HL Deb 05 March 2002 vol 632 cc127-30

2.52 p.m.

Lord Willoughby de Broke

asked Her Majesty's Government:

Whether they consider themselves bound by the growth and stability pact.

Lord McIntosh of Haringey

My Lords, under Article 116(4) of the EU treaty, the UK shall, endeavour to avoid excessive [government] deficits". We are not obliged to avoid "excessive deficits" unless we move to the third stage of EMU.

Lord Willoughby de Broke

My Lords, I thank the Minister for that reply. Is he saying that we need not take the growth and stability pact terribly seriously unless we are foolish enough to join the euro-zone? If that happens, is it right that we will be much more tightly bound by the growth and stability pact and by the fines to which we are not currently liable as we are not in the euro-zone? If we join the euro-zone and are bound by the rules of the growth and stability pact, will that not severely limit any ability of this or any future Chancellor of this country to use his spending plans as he sees fit in the best interests of this country?

Lord McIntosh of Haringey

My Lords, without being thought to accept the language used by the noble Lord, Lord Willoughby, in his question, let me make it clear, as the Chancellor did only last week, that we support the growth and stability pact subject to prudent reforms to ensure that it takes account of the economic cycle, of sustainability of debt and of public investment. We have been in conformity with the growth and stability pact since its inception in 1998.

Lord Tebbit

My Lords, did the Minister's original Answer to the Question mean "yes" or "no"?

Lord McIntosh of Haringey

My Lords, as we are now in stage 2 of economic and monetary union we shall endeavour to avoid excessive government deficit. That is one part of the answer. If and when we move to the third stage of EMU we shall be bound by it. The answer to the Question was precise, accurate and much better than "yes" or "no".

Lord Peston

My Lords, does my noble friend agree that all contemporary thinking on fiscal policy comes to the conclusion that it should be conducted according to a set of rules and should not be ad hoc or gratuitous, as it used to be? The growth and stability pact is a very good example of conducting fiscal policy according to a set of rules. The one thing that this country does not need is to abandon rules in which to engage in fiscal policy. Therefore, the question seems to me at least—and I hope that my noble friend will agree with me; he usually does—to be completely misplaced in its understanding of modern thinking.

Lord McIntosh of Haringey

My Lords, I thought that the question was a purely factual one; to which I gave a factual answer. I agree with the thinking behind my noble friend's question. Yes, of course it is important that fiscal policy is conducted in accordance with rules. Our fiscal policy is conducted in accordance with fiscal rules which are those most suited to our needs. The European fiscal policy is conducted in conformity with the growth and stability pact which is, we believe—subject to the reservations which the Chancellor has made clear—appropriate for its purposes.

Lord Blackwell

My Lords, does the Minister accept that the need for the growth and stability pact for countries within the euro area encapsulates the fact that one cannot have a common currency without a common economic policy? The corollary from that is that one cannot have a common economic policy without a common political intent to set the rules. Therefore, the growth and stability pact is an illustration of the fact that membership of the euro is inevitably linked with political union.

Lord McIntosh of Haringey

My Lords, I do not think that I agree with any part of that complicated argument. We think that multilateral surveillance, which is what the growth and stability pact is, is a valuable discipline for all governments in considering their fiscal policy. It is valuable for the European economy that there should be agreed multilateral surveillance, whether it be the less formal version for those in stage 2 or the more formal version for those in stage 3.

Lord Stoddart of Swindon

My Lords, is it right that multilateral surveillance should mean interference in the affairs of this country and, for that matter, any other country of the European Union, since our taxation and public expenditure policy is a matter for the electorate of this country and not for any country or any group of foreign potentates? Is it not a fact that multilateral surveillance has encroached upon matters which are for the House of Commons and for the elected Government of this country and for no one else?

Lord McIntosh of Haringey

My Lords, I have made clear the extent to which we think that multilateral surveillance is valuable, both for us and for other members of the European Union. I do not believe that rules which, as my noble friend Lord Peston has made clear, are helpful in the conduct of fiscal policy, both here and in Europe, are an infringement of the rights of the House of Commons in any way. We think that a coherent economic and fiscal policy in Europe is to our advantage.

