Excessive Deficits

Orders of the Day — European Communities (Amendment) Bill – in the House of Commons at 1:15 am on 24th March 1993.

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  1. (1) Article 104c.
  2. (2) Protocol on Excessive Deficits.'.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

The amendment seeks to exclude article 104c and its related protocol. I am sure that the Committee will be delighted to know that this is not a probing amendment. It is a serious and substantive amendment, and we shall vote on it when the time comes. That means that we have come to the end of a period of what I call cosy collusion and shadow boxing among the Opposition Front Bench spokesmen, the Ministers and the Liberal Democrats, all of whom are in favour of the treaty and have been conducting a spurious debate on the issue. At least we shall try, now that we have the opportunity, to put the serious arguments before the Committee, because I believe that the Committee should consider them.

As the Committee will be aware, the public sector borrowing requirement has always been one of the crucial instruments of economic policy. I have always thought of the size of the Government's borrowing requirement as the Chancellor of the Exchequer's Budget judgment, to be made each year in the light of the circumstances that pertain. Under the treaty, and especially under article 104c, that judgment is no longer to be taken by any future Chancellor of the Exchequer of the United Kingdom. Instead, the Budget judgment is to be made by the Maastricht treaty.

Article 104c begins with the imperative instruction: Member States shall avoid excessive government deficits. The associated protocol than lays down what it calls the "reference values", according to which an excessive Government deficit is to be judged. I am sure that the Committee will be familiar by now with the two reference values—3 per cent. of GDP for the public sector borrowing requirement, and 60 per cent. of GDP as the reference value, or limit, for the national debt.

It is true that words are added to article 104c that give a certain qualification to the starkness of the 3 per cent. and 60 per cent. specified in the protocol. Extremely carefully chosen words allow some slight movement from those precise values. Article 104c(2) says: The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria"— this is where the slight softening of the harsh terms of 3 per cent. and 60 per cent. comes in— whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless…the ratio has declined substantially and reached a level that comes close to the reference value"— I emphasise the word "close"; in the case of the PSBR, that means close to 3 per cent.— or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value. That is most important, as I shall show later, in relation to this country's experience. It is easy to imagine the effects of those limitations.

Photo of David Winnick David Winnick , Walsall North

We have been hearing from hon. Members, including some Labour Members, that the treaty favours opportunities for employment and so on. It is true that article 2 contains a passing reference to employment, but article 104c contains two full columns giving all the reasons why Governments should avoid deficits. I am sure that my right hon. Friend will be mentioning the fact that the article goes on to refer to the penalties and fines that could be imposed if Governments exceeded the 3 per cent. Does my right hon. Friend agree that there is all the difference between a passing reference to employment and social policy, of which we would all approve, and the emphasis in article 104c on the deficit and on what could happen to member states that exceed the limit?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I can assure my hon. Friend that I shall be saying something about the penalties and coercive powers that are allowed under the provisions, which I find profoundly disturbing.

Article 104c(3) contains a slight concession in respect of the strictness of the 3 per cent. and 6 per cent. limits. As I have said, the Commission is the great disciplining force. It will monitor and identify gross errors. Article 104c(3) states: If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. Here comes the slight concession: The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium term economic and budgetary position of the Member State.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

My right hon. Friend talks about the Commission being the disciplining force. Is he entirely correct? It appears that, under article 104c, the Commission will perform the role of policeman but that astonishingly,—to my mind—the Council will perform the role of a court. Paragraph 11 says that the Council can impose fines of an appropriate size. Will the Council in turn refer a recalcitrant member to the European Court of Justice, or does the Council have the power to impose fines on member states?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I shall discuss that a little later in my speech. My hon. Friend is correct in what he said at the beginning. The Commission basically has a policing role, and it is the Council of Ministers that makes the decision.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Can the right hon. Gentleman imagine this scenario? Suppose that the United Kingdom has ratified Maastricht and is part of the structure, and our membership, at some time in the future, of the ERM, has produced a situation similar to that which has prevailed for the past 18 months—that is, it has lost this country thousands of businesses and a million jobs. A million jobs cost this country £8 billion, which contributes to our deficit. Because of our membership of a Community institution and a Community system, we would be in deficit beyond the 3 per cent., and because of that, we would be further fined. That could happen. Is that a situation that the right hon. Gentleman relishes or believes that the people of this country would relish?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

It is outrageous, and I shall develop my reasons for saying so. The whole notion of an alien body imposing fines and penalties on a sovereign nation is entirely unacceptable.

