Straus Kahn detained and misses bail out talks

 

            Mr Strauss Kahn is innocent of the criminal charges brought  unless and  until proven guilty. It is nonetheless interesting to hear how much the EU and some left of centre broadcasters are said to be missing him and how kind they are about him. As he was one of the leading architects of the Euro bail outs so far, I think he has a lot to answer for regardless of the US criminal case which now envelops him.

           It is people like Mr Strauss Kahn who perpetuate the myth that there is an easy way out of the problems heavily indebted Euro members find themselves in. Is it caring to offer the overborrowed nations more borrowings they cannot afford on easier terms? Is it caring to peldge more of the IMF’s money, usually reserved for  the world’s poorer countries, to help rich countries that have embroiled themselves in a common currency scheme that does not work?  If Mr Struss Kahn is such a financial genius, why couldn’t he see in advance that the Euro had no system for controlling excessive deficits, did not have sufficient transfer payments around the union, and had  no agreed system for deciding how to manage bond rates and money printing in a  way which was good for all parts  of the currency union?

            All the current troubles of the Euro were easy to forecast, and some of us did so more than ten years ago. Then people like Mr Strauss Kahn drove this political project through against the wishes of many of the people of Western Europe and against the advice of people who understood markets and had studied the break up of past currency unions that did not have a single country behind them.

              Greece is now having to slash public spending in a  way  people like Mr Strauss Kahn usually condemn because they are locked into the Euro at an exchange rate they cannot handle. Those who wanted the Euro must accept that their scheme has helped  cause the extreme cuts.  Many Greeks are out of work or facing wage cuts because the Euro scheme does not work for them. Ireland and Spain had property and credit bonanzas thanks to the imperfect design of the Euro system. They are now suffering badly from big credit and property price hangovers.

              I do not believe the EU has lost by not having Mr Strauss Kahn  at their discussions.His medicine would probably be  more of the same – new loans at below market rates, with new tougher and more unrealistic conditions attached.

               In the private sector some banking is now called pretend and extend. The banks pretend that the borrower will be able to repay one day, and that one day the asset cover will be restored when the assets go up again in value. On that basis they lend more, or maintain the existing loan, and continue to keep it on their balance sheet. They usually do make some general provisions, so there is a reserve if they eventually have to give up and write it off.

             The plight of portions of  the banks sovereign debt portfolios is far less rosy, thanks to the regulators and loan extenders. The banks are told that their sovereign loans are risk free and worth what they lent. Lending more should pose no problems. If you look at what the markets think Greek, Portuguese and Irish state debt is now worth, you should at least pause for thought. Those who lend too much to weak sovereigns are undermining the banking system of  parts of the EU as well as doing no favours to the states that cannot afford their debts.

Why we need green targets that understand the world economy is integrated

 

             There has been substantial press comment based on the exchanges between Treasury and the  Business Department  on the one hand and Mr Huhne on the other. We are led to believe that they have settled for demanding targets for carbon reduction  over the next two decades, as well as confirming the exacting  2050 target. In addition they have all signed up to a £16 carbon tax on CO2 producers.

           The government has two aims which have to be reconciled. The one is to drive down the UK’s output of CO2. The other is to rebalance the economy towards much more industrial output. The government suggests that these aims can be compatible one with another, because they are planning a massive greening of industry and business generally.

          It is true that new factories and new processes can use less energy per unit of output than older processes and plant. It is of course true that jobs can be generated to put in renewable power generation, high speed trains, home insulation and the rest that they say will cut the UK’s carbon emissions.

           However, it is also true that most manufacturing is energy intensive, and if you manufacture more you will use more power.  Manufacturing more cement to put in the concrete foundations for windmills or the railway sleepers for new train track is a very energy intensive process. Making more glass in the UK to put in better windows and solar panels entails substantial energy burn. Were we to make the trains for the high speed tracks, or make the steel for the tracks themselves, those too are very energy intensive activites. Whenever you make steel, forge components, shape, weld and rivet steel parts and put metal through an automated factory process, you naturally need to use substantial power.

