Category: Debates

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.

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.

Mr John Redwood (Wokingham) (Con): Given the looming shortage of capacity, how much new capacity is in-build as a result of decisions taken in the last year, and how much does the Minister wish to get in-build as a result of decisions in the forthcoming year?

The Secretary of State for Energy and Climate Change (Chris Huhne): I am grateful to the right hon. Gentleman for his question on that issue. Obviously, there is an absolutely central objective of the electricity market reforms, on which we are consulting, and it is that we bring forward proposals. We are determined that we should have an adequate supply margin through even the toughest of winters. My whole ministerial team is determined to ensure that, and I merely urge him to wait for our White Paper, which will I hope reassure him about the prospect.

Mr John Redwood (Wokingham) (Con): Colleagues on this side of the House will know that the Secretary of State has a great passion for the health service, and great mastery of his brief. Will he confirm, for the sake of all hon. Members, that the object of getting rid of PCTs and top-down targets is to free a lot of money for patient care? That should be in the interests of all hon. Members and their constituents.

The Secretary of State for Health (Mr Andrew Lansley): I am grateful to my right hon. Friend. Before the election, the previous Labour Government said that it was necessary to save up to £20 billion in efficiencies in the NHS, but they never said they would reinvest that money in the NHS. We have said that we will reinvest it. In order to deliver those efficiencies, 10% of that gain will be achieved by cutting the costs of bureaucracy and administration. We have set out how we will do that, but the previous Government never did.

Mr John Redwood (Wokingham) (Con): Will the Minister remind the House how many uniformed armed services personnel will need to leave the service over the next two years under the current plans, and will he tell us why this cannot be done by means of natural wastage rather than redundancies?

The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan): As far as possible, it is being done by means of natural wastage, and indeed by reducing recruiting, but, as my right hon. Friend will understand, we must continue to recruit because otherwise there will be an imbalance in the armed forces. The number that we are looking at, off the top of my head-in fact I have it here, if my right hon. Friend will wait one second-is 11,000.

Mr John Redwood (Wokingham) (Con): Those of us who are worried about the amount of money to be spent on the proposal might be persuaded a little more if the Minister could give us an idea of by how much the cost will come down as a result of this resolution, and say what other measures he can take to try to secure better value.

The Parliamentary Secretary, Cabinet Office (Mr Mark Harper): I can reassure the House that, because of the way the Bill and the amendments are drafted, the chief counting officer can directly recover expenditure only where it has been incurred in a way that provides a clear financial benefit to the public purse. The test is that the chief counting officer may recover expenditure that she has incurred for the purpose of running the referendum only where that expenditure would have been incurred by local or regional counting officers in any event, but where it was more economical for it to be incurred by the chief counting officer. The resolution is therefore aimed at saving money.

Mr Redwood: How much?

Mr Harper: The whole point is that it is not possible to predict every eventuality. The resolution says that if by spending money herself centrally, the chief counting officer can get services at a lower cost than all the individual regional counting officers, she will be able to do so, thereby delivering a saving, although it is not possible to quantify this in advance. I have given a specific example of where we know there is an ability to deliver a saving, but I cannot give my right hon. Friend the certainty on the numbers that he seeks. However, having given him the detail that I am able to, I commend this resolution to the House.

Mr John Redwood (Wokingham) (Con): Does not the Minister understand that we do not want better impact assessments, but less regulation? How will the Government deliver their very good one-in, one-out policy on regulation if they cannot stop the torrent of regulation that is still pouring out of Brussels now that it is occupying the whole of the financial services field, for example?

The Minister for Europe (Mr David Lidington): We have to do both. The two are not alternatives. Impact assessments are valuable, and they focus the minds of other European Governments, and of the groups representing industry in those member states, to become more active in pressing home their interests than is sometimes the case at the moment. The more transparency that we get in the European legislative process, the more likely it is that we will move towards the objective that both my right hon. Friend and I seek.

I would share with my right hon. Friend a wish to see the EU legislate less. There is too often a culture in the Commission that identifies a problem and then seeks a remedy in the form of new law. Non-legislative measures can often be more effective, and certainly less burdensome and complex, than legislative measures. That is something that my colleagues across Government are pursuing with colleagues from other countries who share our views on this matter, and we seek to encourage other countries to work with us to look for non-legislative ways of addressing problems and challenges, rather than looking for a new directive as the first resort every time.

Mr William Cash (Stone) (Con): My hon. Friend the Member for Witham (Priti Patel) referred to fishing, and there she was in sensitive and deep waters. She explained very well the six-mile limit, the fisheries limit of up to 12 miles, the 2002 regulation and the associated issues, but that does not alter the fact that this is a serious problem for the fishermen of the United Kingdom. In considering the idea that there should be any restriction of our sovereignty and territorial limits in these matters, we should remember that the entire fisheries policy, which we shall not debate in detail today, I can assure you, Mr Caton, is a complete travesty. There is no question about it: it constitutes the most monumental waste of good fish, which are thrown away and literally left to rot. It is pathetic, and I need say no more than that. That we should regain a degree of sovereignty and territorial competence in relation to fishing is to my mind a given.