I was referring to the policeman role of the Commission, which will monitor, identify gross errors and draw up a report. The provision says that it will take account of whether a Government's deficit exceeds Government investment expenditure, as though that were somehow less a matter for condemnation than if it was simply a current account deficit.

We have not been told what weight the Commission will give to such matters, but we should not be over-cheered when we consider Government investment expenditure in this country as a percentage of GDP, because it accounts for a small part of the total. Indeed, in the Red Book published this year, we got a picture of general Government investment. It showed that between £11 billion and £12.5 billion—about 2 per cent. of GDP—is the total of Government investment. I ask the Committee to bear those details in mind as I describe the relevance of the figures.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Will the right hon. Gentleman, in view of his knowledge, explain to what the gross errors relate? Are they errors of judgment or arithmetical errors? Having read the provision many times, I still do not have a clue what it means by gross errors. Does he believe, as I do, that somebody will consider whether an error of judgment has been made? If so, that will be a major step beyond an arithmetical error.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I think it refers back to the figures of 3 per cent. and 60 per cent., allowing a margin or tolerance, as I described it. It refers to gross errors, and those errors will be the distance of a country's performance from its targets. The Commission will prepare a report if it believes there is a risk of an excessive deficit. It is empowered, having consulted the monetary committee, to address an opinion to the Council. The Council, acting by a qualified majority, will decide whether an excessive deficit has arisen.

We can conclude that there is an imprecise margin, a tolerance, in the reference values of 3 per cent. and 60 per cent. How helpful is that margin likely to be? To answer that, I must refer the Committee to certain statistics. The first is this year's PSBR. The projected PSBR figures for 1992–93 to 1997–98 are set out in the medium-term financial strategy in Red Book. For 1992–93, the PSBR was 5·75 per cent. For 1993–94, the year on which the Budget has concentrated, it is 8 per cent. of GDP. In 1994–95, it is 6·5 per cent., 1995–96, 5·5 per cent. and 1996–97, 4·5 per cent.

The figure comes close to the presumption in the present forecast only in 1997–98 when it is under 4 per cent. —3·75 per cent.—for the first time. If we had to get within the 3 per cent. level over that whole period, what would be the effects on the British economy, the level of employment and funding of public services?

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

They would shove up taxes.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney 1:30 am, 24th March 1993

It is unbelievable to think what would happen. Six billion pounds is equivalent to 1 per cent. of GDP. When we have a public sector borrowing requirement deficit which has been forecast at 8 per cent. of gross domestic product, we are talking about £30 billion in either reduced expenditure or increased taxation to get from 8 to 3 per cent. A lesser amount—although it would still be a high figure—would be demanded in each year of the five-year forecast of the public sector borrowing requirement.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Does the right hon. Gentleman find it extraordinary that, far from the Council communicating to the national parliament of a country which is straying outside the guideline reference of percentage gross national product on budget deficit, paragraph 11 merely suggests that the President of the Council shall inform the European Parliament of a decision taken? In our earlier debate, the Financial Secretary said that the member state will continue to have independent fiscal powers. That does not seem to accord with paragraph 11, which says that the European Parliament is the body which must be told about a defaulting country.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That is absolutely right. It is a different form of coercion from that which we were talking about with regard to the central bank and its powers. Collective decisions will be made by qualified majority voting in the Council. The Commission will make its recommendation and report, and the Council will act on it by qualified majority voting. That will be a major imposition on the United Kingdom. We might have a report or we might demand a debate on it, but we will have no power to influence it.

Photo of David Winnick David Winnick , Walsall North

As far as Britain and the House of Commons are concerned, do we not lose both ways under article 104c? A right-wing Tory Government who were determined to cut public spending—they need no such encouragement—would undoubtedly say, "We have no alternative under the terms of the treaty." Likewise, a Labour Government—hopefully carrying out policies which we would like to see—would say, "We would like to do otherwise. It goes against the grain; nevertheless, we are part and parcel of the arrangements. We have no alternative because, if we go over the limit as far as the deficit is concerned, and if we do the public spending and so on which the Labour movement is so keen about, we will be penalised." At the end of the day, power is completely taken away from this Chamber.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I am coming to a point which will help my hon. Friend's case. It is true that the Labour party has always had a special commitment to public expenditure and public services. We plead guilty. Therefore, to have such limitations imposed on a Labour Government is totally unacceptable.