           I would suggest the UK needs to be aware that single country CO2 targets can be misleading and may be unhelpful both for the domestic economy and for the green aims behind them if implemented in certain ways. A country can hit its targets to lower its own CO2 emissions if it turns to importing large quantities of enegry intensive product. If, for example, the UK imported more steel, glass and cement our domestic  energy use would be cut and therefore our CO2 output. If we still used the same quantities of these products total world CO2 output would still be the same – or it might even be higher if those products were made in countries less committed to driving down the  CO2 output in their plants.

              It is true new capacity to make energy intensive goods can be more energy efficient than older generations of plant. Some could even be powered by electricity generated from renewable sources, or imported from French nuclear reactors. However, there will remain furnaces and plants that have to burn gas or oil, or need to rely on the preponderance of fossil fuel electricity the country currently generates. When you rely on more wind energy there will be periods when the wind is not blowing when you need to use fossil fuel power. Building the stand-by power stations also  creates CO2.  It is important that any new target takes into account the impact of rebalancing towards more energy intensive activities.

           It is also important that the carbon tax is levied and fixed in such a way that it does not price basic industry out of the UK. I am not surprised that steel and chemical manufacturers are complaining about the tax, and saying they may move their activities abroad as a result. The government needs to make sure it has done its sums correctly, and designed a tax which is fair and sustainable, so it does not conflict with the policy of increasing industrial activity. Each project that is said to cut CO2 output needs to be analysed on a full life basis, including  the initial production of the trains, windmills and the like, and the complete  patterns of use of those who come to rely on these investments. When calculating the CO2 impact of train travel, for example, it is important to do journey start to journey finish, which may include car and taxi as well as train and is very influenced by the average occupancy rates for all the trains in the timetable on that new route.

The public sector wage freeze

 

            I have tabled a few questions to find out more of the details behind the public sector wage freeze the government has introduced. I have no disagreement about the general thrust of the policy. One of the ways of controlling the growth in public spending is to keep pay rates level for a bit after a period of strong absolute and relative gains for public sector employees. The policy is turning out to be tougher than originally imagined, because inflation is so much higher than planned. This means a bigger reduction in real living standards for those with frozen pay.

             I also agree that the lowest paid should be exempted. This is especially necessary given the high inflation, making it very difficult for people to balance family budgets from low pay.

            The issues I am trying to tease out are these:

Does a pay freeze mean a freeze to all age and experience related increments?

Does it mean no bonuses, or no increase in bonuses?

What is the approach to rewards for exceptional service or for hitting tough targets under a bonus plan?

What happens to someone who gets promoted or takes on additional responsibilities?

                 I think the answers vary by departments. It will be interesting to see. My suggestion is a pay freeze should mean an end to age and experience increments, but should not mean a refusal to pay performance bonuses. I also think if someone takes on more responsibility and work, as part of a cost reduction or efficiency programme, they should be eligible for a pay rise. Pay rises for promotions should be looked at in the light of the overall pay of the individual but should not be ruled out in principle.

              I would be interested to hear bloggers thoughts. At a time of 5% RPI inflation keeping pay increases down to say 1% would be quite an achievement. I would not expect a pay freeze to deliver zero. I would expect the overall pay bill to fall, as I would expect employee numbers to come down.

Trade Unions and the right to manage

 

                Occasionally I hear old rhetoric aimed against the Trade Unions. In the private sector that is a battle fought and decided years ago. There is no need for friends of management to demand tougher laws or to pursue an anti Union vendetta.

              Trade Unions can be a good way for some  employees to organise their representation to management. They work best where there are large groups of employees doing the same or similar work with a graded pay structure. Modern well informed Trade Unions are not a soft touch,  nor are they business wreckers. They recognise the need for managers to manage, and recognise the need to generate revenues and  profits before discussing how to share them out.  They see the need to raise quality and efficiency if British companies are to survive and compete successfully in a very competitive world. There are fewer jobs from loss making or near bankrupt companies.

