Redwood warns of Government spending black hole

Giving away part of the rebate was reckless and wrong. John Redwood pointed out yesterday in Parliament that Alastair Darling has just added a ??70 billion spending black hole to his ??25 billion Northern Rock black hole, by signing up to the expensive EU budget settlement for the next seven years and giving away part of the UK rebate. All this money will have to be borrowed, meaning large interest bills and ultimate repayment by the taxpayer.

For John Redwood’s speech in full (taken from Hansard) see below.

<strong>Mr. John Redwood (Wokingham) (Con): </strong>In 1984, as a young man, I was the chief policy adviser to the then Prime Minister. One of my proudest moments in that job was when she returned from a difficult negotiation in the European Community where, thanks entirely to her skill, determination and perseverance, she obtained for the UK a most important reduction in the amount that we had to pay into the European Economic Community.

It was a great negotiation because to achieve that rebate, that lady had to persuade all the other member states to her point of view. She could not block the payments that we were making because a Labour Government had agreed them. She knew they were far too high, and it was her consummate skill as a negotiator and politician that slowly persuaded all the other member states, reluctantly and gradually, to the view that Britain was getting an extremely raw deal; it was paying far too much, and justice required that more of the money should be left in the United Kingdom.

As a result, the Government whom she led and those led by her two successors were able to spend more money on British public services chosen freely by the elected representatives? the majority party in this House? or to return more money to the British people to spend on their own families and businesses through tax reduction, which I greatly welcomed. That makes tonight particularly tragic, because a subsequent Prime Minister, Mr. Blair, went to a European negotiation at which all he had to do was say no. He need not have given any of that money away. He did not need any of the skills that Baroness Thatcher required to win us the rebate? he had all the cards in his hand. He merely had to say no unless and until the other members of the European Union saw the justice of the case that he was making.

When the former Prime Minister moved his position, from the excellent one that there was no need to give up the rebate and that it was not negotiable, to the position that it was negotiable, I and many of my right hon. and hon. Friends had misgivings. The Opposition were prepared to listen, however, and see whether it was feasible to negotiate a much better deal on the spending side of the account, whereby the British position would not worsen, while that of all members of the Union would improve if spending could be reduced on agriculture. Such spending gets in the way of efficient agriculture in many member states and prevents developing countries from getting fair access to our markets.

Some of my right hon. and hon. Friends withheld their criticism to wait and see whether the then Prime Minister had some negotiating skills. It beggars belief that he had absolutely no negotiating skills at all. Armed with the veto, he threw it away. Armed with a strong case to win over the new member states and the Nordic member states to the proposition that the common agricultural policy was bad and should be reformed, he was unable to persuade any of them. Tonight, we have a House of Commons with Labour Members almost in denial and about to vote through a disaster for the United Kingdom in the form of an extremely large bill that we cannot afford and do not want.

The Chief Secretary to the Treasury, who opened the debate, showed bravado and obviously implied that he thinks everyone in the country is a fool. He tried to present the Bill as some kind of negotiating success and a way of increasing the rebate. Yes, of course it increases the rebate, because it increases the spending by so much more. It means that Britain will end up paying far more in the seven years of the proposal than if nothing had been given away in the negotiations.

I notice that the Economic Secretary to the Treasury, who is on the Treasury Bench, has no intention of intervening, because she knows that I am absolutely right about the huge expensive. The documents reveal costings of ??7.4 billion at the current euro-sterling exchange rate. Given the parlous state of the national accounts, we know that every penny of that ??7.4 billion will have to be borrowed. If it were borrowed over, say, a 20-year period at 5 per cent.? the Government might be able to do that? there would be another ??7.4 billion of interest on top of the ??7.4 billion of capital that will need to be paid and then repaid over the 20 years of the debt. I leave out the interest on the interest, which would add to the sum even more. On the Government’s own admission in the explanatory notes to the Bill? they are riddled with errors, of course, but I do not think that this figure is an error? the minimum cost to the state and the taxpayer will be ??7.5 billion, which, in practice, will mean ??15 billion or more, because they will have to borrow it and we will have to pay interest on it.

If we look beneath the Government’s guidance, we see that the true bill to the taxpayer and the British Government will be far bigger. This Government have signed up to a set of spending plans that mean that, on average, every year over the seven-year period the United Kingdom will have to pay ??10 billion into the European Union, after knocking off the smaller rebate, which is still in place thanks to Baroness Thatcher. That means that, in practice, there will be an underlying spending increase of ??70 billion over a seven-year period. Using my simple sum, if the Government borrowed that over 20 years at 5 per cent., we are talking about ??140 billion of first-round interest payments and capital repayments, just to see us through the seven years. At the end of the seven years, of course, we know that we would be on another escalator, because our bargaining position would be greatly weakened thanks to the Government’s foolishness in giving away this most important principle and allowing the rebate to be weakened.

We know that the present Government are careless with public money. They say that any Conservative plan to spend a few hundred million or the odd billion on a tax cut would produce a black hole, yet along comes a mortgage bank in trouble and they can suddenly find ??24 billion without batting an eyelid. Now we discover that they can apparently pledge this country to pay ??70 billion over the cycle of the budget proposal. We know that they can propose that only because they intend to borrow every penny of it, just as presumably they are borrowing every penny of the ??24 billion that they have so far made available to Northern Rock.