I do not wish to split the Committee unnecessarily. Many people on the other side of politics also understand the value of public services and public expenditure and do not want to see the devastation and ever-increasing unemployment that would result from the restriction on borrowing. So the matter should not necessarily divide us, although I say again that there is a special affection for public expenditure in the Labour party.

Photo of Clive Betts Clive Betts , Sheffield, Attercliffe

I am sure that no Opposition Member would find the rigid imposition of the 3 per cent. or 60 per cent. reference criteria acceptable, but is it not the case that, in their raw and unrefined form, the criteria in article 104c(2) apply to the production of a report? Once that report is produced, as laid down in paragraph 3, other criteria, including the investment expenditure criteria, all other relevant factors, the medium-term economic and budgetary strategy and the comments of the member states, later come into play. My right hon. Friend referred to Government forecasts of debt as a percentage of GDP for the next few years. They include a large element of the non-cyclical part of investment expenditure, which would be taken into account under paragraph 3.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

My hon. Friend is trying to comfort himself. I understand well why he does so—because the article is so unacceptable. He is trying to say that it does not mean what it says, and that 3 per cent. is not the real figure. I carefully went over the ground saying where the tolerances were. The figures were approximations which would only exceptionally be departed from. I also took special account of the distinction made between investment expenditure and other expenditure. As the total investment expenditure is only 2 per cent., if it is all taken into account and set against the target, anything over 3 per cent. plus 2 per cent. would be ruled out.

Next year, the Government PSBR is 8 per cent. of GDP. In no way can my hon. Friend comfort himself by saying that the matter has been dealt with and that reports have to be produced and a judgment made. Of course that is so. Of course people have to consider it. But at the end of the day, the treaty defines excess deficit. I am not even certain whether action could not be taken before the European Court of Justice in the fulfilment of those treaty terms.

Photo of Dennis Skinner Dennis Skinner , Bolsover

My right hon Friend will appreciate that my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) would have been in one hell of a mess as the leader of Sheffield city council if the same restrictions had been placed on borrowing. Within our parliamentary set-up, he was able to extricate the city council from its problems to a degree. If Sheffield was transposed to the nation state arena inside the Common Market, he would have had supreme difficulties.

My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) remembers 1976. He remembers Mr. Witteveen. I remember the fight that my right hon. Friend put up for an alternative policy to the restrictions. Does he agree that, even though the Labour Government took the wrong turn on that occasion—history has shown it to be wrong, and my right hon. Friend was right in the battle that he took part in—we were able to resolve that problem in a limited fashion within the nation state? Yet inside the Common Market, Mr. Witteveen would have reigned supreme not merely for a few months or years: we would have been in his stranglehold for ever.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Absolutely right. That is the central difference. All Governments who are obliged to call in the International Monetary Fund have to come to some agreement with it. But a sporadic visit is a different thing from the permanent requirements of the treaty. It would be as though a European Commissioner sat at the Cabinet table all the time invigilating and watching whether the Government were about to transgress or had transgressed their reference values.

Photo of Bill Cash Bill Cash , Stafford

The so-called opt-in which has been negotiated on behalf of the United Kingdom, relating to the central bank and the deficit arrangement, excludes during the transitional period article 104c(1) and other provisions, including the requirement not to have excessive Government deficits. Does the right hon. Gentleman agree that, although the opt-in or opt-out that has been so acclaimed is no more than a fig leaf, as Robin Oakley of the BBC made clear he had understood from everyone he came across in Whitehall and the European Community, there is another protocol, which says that all these arrangements are irreversible and irrevocable and must come into effect on 1 January 1999, come what may, and which tells the truth about what is going on. Just in case the Minister

The Second Deputy Chairman:

Order. This is an intervention, not a speech.

Photo of Bill Cash Bill Cash , Stafford

In case the Minister is tempted to say that all the provisions are left out under the protocol, I simply want to point out that the protocol is a worthless piece of paper, and that a future Parliament will not be in a position to make a decision. The decision is being taken now. The Minister may be shaking his head, but that is the position.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I shall certainly await with interest what the Minister has to say.

One of the difficulties of tonight's debate is that there are three closely related economic debates on which more amendments have been tabled than for the rest of the treaty. Unfortunately, those three immensely important interrelated debates will be pushed through in a single unbroken session. We have not had the opportunity of studying in Hansard what the Minister has said in response to the first debate before being launched into the second, and it looks as though the Government will try to press us into the third debate.