           For their part, sensible modern managements keep their workforces well informed, argue the case for any change, and provide career progression and incentive for their staff. Great companies are as conscious of their image and achievement as a good employer as they are conscious of their brand or product image for their customers. They regard workplace safety, flexible working patterns, decent pay and conditions and team operation as the basics in creating and developing a good positive workplace atmosphere. The business has to be customer focused, but to be so it also needs to treat its employees with respect and give them sufficient scope to use their skills and improve their performance.

                 Recently we have seen two possible strikes averted. BA’s new CEO has done a deal with the new leadership of the Union which should put behind the company the difficult labour relations that have disrupted it over the past year or so. On the tube, a series of strikes was averted by talking and finding a solution to the underlying dispute. Passengers, British business and the employees should be the winners from this.

                  The public sector remains more prone today to labour disputes and Union difficulties than the private  sector. It is both more heavily unionised, and has more trouble in generating good positive employee relations.  The Coalition government needs to have a strategy to lift the public sector’s achievement as an employer, whilst pushing through agreed changes to working practises that boost quality and output for any given level of resource put in. To do this the more militant employees where they exist need to know that the government employer is no soft touch, whilst the sensible majorities need to know that the government wants to improve the public sector’s performance as an employer and is prepared to listen to good ideas.

            I have found when I have been resposnbile for workforces that most employees like a strong and positive lead from the top management, as long as it is explained, as long as they have a chance to influence it, and it is fair in its demands. In the public sector one of the first tasks  is to  improve morale so that absence rates fall. If a department has a high rate of absence compared to the average private sector experience it should be a warning to its managers that there is need to lift standards and motivate staff more.

Is there a news black out on the BBC about the EU?

 

            The debate we held on Wednesday evening was a crucial one. It was about the EU’s plan for a complete change to our Corporation Tax system. We widened the debate into one about sovereignty and why the government does n to simply say “no” to radical tax changes. I heard no mention of the proposals or the debate on the media.

            There was one bit of good news yesterday. Newsnight did run a debate on the Euro criss, and George Osborne did seem to rule out the UK making any contribution to a further Greek bail out, which was excellent news.

The Common Fishery Policy

 

               I have always opposed the Common Fishing Policy. I always thought it was bad for consumers, bad for fishermen and bad for the fish. The discard policy was especially crass, forcing the return of large numbers of dead fish to the sea in the name of conservation. It was always aimed at allowing others to raid our fishing grounds, but did not give the UK similar rights in southern waters.

               Yesterday under the excellent new backbench business arrangements we held a debate on it, and passed a motion urging reform. I have lost count of how many times I and other critics of the scheme have called for change. The good news is we hear that at last, after nearly 40 years of injustice and folly, the EU is considering reform. It is still a matter of doubt whetehr they will come up with anything worthwhile, but those who follow these things  will doubtless be pleased that the UK Parliament did do its duty yesterday on  this issue.

“More choice and more competition will lead to benefits for patients” say Lib Dems

 

                    The NHS has always relied heavily on the private sector. When it was set up the GPs were not nationalised. They remain to this day as independent contractors working for the NHS, but some can and do undertake their own private work as well. Hospital Consultants may also undertake work in  the private sector in addition to their NHS duties. All the drugs supplied to the NHS come from  profit making competing companies.  For many years governments of all three parties have used private sector cleaners, caterers, maintenance services, builders and professional services consultants on a large scale.

                   Labour during its last period in office widened the scope of private sector work, by encouraging private sector providers of clinical services to come forward to help clear waiting lists and backlogs of work.

