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European Standing Committee B Debates

Broad Economic Guidelines

European Standing Committee B

Tuesday 18 June 2002

[MR. ALAN HURST in the Chair]

Broad Economic Guidelines

10.30 am

The Financial Secretary to the Treasury (Ruth Kelly): I am honoured to be here under your able chairmanship, Mr. Hurst.

The European Scrutiny Committee has recommended our important debate, which will consider two central elements of the European process of economic policy co-ordination: the Commission's recommendation for the 2002 broad economic policy guidelines and the council opinions on the 2001 stability and convergence programmes. The debate will therefore cover a wide range of issues.

I thank the Committee for arranging the debate at such short notice and, importantly, for holding it before the Seville European Council on 21 June, at which we expect the broad economic policy guidelines to be agreed and formally adopted. I shall talk first about the broad economic policy guidelines and then the stability and convergence programmes. In accordance with article 99 of the EC treaty, the Commission has published its recommendation for the 2002 broad economic policy guidelines for member states and the European Union. The text is being revised by officials in preparation for discussion by ECOFIN on 20 June, followed by agreement at the Seville European Council on 21 June and, subsequently, formal adoption by ECOFIN.

The guidelines form the central part of the process of multilateral surveillance and economic policy co-ordination in the European Union and build on the other EU processes, including the stability and growth pact, the Cardiff process on structural reform and the Luxembourg process on employment. As I made clear in my explanatory memorandum, the Government have been keen to develop the role of the broad economic policy guidelines. Indeed, we feel that it is essential that the guidelines fully reflect the importance of structural reform in tackling successfully the challenges of globalisation and competitiveness and in promoting employment and social inclusion to improve the performance of the European economies. The Government's recent White Paper on economic reform in Europe highlighted the achievements in implementing structural reform across the EU. However, it also pointed out that we are some way from achieving the full potential that the single market offers to consumers and producers. Increasing the delivery of those benefits can be achieved through positive messages on economic reform in the broad economic policy guidelines, which is why the Government attach such importance to the document.

The Commission's 2002 guidelines focus on macro-economic policies, public finances, medium and long-term implications of structural policies and reforms aimed at promoting economic growth potential,

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employment and social cohesion, as well as on the transition towards a knowledge-based economy and policies for sustainable development. Against that, the Commission highlights four key challenges for European policy: safeguarding and further strengthening the macro-economic framework; promoting more and better jobs, raising labour force participation and addressing persistent unemployment; strengthening conditions for high productivity growth, and promoting sustainable development in the interest of current and future generations.

The Government share the Commission's emphasis on those policy areas and our policies for achieving them are consistent with the Commission's recommendation for the 2002 guidelines: sound macro-economic policies based on well-managed public finances and low inflation and economic reform, including improvements in the workings of goods and services markets, modernisation of the labour market, better regulation and promotion of entrepreneurship. In its 2002 recommendation, the Commission has drawn significantly on the findings of its implementation report, which it produced in February as a follow-up to the 2001 guidelines. The Government feel that that method of monitoring and reviewing is an important step in consolidating the progress made to date and it should help embed the notion of European economic reform in the minds of all concerned.

The Commission's recommendation for the 2002 guidelines also includes, as in recent years, country-specific recommendations for each member state. The Government welcome the inclusion of country-specific elements in the guidelines, which implicitly acknowledge the fact that different states face different and sometimes unique challenges. The Commission's UK-specific recommendations are in line with the Government's stated policy objectives and with the measures that we have taken since coming into office. The recommendations emphasise the need to maintain sound public finances while increasing investment in public services; to reinforce measures targeted at those prone to the risk of long-term unemployment; to address the relatively low level of productivity in the UK, and to deliver the announced infrastructure investment in railways.

The Commission has recommended a budgetary policy objective for the UK to ensure that

    ''in 2003–04, an outturn for the general government balance can be expected that respects the terms of the Stability and Growth Pact of a budgetary balance that is close to balance or in surplus.''

The Government believe that the Commission's interpretation of the stability and growth pact is too mechanistic. I have made clear to the Commission our support for a prudent interpretation of that pact, which takes into account the economic cycle, sustainability and the role of public investment. The Government continue to discuss that point with the Commission and other EU partners.

I turn now to the issue of the council opinions on the 2001 stability and convergence programmes, which the Committee recommended should also be debated here today. They outline the council's views of member

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states' budgetary priorities and projections. They are responses to the programmes submitted annually by each member state: EMU members submit stability programmes; non-EMU members submit convergence programmes. Those programmes set out the medium-term budgetary plans of member states. That process of budgetary surveillance provides operational content to the stability and growth pact. The pact's aim is to promote the co-ordination of fiscal policies and to ensure the avoidance of excessive Government deficits, based on articles 99 and 104 of the treaty.

As I noted earlier, the council opinions are one of the items that inform the broad economic policy guidelines, feeding into the budgetary policy recommendations. The Government think that fiscal sustainability is a precondition for macro-economic stability. We agree with the principle of a strong pact founded on sensible fiscal policy co-ordination set out in the treaty. As I said, the Government support a prudent interpretation of the stability and growth pact, which takes into account the economic cycle, sustainability and the important role of public investment. We think that a prudent interpretation would enhance the pact's credibility and strengthen its functioning.

The Committee will be aware that the UK's programme was deposited before the 2002 Budget and so does not take into account the measures and updated figures outlined then; instead, it is based on the figures set down in the pre-Budget report. The programmes for 2001 were examined at ECOFIN meetings in January, February and March, following preparation by the Economic and Financial Committee, with the UK programme assessed in February. The UK played a full role throughout the Council discussions.

In conclusion, this round of economic policy co-ordination will culminate in the adoption of the 2002 broad economic policy guidelines by ECOFIN in the margins of the European Council in Seville on 21 June. The UK is keen to play a constructive role in encouraging sound and sustainable public finances across the EU and encouraging economic reform, building on the results of the Lisbon special European Council as detailed in the recent White Paper on European economic reform. The Government are also committed to participating fully in this important process of policy coordination. Approving this motion today will allow the UK to achieve all of those goals. I hope that the Committee will support the motion. I look forward to participating in the debate.

The Chairman: We now have until 11.30 for questions to the Minister. I remind hon. Members that questions should be brief and should be asked one at a time. There is likely to be ample opportunity for all hon. Members to ask several questions.

Dr. Nick Palmer (Broxtowe): The recommendation to the Commission mentions that member states should facilitate the transferability of social security and pension rights. I am well aware of that: when I was elected and came back from working abroad I had a tax bill of £50,000 because those rights were not transferable. What steps are the Government taking to promote transferability?

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Ruth Kelly: My hon. Friend is aware that one of the founding principles of the EU is the idea of labour mobility. Clearly the transferability of pension and social security rights would facilitate the functioning of the labour market. However, I would not claim that we have reached that point yet. We have been working hard to open up capital markets across the EU, one of which is pensions. We have just reached political agreement on the new pensions directive, which will make it easier for companies to operate cross-border pension schemes. We are moving in that direction although there is clearly a long way to go yet.

Matthew Taylor (Truro and St. Austell): The Minister described the Commission's interpretation of the stability and growth pact as too mechanistic. Perhaps she could comment on the more recent statements from the EU Commission, which suggest a more flexible interpretation than was previously feared, especially in relation to long-term investment and Government borrowing in that respect, which appears to mirror the position that the Government—and Liberal Democrats—argued for more closely than was anticipated.

 
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