The point raised by the hon. Member for Stafford (Mr. Cash) cannot sensibly be answered until we have studied the Minister's replies to the first two debates. We shall not have that opportunity. It is a terrible misuse of the House of Commons on matters that everyone will agree, whether or not they are in favour of the treaty, are at the heart of it—economic and monetary union and the transfer of powers from Britain to European institutions.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

May I ask my right hon. Friend a question about the monetary committee? In passing, I offer my compliments to my right hon. Friend and the 20 or 30 other hon. Members who, in the absence of a referendum, are performing a fine service for the people of the United Kingdom in scrutinising the treaty so closely. As the Council seems to have the power to impose fines against a recalcitrant state, has that state the right of appeal to the European Court of Justice? Given that there are 26 persons to be appointed to the monetary committee, does that committee's opinion have to be unanimous when it recommends that a state be fined by the Council?

Photo of David Winnick David Winnick , Walsall North

On a point of order, Dame Janet, before my right hon. Friend replies to that intervention—I apologise to him. I sought earlier to move to report progress and, no doubt on reflection, you decided not to accept my motion. Was your refusal such that you would not consider it at any future stage during the night, or would you be willing to accept a motion, or at least ponder it at some appropriate time?

Some of us believe, arising from what my right hon. Friend said, that it is totally wrong, quite inappropriate, that we should be debating these matters all through the night, and that we should have a further opportunity at some other time to do so.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 1:45 pm, 24th March 1993

Further to the specific point of order, Dame Janet, raised by the hon. Member for Walsall, North (Mr. Winnick). I believe that I am correct in saying that the Select Committee on Procedure has produced a report, which has not been fully debated or agreed by the House, based upon the Jopling inquiry carried out on behalf of the House, which firmly recommends—senior and distinguished Members were part of the Committee and agreed to the report—that the House should not sit beyond 10 o'clock on Government business.

I put the point particularly to you, Dame Janet, because of the observations just made by the right hon. Member for Bethnal Green and Stepney (Mr. Shore). In these particular groups of amendments that we have considered, are considering and, depending on your ruling, may well be considering a little later, on critical constitutional matters, it is important for those of us who are trying to scrutinise this legislation to have an opportunity to study the ministerial responses.

As a constitutionalist and a man deeply wedded to the rights of the House, I put it to you that we are being deprived of that opportunity. Bearing in mind the report that the Select Committee on Procedure has produced, this is surely an abuse of the Committee by the Government of the day.

The Second Deputy Chairman:

The Chair must operate under existing rules, customs and Standing Orders. As the hon. Member will know very well, it is perfectly possible to extend the sittings of the Committee under the present regime. As regards any motion to report progress, whoever is the occupant of the Chair at the time will have to come to that decision. I would certainly not wish to give any opinion in advance.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

On a point of order, Dame Janet. Can you confirm that the rules of order, both for the Committee upstairs and the Committee downstairs, permit the Chair to accept a motion for closure, even when there has been no wind-up or reply from the Government Benches after the introductory speech which they have made, as no doubt they will shortly, in relation to any group of amendments?

The customs and courtesies that I have experienced upstairs have been that there has been a reply from the Government Bench after other speeches have been made and as a sort of wind-up comparable to that at Second Reading. I take it—perhaps you will confirm it—that no Standing Order prohibits your accepting a motion for the closure even when that has not happened?

Can I put it to you, Dame Janet, that it may well be within your discretion—perhaps you could confirm that it is possible—for you to decline to accept that motion for closure if such a reply has not been given in these debates of enormous constitutional significance?

The Deputy Chairman:

The Chair has discretion, but one looks to the principles behind it, which are clearly stated—that there should be no gross abuse of the rights of minorities in the House. I think that we must make further progress.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

A ruling on what is a gross abuse or what is a gross excess is among the things that we are discussing tonight.

My hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) intervened just before points of order were raised, and I will try to deal with the question he put. My understanding is that the Council of Ministers, by qualified majority vote and excluding the member state which is, as it were, in the dock, will make the decision.