                  The Lib Dems website acknowledged all this and supported the use of charities and private sector companies where this can strengthen choice, raise quality, and keep costs under control. They said:

         “Focus the NHS on the results it actually delivers for patients by allowing the best people – whether from the public, independent or charitable sectors – to deliver the care which patients needs”

         “Both the Conservative (p27) and Lib Dem  (p 42)Manifestos promised that new social enterprises would be created to deliver NHS services.  The Conservative (p45) and Lib Democrat (p42) manifestos promised that all types of providers – NHS, voluntary or independent sector- would be free to deliver NHS services.

          “We want patients to be able to choose to be treated wherever they want to be – whether it’s an NHS hospital, or one in the voluntary or private sectors. This is because more choice and more competition will lead to benefits for patients”

          “The NHS has never been a single, national organisation. It has always been made up of hundreds and thousands of different organisations and individuals – many of them from the independent sector…”

John Redwood’s contribution to the debate on the Charter for Budget Responsibility, 11 May

Mr John Redwood (Wokingham) (Con): Like all those who have participated in this debate, I welcome the four principal aims identified in chapter 3 of this document. It is exactly right when it says that we need to “ensure sustainable public finances that support confidence in the economy”.

We see all too many examples within Europe of what happens to countries that lose the confidence of world markets and the world’s bank managers. We see that far from being able to sustain high and rising public spending, such countries end up with far worse cuts that can be deeply damaging to their public services and social fabric. The Greeks seem to be getting into ever bigger difficulties the more money that is lent to the country on soft terms and the more that their Government fight to contain the deficit. We want to avoid getting into that vicious circle in which a Government raise taxes and cut spending, and the deficit grows because the economy plunges again and the revenues dry up even more. I think that hon. Members on both sides of the House now agree that it is most important that we undertake the work to ensure sustainable public finances.

When I listen to the debate in this House, I sometimes feel that very few people have read the numbers in the Red Book. The Government’s pathway is to borrow more than £480 billion extra over the five years for which they are planning. That is more than the total state debt 10 years ago; it is a massive sum. Some people think that we are going to be paying off the debt or paying off the deficit, but we are not.

This Government have, for understandable reasons, decided that they need to increase current public spending in each of the five years of this Parliament so that the impact of their decisions on public services can be gentle—I hope that in many cases it will not be felt in any bad way. As a result of that understandable decision, this massive borrowing has to be undertaken and the public debt will be so much greater at the end of the period. That makes it very important that we stick to the pathway of getting the deficit down, so that each year we borrow a bit less extra than the year before. That is the aim of the strategy. Some people seem to describe it in rather different and more draconian or alarmist ways, but the Government are simply trying to cut the rate of increase in the debt. If all goes well over five years, we will still end up making a far bigger increase in the debt than the total state debt just 10 years ago.

I am delighted that the second aim given in this document is to “support and improve the effectiveness of monetary policy in stabilising economic fluctuations.”

It is my view that the boom and bust were primarily created by a very badly managed monetary policy over the previous seven to eight years. We had the boom phase, when money was too easy, interest rates were too low and credit expanded too rapidly. Even worse, we had the bust phase, when the market was cleared of liquid funds, when interest rates were too high, and when the then Government were far too tight and jeopardised the financial system itself by pursuing a ridiculously tight money policy at the very point when it was obvious that banks were at risk and the system was in danger of collapse.

Chris Ruane (Vale of Clwyd) (Lab): Will the right hon. Gentleman refresh the House’s memory on his advice to the previous Government on the regulation of the banks?

Mr Redwood: I can indeed and I am glad that the hon. Gentleman did not dare to repeat the normal falsehood that has often been put about. The advice we gave was that they did not have enough regulatory control over the cash and capital of the banks, that they needed tougher regulation of cash and capital and that their mortgage regulation of process and customer was worthless and would not prevent disasters in the mortgage market. I rest my case: that is exactly what happened. The mortgage banks were not protected by their regulation—it probably made things even worse—and the then Government failed to regulate the things that did matter that could have prevented the crisis. I hope that the hon. Gentleman is put right on that now and will no longer read out the stupid spin lines from the Labour party created by people who clearly had not read the economic report to which he is referring. I was trying to keep this non-partisan, but he has decided to spoil the tone—

Chris Ruane: So was I. I was giving the right hon. Gentleman an opportunity.