The Chief Secretary to the Treasury produced several arguments, in the course of a long and rambling speech, for why the budget was a good deal for Britain. There was the strange argument that the rebate was going to increase, whereas we all know that there will be a worsening of the rebate and increased spending. There was then the argument that we should be extremely grateful and welcoming of the fact that, as a result of our much bigger contribution to the European Union kitty, there would be more spending in countries outside the United Kingdom. He implied that he believes that, as soon as a country gets European Union spending, it becomes more prosperous and its growth rate rises. That is a curious argument.

During my time in politics in Britain, I have seen some parts of the United Kingdom receive European Union money. We know that they have been receiving it because, as has been pointed out in the debate, one condition of it is that recipients have to stick the 12-star flag logo all over the sign boards for the projects, whereas I believe that under British law they are not allowed to put a Union flag on anything that we fund directly. Somebody rightly pointed out that the money is ours anyway, because we put more in than we get back. We know that some places have been getting that funding.

If we look, as I have, at the income levels and growth rates in the places that receive that funding, we see two interesting things. First, the poorest parts of the country receive the money. That is not surprising, as the main condition for getting it is that they start as the poorest parts of the country. The other thing that we discover is that, under this Government in the past decade, those areas have also had the slowest growth rates. The money is clearly not kick-starting those parts of the country into greater prosperity; it is part of the problem that is holding them down.

<strong>Julia Goldsworthy indicated dissent.</strong>

<strong>Mr. Redwood: </strong>I see the hon. Member for Falmouth and Camborne (Julia Goldsworthy), a Cornish seat, becoming agitated, but she must know that the Cornish rate of growth has been much less than that of London or the south-east. London and the south-east are not main recipients of European aid, whereas Cornwall is. If receiving subsidy and aid triggered a big increase in the growth rate, one would expect Scotland to have been the fastest growing part of the United Kingdom in the past decade, as it has had so much extra money from all sources. Instead, we discover that Scotland has been about the slowest growing part of the United Kingdom.

<strong>Julia Goldsworthy:</strong> The right hon. Gentleman is correct that there is still a large gap between Cornwall and the rest of the country, not only in GDP per head of population but in income. However, the rate of growth is now faster than the England average.

<strong>Mr. Redwood:</strong> Growth rates in London and the south-east are far greater than that in Cornwall, which demonstrates that European Union money is not managing to do what the hon. Lady hopes. I should be delighted if that money were well spent, but one of the big problems with European Union money is that under the rules, it must be put into schemes that it would otherwise not have been put into? by definition, marginal schemes or even those that are not thought very worth while.

<strong>Mr. MacNeil: </strong>Could not the argument be made that the issue is not actually about subsidies at all? The rate of growth in the Republic of Ireland, for example, has been double that in the United Kingdom. That has happened because Ireland left the United Kingdom and set its own tax structure to suit itself. Perhaps that is not happening in Scotland because Scotland is not independent so that it can compete, match and beat the Republic of Ireland.

<strong>Mr. Redwood: </strong>This is not a debate about Scottish independence, but I agree that cutting the tax rate is a very good way to accelerate the growth rate. The Chief Secretary to the Treasury seemed to think that subsidies to the Irish agricultural sector were the main cause of accelerated Irish growth. There is no evidence from the Irish economy that the agriculture sector has led the growth; it has been led by the service and manufacturing sectors. That is definitely the result of very low corporation tax.

<strong>Mr. Cash: </strong>On the Irish economy, my right hon. Friend might not have been here when I made the point that there is an excellent book by Mr. Roy Foster called Luck and the Irish? demonstrating that the money put in by the European Union has been less effective in increasing Ireland’s prosperity than American money and tax reductions.

<strong>Mr. Redwood:</strong> I am grateful for my hon. Friend’s endorsement of my case. So much European money went into the agriculture sector in Ireland, but that is not the great success story. The success story is in those sectors that have attracted large sums of foreign capital to create new businesses, which in turn have attracted a lot of talented Irish people back to Ireland to discover that it is a place where they can have very good careers.

<strong>Mr. MacNeil:</strong> Some economists argue that the agriculture subsidies not only did not help the Irish economy but hindered it in some ways, because resources were allocated to a less productive sector of the economy than they might have been.

<strong>Mr. Redwood: </strong>Again, the hon. Gentleman makes a helpful and sensible intervention. I hope that Ministers are listening; they might learn from it.

To return to my argument, all too often the projects financed by the European Union are marginal, or, in economists’ terms, sub-optimal? not those that one would choose for oneself. That is the role of the scheme. As the sage from Great Grimsby was saying a few minutes ago, would it not be much better if in some cases we could choose the projects ourselves and spend our own money on them without the middleman? without having to send the cheque to Brussels and then get some of it back after jumping through various hoops to prove that the project is one with which we would not otherwise have gone ahead? It is a rather crazy way to spend money.

