lords, I do not believe for a moment that that is my noble friend's final caution. The UK during its presidency will do its duty which is to secure the successful implementation of economic and monetary union. I am not aware that there has been any formal request for variation of the Maastricht convergence criteria.