Mr Redwood: I am grateful then. I did not realise that the hon. Gentleman was being so generous.

If we are going to support and improve the effectiveness of monetary policy, I hope the Government will think through how that will work. It is one thing to have a charter to say that we will do this, which is something about which I am very relaxed—it is a laudable aim—but it is another to ask how it will occur. The problem with the conduct of monetary policy—this applied to the previous Government as well as to this Government—is that it is not entirely in the hands of the Treasury. I happen to believe that it is ultimately the responsibility of the Chancellor and the Treasury to conduct an honest money policy that avoids undue booms as well as bankruptcies and busts. That requires judgment.

The main elements of that policy, however, are conducted at the moment by the Financial Services Authority, which determines how much banks can lend and admits it got it wrong in the boom period. I think that the FSA also got it wrong in the bust period and managed to go with the cycle, thereby reinforcing it, rather than leaning against it as it should have done. We also have the Bank of England setting interest rates and having some involvement, but not sole control, over how much money is printed. The Chancellor and the Treasury do not run the whole policy and that could become a problem again in the future if the independent bodies make a mess again, as they clearly did in the boom and bust phases we have recently lived through.

I hope a little more thought will go into how the charter can be implemented. I am sure that my hon. Friend the Minister will agree that whatever the theory about independence might be, as far as the electorate is concerned the people responsible for the state of the economy and therefore the conduct of monetary policy are the elected officials—the Ministers. If Ministers wish to delegate that responsibility to an independent body, they are entitled to do so and the public will be happy with that all the time it works but extremely unhappy if the independent body gets it wrong.

That brings me to my third point. Although I am happy with the aims and principles of the charter, I would caution the Minister that we should not place too much confidence in independence as the only virtue that is needed to get these things right. We have had an experiment with a so-called independent Bank of England for more than a decade now and that has been our worst decade for boom and bust since the 1930s. That is not entirely the responsibility of the Bank of England but it was part of the team that managed to preside over too much boom, too much credit and too much inflation and then over too little credit, too little liquidity and bankruptcies on a scale that none of us in this House had ever seen before. That shows that independence is no guarantee of success.

We also see from the Bank of England that its inflation forecasts have been way out for quite some time—

Chris Ruane: What about the growth forecasts?

Mr Redwood: I am coming to the growth forecasts, if the hon. Gentleman will be patient. The Bank’s inflation forecasts might perhaps have helped to mislead the previous Government as well as the present one. Those forecasts assumed that we would be somewhere around 2% when of course we have reached 5% or more on the retail prices index and 4.4% on the consumer prices index. Today, we have had another revision to the inflation forecasts from the Bank of England saying that there might be more inflationary pain to come over the summer of this year before we start to see progress back to somewhere near the 2% target.

I wish the Office for Budget Responsibility every success and hope that it will be more successful in its forecasts than the Bank of England has been in recent years. Today, the Bank had to announce not only an upward revision to this year’s inflation but a downward revision to this year’s growth. The OBR has already had to revise down its near-term year’s growth forecast in March of this year compared with its autumn forecast last year.

My worry about the current forecasts is that the assumption that we are going to have three years of above-trend growth over the balance of this Parliament after next year could be optimistic if the world economic slow-down, which is likely next year, continues for any length of time. If the euro crisis gets worse and creates more financial and economic turmoil among our major industrial trading partners on the continent or if there are unforeseen problems with the rate of slow-down in the emerging market economies, which are currently applying tough monetary medicine to try to curb their inflation, it could be that much more difficult to hit those Budget targets. That is all important, because we have as a third aim the laudable idea of a forward-looking target to get the current balance or deficit down and to get a better balance between revenues and expenditure.