Mr John Redwood (Wokingham) (Con): My hon. Friend has made a very powerful comment. Many of us have felt for many years that the fisheries policy was a scandal. Successive Governments have said that they would do something about it; none have yet succeeded. Does this not show why we are also worried about the surrender of criminal justice powers? We are surrendering them to the very people who have made such a mess of our fisheries.

Mr Cash: Absolutely, and the same problem permeates so much of what goes on in the European Union. I am anxious not to get into discussing the merits of the European Union as a whole, and I shall certainly ensure that I keep to the amendments; but I entirely agree with my right hon. Friend.

Mr John Redwood (Wokingham) (Con): This Bill is born of a very serious mood in our country. A majority of people in Britain feel that a great amount of power has already passed to the European Union over the past 20 years, and they feel that powers are still drifting away under this new Government. They would like to see that progress arrested, and they would like to see powers brought back in certain crucial areas. They would like to feel that more of their lives were under democratic, accountable government here in Westminster than under the less accountable, less democratic government of the European Union. The Government would be wise to heed the seriousness of that view among many in this Parliament, representing many outside it.

I welcome the Foreign Secretary’s noble aim. He says that the aim of his legislation and policy is to give us all a greater sense of empowerment when it comes to matters of European governance and action. I would urge him to look again at his Bill, however. It is certainly cleverly contrived, and it is certainly contrived in a great deal of detail, but it is, in practice, the not-the-referendum Bill. On every area of competence and power that we see drifting away or being transferred from us as we have this debate, we are told, “That would not qualify for a referendum under this legislation.”

I believe that the Foreign Secretary has taken legal advice, and he wants to have a referendum on the transfer of competences rather than on the transfer of powers. I would suggest that that is a tad too clever. We all know that most of the competences have already gone. That was what Lisbon was all about. That was why he and I fought tooth and nail, together, against that treaty and in favour of a referendum on the treaty. Most of the things that the Government now wish to do are a shared competence with the European Union. What matters is not a further transfer of competence, but a further grab or transfer of power by the European authorities.

When the Conservatives were in office, we made it very clear that we wanted trading relationships and friendships, and a certain amount of common legislating in single market and related areas, but not a common Government or political union. To reflect that, the architecture that we persuaded the partners to accept had the third pillar areas of foreign affairs and home affairs, which were matters for independent sovereign states to decide, and we always preserved the veto on any common action. That has now been eroded. So, as we meet to debate the so-called referendum lock, we see powers on home affairs being surrendered, issue by issue, by this Government-as they were by the previous Government-which will result in a much more common criminal jurisdiction from the European level. The British people need a voice on that matter; they need to be asked about it. Some of them might even agree with it, but they want to be treated seriously, as grown-ups, and asked if that is how they want their country to be run in the future.

On foreign affairs, we are being told as we meet that we still have a veto on the big issues and that my right hon. Friend the Foreign Secretary can play his part in shaping a common European action and diplomatic strategy. At the very same time as we have to cut severely the growth rate of our public spending and make some deep cuts in certain areas, which we do not like, we see the European budget going up rapidly, partly to finance a big expansion in the European diplomatic service. This is not being done in order to have holidays in the sun, as some national newspapers seem to suggest, but because the EU wishes to exercise power and authority on our behalf and on behalf of other member states.

Mr Bernard Jenkin (Harwich and North Essex) (Con): I do not think that the Foreign Office has fully understood the consequences of encouraging this to go ahead, which is what it did. I am afraid that a great many of us voted for it in this House. The European External Action Service is ordering much more expensive cars, is going to have grander embassies and is going to pay much higher salaries than our own diplomatic service. That will be to the detriment of our diplomatic service because it will attract the talent away from our service and towards the European External Action Service.

Mr Redwood: It means that when a British Foreign Secretary makes foreign visits, he or she will be kept waiting while the EU ambassador is received and considered because the latter will speak with more authority on behalf of more people and more states.

It is the third area that we have always reserved for national veto and national competence-central economic policy making-to which I shall address the remainder of my brief remarks in this truncated debate. Literally as we meet here this afternoon, crucial and massive issues are being hammered out in secret around the Council table in Brussels. Quite likely to be on the agenda is the issue of European sovereign bonds and the effective creation of a European sovereign in financial matters that issues debt and guarantees debt on behalf of member states. Do we want that? Are we in it? Is it not a transfer of power if we go along with it? Is it not an issue on which we should be invited to express our views?