I do not think that there is an appeal to the European Court of Justice against that, but if a member state refused to comply with the further penalties, the Commission could take that state to the court.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

On a point of order, Dame Janet. My questions to my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), concerning the power of the Council to impose swingeing fines, and the powers of the monetary committee, raise important legal questions, and, as you know, I am not a lawyer. It would be helpful if the Attorney-General were present during the debate to give us guidance on those important questions. From article 104c, it would appear that the Council will take on some of the functions of an international court. I am not so sure that any hon. Member present can answer the questions that—perhaps unfairly—I asked my right hon. Friend. They are important legal questions, and an English and a Scottish Law Officer should be present.

The Second Deputy Chairman:

I think that the hon. Member has been here long enough to know that it is not for the Chair to compel the attendance of the Attorney-General or any other hon. Member. Representatives of the Government are on the Front Bench, and no doubt they will have heard the hon. Gentleman's point of order.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Obviously it would be helpful if the Attorney-General were here to deal with the sort of questions that my hon. Friend the Member for Greenock and Port Glasgow has raised. I also find it surprising that the Chancellor and shadow Chancellor of the Exchequer have not looked in. I cannot think of any measure which more directly affects the power of a Chancellor than the impositions that will be placed upon him in the exercise of his Budget judgment, under the terms of the treaty.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Might not that power be redundant in the future, in as much as it will be transferred to the Commission and the Council of Ministers?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Perhaps so, but I cannot believe that that could be welcome to the Chancellor, or his shadow, if they take their responsibilities seriously, as I believe they do. The present Chancellor is already a transgressor of the treaty, as he has gone way beyond the limits of tolerance, which I was trying delicately to outline. He has behaved like Sheffield council at its worst.

I was seeking to establish that the matter concerns both sides of the House. I have given the figures for the Government's medium-term forecast for the economy. Every year, it has been well in excess of that forecast, except for last year, when it just crept under 4 per cent. It cannot be right that we should subject ourselves to that sort of discipline. It cannot be the Government's judgment that that is right for the country—they have their own economic doctrines and priorities—and it certainly is not the judgment of those on the Labour Front Bench and in the Labour party that it is good for Britain to be forced to make the sort of cuts, or raise the taxes, indicated by the figures.

Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South

That issue is of peculiar importance to Labour Members. My right hon. Friend has outlined a scenario in which a Labour Government could be elected, inheriting a deficit created by a Conservative Chancellor of the Exchequer and a Conservative Government. As my right hon. Friend said, we would be elected to have particular regard to the virtues of the services provided by the public sector but, if the Maastricht treaty were in operation, we would have to embark on a programme of cuts, perhaps amounting to £30 billion in present circumstances. Therefore, it is of special interest and concern to Labour members that we do not go down that road, as it would wreck the chances of a Labour Government and the potential of the Labour party.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I thank my hon. Friend. It is extraordinary that the most senior representatives of our own party are not taking part in this debate. If they disagree with the treaty, they should say so. If they agree to accept the disciplines on their future conduct, they should explain their position.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

Does not my right hon. Friend acknowledge that our right hon. and learned Friend the Leader of the Opposition made it quite clear that the attempt to impose a 3 per cent. deficit limit in present circumstances would be both misguided and absurd?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Very good, but we are not talking just about this year. The forecast is that the deficit will be well in excess of the 3 per cent. limit for the next four or five years. And that is quite apart from additional programmes that my right hon. Friends may wish to introduce if we are successful in the next general election. Indeed, the absence of my right hon. and hon. Friends is extraordinary for another reason, and for the same reason this is a matter of common concern between the Government and Opposition parties.

I can best illustrate my point by referring the Committee to the PSBR record between 1972–73 and 1981–82. During those years, the requirement was never under 3 per cent. Under the Heath Government, the figures were as follows: 3·7 per cent. in 1972–73, and 5·9 per cent. in 1973–74. Under the following Labour Government, they were: 9·1 per cent. in 1974–75, 9·4 per cent. in 1975–76, 6·5 per cent. in 1976–77, 3·6 per cent. in 1977–78, and 5·4 per cent. in 1978–79. The next Conservative Government had similar problems, the figures being 4·8 per cent. in 1979–80, 5·4 per cent. in 1980–81, and 3·4 per cent. in 1981–82.

A particular Government may face very difficult problems, but these figures suggest that both parties and three successive Governments found it necessary to have a PSBR substantially in excess of the reference limit that this treaty seeks to impose.