I have explained that the five-year strategy assumes a very substantial cash increase in total public spending—around £94 billion from memory—and higher public spending on current account in the last year, compared with Labour’s last year, over this five-year Parliament. The way in which the deficit comes down in the official forecasts is mainly through a big increase in tax revenue. That big increase partly reflects the higher VAT rate and other higher tax rates that have already been imposed, but it mainly reflects the very good growth prospect in which we have three years of well-above-trend growth in the last three years of the period, accelerating from now onwards to that good performance. If there is any disappointment or need for downward revision by the OBR, that is going to throw out the tax revenues and we will therefore be faced with a bigger deficit that will require handling. We hear much debate in the House and in the media about whether the Government are trying to reduce the deficit too quickly, but the House should understand that there are risks the other way as well. If growth and tax revenue do not come through at the scale anticipated, we will be faced with rather more invidious issues to resolve about how to get the deficit down without that great super-boost from the revenue.

The objective for debt management is to minimise over the long term the cost of meeting the Government’s financing needs, taking into account risk. This is exactly the point I am trying to stress in this short debate. So far, the markets like the Government’s strong stance. They are pleased that the Government have regarded deficit reduction as the No. 1 thing they have to do and they are pleased with the OBR’s independent forecast showing that the rate of increase in debt drops off quite nicely over the five-year period. However, they will not be pleased if there is major slippage or if the OBR has been too optimistic, so it is most important that we have the right people in the OBR, that it has good fortune with its forecasts and that it has taken into account the possibility, for example, of a deterioration in the international background, which could have an impact.

In conclusion, I welcome the aims but I hope that the Treasury will consider the following important points. First, we must understand that just because a body is independent, that does not mean it gets things right. The Treasury will have to operate its own scepticism about the forecasts. If the OBR were too optimistic, it would be wise of the Treasury, at least privately, to have done some work on what might happen if the forecasts were too optimistic. One should not always assume that the OBR forecast is the worst case and that life is likely to be better. The Treasury should be very careful about that.

Secondly, the Treasury should do some contingency planning in case the world economy is worse than anticipated and has an impact on growth rates. Thirdly, it should take the opportunity that will be presented by the new regime for controlling the banks, which will be introduced when many powers are passed to the Bank of England, to say that the Treasury and the Chancellor must have a role in all that because it was definitely the regulation of banks and the bad conduct in monetary policy that gave us the huge pain of the past six or seven years. We probably need more intervention from the Treasury and more accountability to the Treasury to try and get the system to work in the future.

The Opposition love to say that the crisis was a global crisis and that therefore one should not blame any particular part of the UK governing establishment. I do not take that view. It was a largely western crisis and there were some advanced economies that were not affected by it. Australia had a particularly good period, China had a pretty good period, and India sailed right through without any problems. There were small and big economies that were not affected by the world crisis, even though global activity was hit, because American, British, Spanish and Irish activity was hit in a very predictable way.

It was a rather limited number of countries that had gross mismanagement of their money supply and their banking systems. As the election is well behind us we should, in a non-partisan spirit, analyse what went wrong, admit that things went wrong in Britain, and make sure that the new architecture, of which the charter is just part, functions much better than the old architecture. That means questioning the assumption that independent people always get it right. It means understanding the ultimate accountability of the senior elected officials, and it means understanding that sometimes we need to be more pessimistic, at least in our private forecasts, so that we do not discover that our plans do not work.

John Redwood’s contribution to the debate on the Common Consolidated Corporate Tax Base, 11 May

Mr John Redwood (Wokingham) (Con): Tonight’s debate should be a vital one because, after all, it is about sovereignty; it is about power. The might of this House of Commons in its great years was based on one very simple proposition: that only a vote of the House of Commons could impose or remove a tax on the British people. It was that power which our predecessors fought for and achieved, and it was that power which was crucial to grant the supply to the Government, who could then choose how to spend it, on the advice and with the votes of the House of Commons.