Another item on the agenda may be the future membership of the euro. The Council could be considering in secret whether all member states are able to stay in the euro and whether the strong or the weak members should leave. If they are to keep the euro area together, what will be the arrangements for the large transfer payments that need to be made if the single currency is to have some hope of a decent life in the future, as all successful single currency areas have much bigger transfers of tax revenues, subsidies and money around them than the euro area currently does?

Mr William Cash (Stone) (Con): My right hon. Friend portrays so accurately the realities that lie behind this Bill, which is about the economic crisis in Europe as well as many other matters. Does he agree that one serious current problem is the financial stability mechanisms and that if we do not assert our rights in this House and make certain that the courts cannot get their hands on an interpretation that would go the other way, we could end up paying for other countries beyond Ireland-Portugal, Spain and others?

Mr Redwood: My hon. Friend is absolutely right, which is why the transfer of power, if not of competence, is such a crucial issue and why we need to engage in a public debate at this very moment about how far this should go.

I hasten to stress to the House-particularly to my critics, who like to misconstrue what I say-that I wish our partners every success and prosperity with their single currency. I know that if that is the way they choose to run their economies, it is in our interests for it to work. We want them to be happier and more prosperous, and we like to benefit from trading with them, just as they like selling us a lot of their products. My worry is that in the process of our enthusiasm for that, we will draw in Britain-with her rather stretched budgets, even after the changes that the Government have rightly and wisely made-at a time when we do not have the financial strength to go to the aid of all these other euroland countries that are in some difficulty under the euro scheme.

I am a critic of the Irish loan. Of course I do not want to see the Irish economy go down, but I do not happen to think that lending the country lots of money at that juncture, as a result of a crisis deliberately created by the European Central Bank, was a terribly good way to behave. I do not believe that if Britain had declined to make some money available, the Irish loan would not have been negotiated. It would have been negotiated quite successfully by the architects of it-the powers behind the European Central Bank, who literally decided to withdraw funds from the Irish banks at a difficult time and made that decision public, thereby precipitating the crisis. We were engaged in a refinancing package for the European Central Bank. I think we should be told the truth; we should be told why it was a good idea for a country that rightly stayed out of the euro because it did not want the financial risk and hassle, to be drawn into helping finance the consequences of an ill-judged currency without a political union.

A successful currency needs a sovereign to love it and support it. That is why the sovereign’s face traditionally appears on the coinage and why there has to be a symbol to show that the whole weight of legal and economic authority stands behind a currency. If Europe is to have a successful euro, she needs a sovereign. I do not want my country to be part of the euro, and I think that around 80% of the British people agree with me. I think that even Opposition Members temporarily agree with me on this issue; they are not rushing to say that now is a good time to join the euro. We should be open and honest with the British people and say, “We wish the euro well”. We are doing it a great favour by not trying to join it-we would have been an over-mighty subject in it, which might even had led to it toppling earlier-and we are not currently in a financial position to make all the transfer payments available that are necessary for full members of a single currency area.

The House needs to understand that while we are debating some abstruse language and pledging this and future Governments to hold a referendum on treaties unknown about competences unspecified, a potentially massive transfer of power is under way yet again from the member states to the centre. There has to be; the thing cannot work without more central power behind the banks and the economic institutions.

The British Government say that they will accept a treaty extending the centralising powers in the economic sphere because the penalties on these will not apply to the UK Government. Well, I am delighted that the penalties will not apply, but I see no reason why the requirements should apply either, because we are not part of the euro. We should offer our support for a strengthening of economic governance for the euro area alone and make it clear that all the regulations and the directives apply only to that area. I think that my right hon. Friend the Foreign Secretary got it wrong when he said that none of these apply to Britain; several of them do, although without the ultimate penalties. There could be other penalties, incidentally, which might apply to Britain.

When we surrender our veto and allow this treaty to go through on that condition-that it applies only to euroland-we should say that we want something back.

We should seek to establish that we believe the European Union already has too much power and that we want something back. Do we want our fisheries back; do we want control over our borders back; do we want control over elements of taxation that have already gone to Europe through common taxation and a series of court judgments?

Power is seeping away as we meet. A massive debate is under way. Will the Government please take this Parliament and the British people into their confidence? Will they take us seriously? Will they give us an adult debate on the reality rather than this show Bill?

Mr John Redwood (Wokingham) (Con): I thank the Chancellor for the guarantee of no bail-outs for other European countries. Does he think the European Central Bank will make available all liquidity needed by major banks in euroland, as it should do because it tells us they are all solvent?

The Chancellor of the Exchequer (Mr George Osborne): Obviously, the ECB is independent so I will not speak for it. What I have said about the European financial stability mechanism is that we now have a verbal agreement-I will, of course, want to secure it over the coming weeks-that that mechanism will not form a permanent part of the bail-out mechanism that the eurozone wants to put in place from 2013, and we will not be part of that bail-out mechanism. Indeed, if it requires a treaty change, our consent to that change would, of course, be required.