Lord Newby

My Lords, does the Minister agree that the growth and stability pact has already served an extremely useful purpose in encouraging a number of EU member states—Italy and Greece spring to mind—to adopt the kind of fiscal rules which I am sure that all members of this House would want them to have whatever our formal relationship with them? Can he further confirm that the Chancellor is currently excluded from discussions on the interpretation of the growth and stability pact by virtue of the fact that we are not members of the euro-zone?

Lord McIntosh of Haringey

My Lords, I certainly agree that multilateral surveillance of the kind set up in 1998 has been valuable. On occasion, countries have for their benefit and that of the European economy as a whole changed their policies as a result of that surveillance. We welcome that. As my right honourable friend the Chancellor has made clear, there is a need for a degree of flexibility, reinterpretation and reform. But to the extent that it has strengthened the European economy, which is so important to our economy, it is certainly valuable.

As to the role of the Chancellor in determining policy, of course the decisions about implementing the convergence programmes of those outside and inside the euro-zone are a matter for ECOFIN, of which this country is a member.

Lord Saatchi

My Lords, if the situation in relation to the pact is as relaxed as the Minister suggests, why did the Commission's statement on 30th January say that the United Kingdom's budgetary projections, would not be in line with the requirements", of the pact?

Why was it that, shortly afterwards, the Chancellor issued a scare story about the EU forcing a £10 billion cut in our hospital programme in order to comply with the pact? Why did the Chancellor, as did the Minister today, last week open his remarks on the EU White Paper with a list of excuses why Britain does not corn ply with the rules of the pact?

Lord McIntosh of Haringey

My Lords, first, I did not use the word "relaxed" and, secondly, the noble Lord protests too much. When we submitted our convergence programme last December, the projected government deficit was 1 per cent of gross domestic product at the end of the forecast period in 2006. That is very close to "at or near in balance or in surplus"— I cannot remember the exact wording. ECOFIN recognised that by in its comments only noting the UK's position. In the light of the fact that our gross debt at 60 per cent of GDP and our net government borrowing at 3 per cent of GDP are so far within the range of the growth and stability pact, a difference of 1 per cent in four years' time is relatively minimal.

Lord Tanlaw

My Lords, as the Question is about fiscal matters, does the Minister agree that time is money? Is he therefore able to say that when we reach stage 3 of European monetary union the Government will consider harmonising our timescale with that of Europe?

Lord McIntosh of Haringey

My Lords, I was going to answer the first part of the noble Lord's question by saying, "Which time is money?", but he answered that himself. I do not think that there is collective responsibility on this matter, so I can say personally that I strongly agree with what he says and has always said about European time.

Lord Wallace of Saltaire

My Lords, in his reply to my noble friend Lord Newby, the Minister stated firmly that the growth and stability pact was a matter for ECOFIN all together. Would he therefore confirm that the story in the Financial Times that discussion of the letter to the German Government about the growth and stability pact took place within a group that did not include the Chancellor of the Exchequer is inaccurate?

Lord McIntosh of Haringey

My Lords, I rather think that the content of a letter that might have gone to Germany but did not go in the terms originally intended was discussed in many contexts, including and excluding this country.

Lord Willoughby de Broke

My Lords, I did not think that anyone thought that that was the question. Perhaps I may pursue the matter. The Minister is trying to take the growth and stability pact seriously, but that does not really chime with what a Treasury spokesman was quoted as saying on 30th January, which was: The UK has no intention of reducing public spending by £10 billion as the Commission seems to imply …As we are outside the single currency we are not subject to its sanctions". Does the noble Lord agree with that? Is that the present position?

Lord McIntosh of Haringey

My Lords, I am sure that the noble Lord is actually quoting a Treasury spokesman. My point is that the Chancellor has for some time now been arguing for a sensible and prudent reform of the growth and stability pact. That is valuable whether or not we have joined European monetary union.

Lord Pearson of Rannoch

My Lords, if the Minister agrees with his noble friend Lord Peston that healthy fiscal policy requires adherence to a clear set of rules, can he explain to the House why the Government recently supported the Germans in driving a coach and horses through the pact in question?

Lord McIntosh of Haringey

My Lords, again, that is an interesting question but I do not accept the terms in which it is asked of driving a coach and horses. What in effect was the judgment of the European Union about the German economy was, I believe, quite right: the German deficit resulted from cyclical factors which, in our view, ought to be taken into account in making the judgments called for.