<strong>Julia Goldsworthy:</strong> Does the right hon. Gentleman think that there is a benefit to investing in high-risk projects? Those projects often give the opportunity for the greatest returns, although they might not be viable in their own right or have the resources to take on that risk themselves.

<strong>Mr. Redwood: </strong>The hon. Lady should read a history of the 1970s, when we had a Government who thought that backing winners was a good idea, and every one turned out to be a flop or a loser. Maybe we are returning to that in the Government’s latest approach to choosing investment projects and dealing with European Union funding. One begins to worry.

The Chief Secretary’s next argument was that this had not all been in vain. Although perhaps in his more honest moments he accepts that we are talking about a very big bill? at least ??7.5 billion and maybe ??70 billion? he said, Ah, but there will definitely be agricultural reform.? That has already been revealed as a curious opinion given the attitude of the French, who will be in the chair of the European Union when the so-called review occurs. The language of the European Union has already downgraded the review, and the French have made it clear that they do not wish major reforms of the common agricultural policy to occur under their chairmanship. We come back to the question of how to negotiate. I always thought that when negotiating, if one is minded to make a concession in order to gain a concession from the other side, one makes sure not to make one’s concession until the other side makes theirs. That is what good negotiating is about. It is quite extraordinary to make a massive concession for 2007, and then say that in five or six years’ time, somebody might discuss making a concession the other way. Why on earth should they give us anything when we have negotiated in such a stupid way?

<strong>Mr. Oliver Heald (North-East Hertfordshire) (Con):</strong> Does my right hon. Friend agree that the French position is that the major reform of agriculture has already taken place? Further negotiation is not even a glimmer in their eye.

<strong>Mr. Redwood: </strong>My hon. Friend makes a powerful point. As others have revealed in this debate, it is not even clear that the proportion spent on agriculture is falling, although it is certainly clear that the amount spent on agriculture continues to rise. That is the French agenda, which has a lot of supporters in the European Union. I do not believe that the Government have a majority in Europe to support a significant change, and they certainly do not have unanimity on fundamental change, which is what they require.

Even worse, we know that quite a bit of the ??70 billion that we have been asked to contribute will be spent on programmes to which the auditors will not be able to give a clean bill of health. Extraordinarily, the hon. Member for Grantham and Stamford (Mr. Davies) has told us that that does not count, because such fraud, malpractice or misspending occurs in member states rather than as a direct result of European Commission action. However, all that money is spent under European Union rules.
<strong>
Mr. MacNeil: </strong>I am grateful to the right hon. Gentleman for giving way again; he has been very kind. To control misspending, does he agree that there should be a cap on the amount that certain individuals receive, which would mean that people such as the Duke of Westminster, who is a very wealthy landowner, would not receive obscene amounts from the CAP?

<strong>Mr. Redwood: </strong>I do not want to personalise the debate in that rather unsophisticated way. However, I make common cause with the hon. Gentleman in saying that too much money is spent through the CAP. The CAP should be reformed and that money should be repatriated. Too much money is also spent through a lot of other programmes. As the auditors have revealed, regardless of who technically spends the money, it is spent on European programmes, and all too often it is spent wastefully or even fraudulently, which should be a grave concern to us all.

I cannot say to the people of Wokingham, I voted tonight to make sure that you will pay more tax in order to spend another ??70 billion over the next EU budgetary period, and some of that money will be wasted, frittered or even spent fraudulently.? As someone who looks at the auditor’s reports from time to time, I cannot satisfy myself that that money will be well spent from now on and that we should relax. The money would be more likely to be well spent with proper investigation and control if it were spent closer to the people who paid the tax, rather than if it were to go through the intermediation of a remote and bureaucratic system of government on the continent before coming back here or to other member states to be spent by officials.

One of the myths of the EU is that it has a small and very effective bureaucracy. By remote control, the EU employs hundreds of thousands of bureaucrats throughout EU member states. Those bureaucrats might as well work for the EU, because they are doing the EU’s bidding? I am glad that that is not the case, because they would be asked to do even more things with which many of my hon. Friends and I undoubtedly disagree.

I urge all sensible Labour MPs to vote against the Bill tonight. Those who vote for it will vote for more British taxpayers’ money to be spent in faraway places, sometimes on fraudulent, incompetent or badly run schemes. They will vote for this country to borrow yet more money, which it cannot afford, and to pay yet more interest. They will vote for a further deterioration in the way in which this country’s budgets are run by this Government. They will vote for the results of a negotiation that was so maladroit that our previous Prime Minister gave away a wonderful set of opportunities that another Prime Minister had negotiated for us without getting anything in return.

This is an extremely sad day for the United Kingdom. It is a sad day for this Parliament, and it is a day that Ministers will come to rue. Ministers should understand that they are in a big borrowing hole. They have the black hole of Northern Rock, and they have the black hole of this Bill. Labour Members will find that there is less public spending for their constituencies, and Conservative Members will find that there are fewer opportunities to cut the burden of tax on the British people so that we can prosper more.

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One Comment

  1. Posted November 21, 2007 at 2:12 pm | Permalink

    A brilliant, insightful and truthful speech-so of course in our country nowadays it will be ignored. Isn't it frustrating to usually be Cassandra?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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