Photo of Dennis Skinner Dennis Skinner , Bolsover

It is worth noting that the years to which my right hon. Friend has just referred were the great privatisation and North sea oil tax years. Now we are talking about going up to 8 per cent. I read in the Financial Times the other day a story to the effect that the Chancellor's Budget figures had been doctored. We are not talking about £35 billion for this financial year; the figure is about £10 billion worse than that. Had it not been for North sea oil and privatisation, the PSBR figures for the years between 1982 and 1989 could have been up to 8, 9 or 10 per cent. Indeed, that will probably happen before this lot are finished.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

My hon. Friend is correct. The fact that the PSBR is very significantly less than it would otherwise have been is accounted for by the sale of publicly owned assets, bringing in £6 billion, £7 billion or more a year. My hon. Friend is absolutely right about North sea oil also. The North sea produced a great flood of revenue, particularly during the 1980s. But for that, too, there would have been a much larger PSBR.

Photo of Diane Abbott Diane Abbott , Hackney North and Stoke Newington

My hon. Friend the Member for Oxford, East (Mr. Smith) said, with just a touch of irritation, that any attempt to impose a 3 per cent. limit would be misguided and absurd. We can all agree about that.

If Labour Members vote for this part of the treaty, that is what we shall be signing up to. Back Benchers can only marvel at the way in which the Front-Bench team seeks to evade the issue of what the text of the treaty states.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I can only agree 100 per cent. with my hon. Friend. If anyone objects to having the yoke of 3 per cent. put upon them, they should stand up and say so and vote against it. That is the message that should go out.

2 am

Photo of Austin Mitchell Austin Mitchell , Great Grimsby

Thanks to the unforgivable silliness of the Liberals in allowing the Government to force crucial economic measures through the night, I am not at the peak of my mental activity, which is fairly low anyway. The Liberals have forced us into the position of hurrying the measures through in the dead of the night when hon. Members are half asleep so that the Liberals can hide their shame at what is being done. Therefore, it is difficult to follow the argument.

The figures that my hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) gives are those for the PSBR, but the 3 per cent. limit referred to the public sector financial deficit, which will constitute the PSBR plus the borrowing receipts from privatisation. Therefore, the deficit will be bigger than the borrowing requirement.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That was the point being made by my hon. Friend the Member for Bolsover (Mr. Skinner).

What deeply disturbs me is that some of my hon. Friends whose professional activity is to put a favourable gloss on the treaty try hard to say that it is not quite what it seems. The most astonishing omission from the treaty is the fact that it never faces the issue of counter-recession policy, about which it contains not a word. We all know from experience that there is a built-in cyclical movement over five or more years in a market economy—there are absolutely predictable waves of activity. There is a tendency for a boom, which then falls away into a recession. That is a common experience, not only of Governments of both parties over the years, but of the western world.

One lesson that we should have learnt from the disasters of the inter-war years was that tendency to go too high in a boom, and too low into recession and slump. Why is that aspect not written into the protocol? Why does it not say that we must recognise those counter-cyclical problems, and will certainly do so if unemployment grows by X per cent.? Instead of having merely 3 per cent. and 60 per cent. for borrowing and debt, why not have 3, 4 or 5 per cent. of the level of unemployment or the fall in gross domestic product? If such indicators were part of the protocol, we would have some reason to take seriously the arguments of those who try to gloss over the reality of the outrage that is being inflicted on us.

Photo of Clive Betts Clive Betts , Sheffield, Attercliffe

I agree with my right hon. Friend on the need for a counter-cyclical policy, but what does he think that the words other relevant factors, including the medium term economic and budgetary position of the Member State mean in paragraph 3 of article 104c? I take them to mean exactly what my hon. Friend is advocating—the need for a counter-cyclical policy.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

If that is what the treaty means, it should have been spelt out, but I do not for a moment believe that it does. The paragraph refers to the sort of run of figures provided by the Government in the Red Book so that a judgment can be made on whether the nation state is tending towards, deviating from or approximating to the 3 per cent. and 60 per cent. reference points contained in the protocol.

