That is not what the Governor of the Bank of England said. My right hon. Friend the Prime Minister explained at length why we decided to lower interest rates when we joined the mechanism. Experience shows that that was the right decision.

The hon. Member for. Bradford, South suggested that we joined the exchange rate mechanism at the wrong rate. I assume he meant that the pound is overvalued against the deutschmark and that United Kingdom businesses that seek to export to the rest of the continent are placed at a huge disadvantage. No dispassionate analysis of the facts bears that out.

The purchasing power parity of sterling against the deutschmark throughout the last decade and more was a little above the central rate at which we joined the exchange rate mechanism, which suggests that the rate we chose was about right. If it is right that that rate places exporters at such a crashing disadvantage, it is odd that when the rate of the pound against the deutschmark last summer was significantly above what it now is exporters were doing very well, particularly in their exports to Germany, which were booming. It is wrong to suggest that the pound is cripplingly overvalued against the deutschmark.

The hon. Gentleman disparaged the discipline that flows from membership of the exchange rate mechanism. That discipline would have flowed in any event from a firm monetary policy. He objected to the fact that that discipline applied only to trade unions and workers. It applies, however, to everyone taking decisions about the economy. The traditional soft option that accompanied—I put it no higher than that—the British economy's gradual decline, in relative terms, between the end of the last war and 1979 or thereabouts—the traditional soft option of constant devaluation and a constant decline in the value of the pound against other currencies—has gone. For British businesses to remain competitive and to improve their competitiveness, they have to improve their performance. Consequently, their costs have to be controlled. There is no easy way out. It is uncomfortable. A discipline of that nature is meant to be uncomfortable. Only if we accept and work within such a discipline shall we see sustained growth and prosperity.

May I deal with what I am bound to say I took, in my naivety, to be the main thrust of the debate—the financial cost to the United Kingdom of membership of the European Community. The hon. Member for Bradford, South properly dwelt upon that at some length. I expect our contribution to the Community to be around £1.9 billion in 1990–91 and £1.1 billion in 1991–92. The fall in next year's figure is simply because of a refund of contributions in 1990 and a higher level of abatement, reflecting adjustments to contributions in previous years. The underlying figure is about £2 billion a year. By any standards, these are substantial sums. However, they would have been vastly greater without the abatement of our contributions that my right hon. Friend the Member for Finchley (Mrs Thatcher) secured under the Fontainebleau abatement mechanism.

By the end of this year, cumulative abatement under the mechanism will have totalled almost £10 billion in addition to the £3.2 billion worth of refunds secured before the mechanism took effect. On that score alone, the United Kingdom is £13 billion better off today than we would have been if the previous contribution arrangements, so skilfully negotiated by the Labour Government in 1975, had continued to apply. A further £7.5 billion worth of abatement is forecast from 1992 to 1994.

We have a well-earned reputation throughout the Community for exercising discipline and restraint on EC budget spending. We have continued to give firm backing to the 1988 measures to set a limit on Community own resources, to exercise budget discipline arrangements on agricultural spending and to fix medium-term expenditure ceilings in the financial perspectives that form part of the inter-institutional agreement. Within that framework, we exercise a rigorous scrutiny of budget spending, looking at it item by item and programme by programme to see where funds can usefully be directed—and where they cannot.

The arrangements negotiated in 1988, taken with our efforts to keep expenditure below the maximum levels that they imply, have so far exercised a firm discipline on Community spending. For example, the 1991 budget sets a level of payment appropriations falling more than 5 billion ecu below the ceiling implied by the own-resources decisions, despite rapidly growing structural fund spending and despite a series of unforeseen demands for expenditure associated with eastern Europe, with German unification and with the Gulf.

It remains of the utmost importance that this discipline continues. Although for a number of reasons agricultural spending since 1988 has been well below the ceiling in the financial perspective, upward pressures are developing, and it will be important to resist them. We shall encourage the Commission to take firm action by using its own management powers to curb expenditure and by a restrictive price-fixing package.

We should not, however, concentrate exclusively on levels of Community expenditure. How the money is spent and accounted for is of great importance, too. As the hon. Member for Islington, South and Finsbury said, we had the chance last night to discuss this matter in the debate on the European Court of Auditors annual report. We have already taken the leading role in seeking quantified objectives for Community programmes and in seeking stringent financial controls to ensure that money is spent properly and is effectively used. Those aims are reflected in the financial regulation of May 1990.

We also aim to underline the Community's commitment to the principles of financial management, to effective accountability and to value for money, by a series of suggested treaty amendments at the intergovernmental conference on so-called political union. These are intended to enhance scrutiny by the European Parliament, to clarify the responsibilities and duties of those concerned with financial control in Community institutions, to develop the responsibilities of the Court of Auditors and to underline member states' obligations to counter fraud.

The Community's financing arrangements are due for review at the end of this year. There will be an important set of negotiations then. In our approach to them we shall continue to be guided by the principles of budget discipline, effective accountability and value for money.