We have been assured and reassured by countless Ministers of the Crown since we joined the European Economic Community in the 1970s that taxation was always a matter for unanimity; that we would always have a veto over any tax matter; and that there was no question of the European Union interfering and choosing taxes for us or running our tax system. Under the previous Labour Government tax was said to be a defensible red line, which they always told us they had always protected. Under previous Conservative Governments, Ministers could rightly then say that it was always a matter entirely for the jurisdiction and decision of this House of Commons.

Yet tonight, in this small and short debate, we are presented with a 102-page draft law which is a comprehensive new corporation tax system for the European Union, including the United Kingdom. Worse still, we have been warned in a friendly way by the Minister that if this country disagrees with it, a group of countries may go ahead under some other procedure and create it anyway, and they will then exert extraterritorial jurisdiction over the UK because they will try to bid our companies away from our system to their system. As my hon. Friend the Member for Amber Valley (Nigel Mills) has just said, tax advisers and accountants will be able to play all sorts of games under this complicated system so that companies that have some activities in Britain could be tempted into the European Union opt-in system. That would mean that the British Treasury and British Ministers would no longer have jurisdiction over them; we would get back only what the sharing formula ballowed, which the European Union would be in charge of.

I assume that it is because the Minister is worried about that eventuality that she has not come here with a straightforward proposal just to veto the whole thing.

My advice to the Government is that this should be the issue we fight over. This proposal is so outrageous, it is such a comprehensive violation of subsidiarity, as they call it, and it is such a U-turn from the proposition that a member state has control over its own tax affairs that surely we should veto it. If we vetoed it and other countries still wanted to go ahead as a lesser group than the European Union, we should follow things through and say that it therefore does not apply to the United Kingdom and we will not operate it in respect of companies that are properly domiciled here and should be taxed here under our rules. We should set the rules for organisations and companies undertaking activity in Britain, making money in Britain and employing people in Britain. If we cannot do that, what is the point of this House of Commons? I think the Minister is in a stronger position than perhaps her officials and advisers have suggested.

We have heard, I think rightly, from my hon. Friend the Member for Stone (Mr Cash) that the legal base is not correct. In order to justify all the statements that this is a matter for unanimity, it must come under that measure in the treaty that states that other proposals can be produced but that they require the unanimous consent of all member states. It must come under a unanimous base. Once it is a matter to be decided under a unanimous base, we can then save the European Union a lot of time, trouble and money because we can simply say that we do not wish to have a collective corporation tax system and that Britain is going to use her veto. For once, surely, the United Kingdom could have some influence over the agenda of the European Union and we could show that we mean it when we say that taxation is for national decision—that it is a matter for subsidiarity, in the EU’s language, or a matter of sovereignty, in my language.

I would like to ask my ministerial friend what the point was of this House solemnly legislating to maintain, uphold or reaffirm the sovereignty of the British Parliament if we cannot even choose our own corporation tax regime. What is the point of our going along with the negotiations to try to ameliorate, improve or abate the severity of this draft law if we are doing so in the spirit that we will end up with a law of sorts anyway? We will then hear from the Minister that instead of it being something that we have vetoed, it is something we have taken the worst out to make it a bit more tolerable so that we can go along with it. It will not be necessary for the other member states who want the measure to use a special procedure to get it, and there will be no need for us to say to them that we refuse to go along with it or comply with it.

Mr William Cash (Stone) (Con): Does my right hon. Friend recall the words of Chancellor Kohl, who, only 10 or 15 years ago, made it clear that, on the question of the speed of the convey, which is what this is all about, he would want the front of the convey to go ahead, led by Germany, and for the other Member states to be left in such a parlous condition that they would eventually, in his words, have to catch up?