Photo of Dennis Skinner Dennis Skinner , Bolsover

Woolly statements have just been mentioned by my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) and others, and my hon. Friend the Member for Oxford, East (Mr. Smith) described them as safeguards. In a nutshell, those statements mean only what the Chancellor and the Prime Minister said a few weeks or months ago about extending VAT. They are as strong as their statements when they said that they had no present plans to do so. Statements from the Common Market and from the protocol will be treated in the same fashion. They are not specific, but they will be rammed down our throats. I cannot understand why our Front-Bench spokesmen connive with the Government Front Bench when for the rest of this week they played merry hell about the Government not using precise words. But they are prepared to accept this woolly, abstract statement, because it is about their beloved Common Market. The whole thing stinks.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Some statements are later denied or withdrawn—that is a common experience—but we are not discussing statements: we are talking about a treaty, for God's sake, which is legally enforceable. That is the reason for concern. As I have said, the omission of any direct reference to deficit financing is extraordinary.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

May I relate my right hon. Friend's excellent questions and arguments to his earlier comment about the absence of the Chancellor and his opposite number? One explanation is that, if they were present, they would have to silently acquiesce to my right hon. Friend's argument or attempt to reply. Their absence during a debate deliberately brought about in the middle of the night by the Government on the major issue of our national finance shows that they do not wish to engage in the debate. That is because they cannot face my right hon. Friend's questions on behalf of our nation.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That adds to my general criticism about the sadness of this ruse to obtain a debate in the middle of the night. We are talking to ourselves, and there are only 30 or 40 of us here. We are debating an issue that could damage our people more than anything else if they knew about it. That damage will occur if they are clamped into this straitjacket. We have been tricked into a debate, thanks to Liberal connivance, late at night without being able to distinguish between one major issue and another. The Financial Secretary does not do himself any credit by grinning foolishly. It is a disgrace, and he knows it.

Photo of Mr Ron Leighton Mr Ron Leighton , Newham North East

Nobody is fond of deficits, but surely they should be for the judgment of the Chancellor of the day and not enshrined in an international treaty. Does ray right hon. Friend agree that deficits in virtually all the Community countries are well above 3 per cent. at the moment? Can he envisage what it will mean for those countries to try to come down to 3 per cent. in a time of recession? Does he know that the Prime Minister of Belgium resigned two days ago because of a budget to reduce Belgium's deficit from 6 point something per cent. to 3 per cent? The measure could not get through, and he had to resign.

Is my right hon. Friend also aware that my right hon. and learned Friend the Leader of the Opposition recently said: If all member states of the EC tried to satisfy the 3 per cent. target by the end of 1996,…the combined effect on total EC output would be a reduction of over 2 per cent. In other words, the attempt to get down to 3 per cent. by 1996 will cause another recession. Is that not crazy and a betrayal of everything that our party has ever stood for?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

My hon. Friend does well to remind us of the international dimension. If European countries that are clearly not conforming to the guidelines set themselves on a deflationary course of converging upon those targets, it would cause terrible damage not only to those countries and their employment, but to the international trading and economic community. It could be done terrible damage, and we could conceivably find ourselves in a 1929–31 situation.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Is not the Maastricht process a grotesque double whammy—the ERM and the monetary discipline required to remain within the parities necessitated by the mechanism? Countries such as Spain have unemployment of about 20 per cent. and at the same time a whopping budget deficit. Were the budget deficit criteria to be implemented, the effect would be absolutely catastrophic. It would be like the slump of the early 1930s.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That is true. Another illustration of that is the fate of the socialist Government in France, with 3 million unemployed by conforming to a Frankfurt policy, leading to high interest rates and strong deflationary pressures. After 10 years of socialist government, something more was expected than 3 million unemployed. Incidentally, that figure existed throughout those 10 years, because France's folly was to join the ERM in 1979 and to give up those easy adjustments in the first few years, when the ERM became increasingly hard and rigid—with the results that we now know.

Another important point relates to the process of the identification of punishment under article 104c. Of course there are considerations, and judgments must be made, but we should have no doubt about the penalties.

Paragraph 9 of article 104c states: If a Member State persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the Member State to take, within a specified time limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.In such a case, the Council may request the Member State concerned to submit reports in accordance with a specific timetable". In other words, "We'll give you a couple of years to change. We want to see a new Red Book, with very different figures from those that we see now."

Photo of Mr Trevor Skeet Mr Trevor Skeet , Bedfordshire North

The right hon. Gentleman makes a very good point, but paragraphs 9 and 11 are knocked out by the protocol. As to the avoidance of budget deficits, one should refer to article 109e(4): In the second stage, Member States shall endeavour to avoid excessive government deficits.The statement in article 104c(1) thatMember States shall avoid excessive government deficits only applies to stage 3, where the other provisions are knocked out.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

There is that difference. I understand that avoidance is not mandatory under stage 2, but a member state is supposed to make the effort and to give evidence of it. If it does not, the Commission will monitor the member state anyway, to ascertain how far short it has fallen.