Mr Redwood: My hon. Friend is quite right. That also explains why the European Union is so keen to try to get the Irish rate up, because if it is to have a common system such as this, it would not want a weak link. The EU would see a weak link as a state that dared to set a more realistic and lower rate in order to attract business.

Steve Baker (Wycombe) (Con): As ever, my right hon. Friend makes his points with incredible force. Does he not agree if the European Union follows the policies of bail-outs and political interference with business all the time, we will keep seeing measures like this one again and again until we head towards a single centralised economic system of government?

Mr Redwood: My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.

The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.

Thomas Docherty (Dunfermline and West Fife) (Lab): The right hon. Gentleman has mentioned several tragedies and I note with some interest that the Treasury team includes this Minister, the Economic Secretary, whose views on Europe are well known, the Chancellor, whose views are very well known, and the hon. Member for Chelsea and Fulham (Greg Hands), whose views are also very well known. Perhaps the real tragedy is that the Liberal Democrats in the Treasury team, who are not even here tonight, have forced this policy on the Government.

Mr Redwood: I am not sure I believe that. We have heard from the Minister that they are a happy and united team and that she is proud of the work she has brought to us. I am saying that I would like her to improve the work and to go back and make that happy team one that can perhaps make us happier. The simple answer is veto—she should say, “No, this cannot work. It is a dreadful constitutional intrusion on a country that desperately needs its own economic recovery to accelerate, that needs lower tax rates and greater tax simplification and that needs to promote economic growth.” My right hon. Friend the Chancellor is beginning to do that, but I think more measures are needed to secure the deal and make sure it works.

I am quite sure that this huge deal—the 102-page draft law—is not the way forward. My hon. Friend the Minister says that there is no proposal, but I regard a 102-page draft law as a very serious proposal. Experience has taught me never to underestimate the power and persuasion of the European Union when it wants to do something. I think that it is now on a great push to establish all the central powers it needs for the economic governance of a single-economy, single-country model, and that this is part of it along with the economic six-pack. My strong advice to my hon. Friend is that Britain can do better, Britain needs to say no and Britain needs to exempt herself from all this, as we are entitled to do, so that we keep a sovereign Parliament and a growing economy.

Growth warning

 

                Yesterday the Bank of England revised their growth forecast downwards. They are not always wrong. Commodity markets had their second sharp sell off in a fortnight, as world investors recognised the impact of tightening money in the emerging markets and looked forward to the ending of the second phase of quantitative easing in the USA.

                   On cue, we had a debate  about  the government’s economic and financial plans last night in the Commons. It was one of those events wrapped in cross party agreement. It was to launch the government’s charter for independent assessment of our economic prospects by the Office of Budget Responsibility. These days politians happily sign up to giving things to experts and others  to do.

                   I wish the Office of Budget Responsibility every success in forecasting the economy. Their figures underpin not just the public debate  but also government policy to steer the economy and determine the size and role of the public sector. I did , however, point out that just because a body is independent of government does not guarantee it will  b e right in its forecasts. We have had a so called independent Bank of England for more than a decade, but we have also had a long period of inflation well above its target and many missed inflation forecasts from this body. The Office of Budget Respoonsibility itself had to revise its growth forecast down in March this year, revising a forecast which was just a few months old.

                  These two independent official forecasters, the Bank and the OBR, need to get inflation and growth correct as they are crucial to the government’s strategy. If the Bank could get inflation right and the OBR growth, they would help a lot in the two key areas that matter most to the strategy. The government’s whole fiscal strategy, its deficit cutting programme, rests on forecasts of rising and then sustained growth. If the growth disappoints the deficit will be larger and the country will have to borrow even bigger additional sums than the £480 billion pencilled in for the five year period of this Parliament. My advice to the TReasury is not to assume the OBR growth forecast is as low as it could be. The world background is deteriorating for growth. Growth could disappoint again. Controlling spending with a view to an undershoot in the less important and sensitive areas would be a sensible precaution against the possility that revenues will fall short of the OBR estimate.