The most coercive part is article 104c(11): As long as a Member State fails to comply with a decision taken in accordance with paragraph 9"— which I read— the Council may decide to apply or, as the case may be, intensify one or more of the following measures:—to require the Member State concerned to publish additional information, to be specified by the Council, before issuing bonds and securities;—to invite the European Investment Bank to reconsider its lending policy towards the Member State concerned.—to require the Member State concerned to make a non-interest-bearing deposit of an appropriate size with the Community until the excessive deficit has, in the view of the Council, been corrected.—to impose fines of an appropriate size.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

I am sorry to keep interrupting my right hon. Friend, but these are critical questions that need to be answered in a tough scrutiny of the implications of paragraph 11, and, in the absence of a Law Officer, I need his guidance.

Can my right hon. Friend confirm that, if a state is being judged by the Council and the imposition of a fine is possible, the Minister from that state will be excluded from the Council's deliberations? In other words, will the recalcitrant state be denied representation at a meeting which may or may not decide to fine it?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney 2:15 am, 24th March 1993

Presumably, the Minister from the delinquent state will be called in to explain why he has not conformed to the guidelines laid down by the Council. Having given his explanation, he will be asked to leave the room so that a vote can be taken in which he will not participate.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

With respect to my right hon. Friend, we are talking about a meeting of the Council. How can the Council exclude the Minister from its deliberations without infringing other articles of the treaty?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That is an interesting question, and I cannot really answer it—

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

As the hon. Member for Greenock and Port Glasgow (Dr. Godman) rightly says, we are talking about a meeting of the Council. The member state whose record is under scrutiny will be represented in the normal way, and the Minister can contribute to the discussion; the only change is that the Minister will not be able to take part in the qualified majority vote.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

The Council can, if it wishes, use an incredible series of powers to impose penalties on a recalcitrant member state that exceeds the so-called deficit.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I think that I misled the House in a minor way when I used the phrase "qualified majority". I should have referred to two thirds of the votes of its members weighted in accordance with article 148(2), excluding the votes of the representative of the Member State concerned.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I am grateful for that information, but it does not change the position much.

Here, then, is a British Minister representing a state that has offended against some economic theory that has no basis in any serious economic analysis of what is a proper and appropriate public sector borrowing requirement, but is nevertheless written into the treaty. That state is treated—to use a phrase employed by one of my hon. Friends—like a rate-capped local authority. We are talking about a massive, indeed humiliating, transfer of power and self-government to European institutions. I do not understand how any Chancellor of the Exchequer, or any shadow Chancellor, could tolerate it for a moment. One of the reasons why we shall press the matter to a vote is that this is no probing amendment, but one that goes to the heart of British politics.

Several hon. Members:

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Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

It is splendid to see such energy, but I want to say a little about economic policy relating to matters other than deficits.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

On that point, if the proposals are accepted, can my right hon. Friend think of any purpose in having general elections in future? Will it matter tuppence who is the Chancellor of the Exchequer, whether it is a Conservative, Labour or even a Liberal Chancellor, because decisions will be taken elsewhere?

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

That is a serious question, and, in conjunction with the issues that we discussed in our debate on the previous group of amendments, it requires a serious answer. Are we to have any major controls left over the conduct of our own economic policy? I find it amazing that we should be trapped into a late-night debate on such a crucial matter, which affects the welfare, prosperity and future of our country, without even the possibility of studying Hansard between debates.

Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South

In effect, my right hon. Friend is describing what would happen if a Labour Minister of a duly elected Government went to Brussels and returned to tell pensioners and patients of the national health service that there will have to be cuts, that there will be no investment in the national health service, and that there can be no assurance that there will be an adequate number of nurses or hospitals, because we lost the vote and the final decision was taken by other people. Can my right hon. Friend imagine a more wretched, humbling and appalling position for a Labour Chancellor to be in? Moreover, people will ask, "Weren't you part of the Labour party which agreed to the treaty as it went through Parliament?"

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I do not think that we can use words too strong to condemn these provisions. We may argue among ourselves about whether we see a future wholly in Europe and so on. Some people are wildly keen federalists, and I can understand and even respect their position, but I do not understand how anyone can agree to these terms. Not only do I not understand; I have contempt for people who recommend that the British Parliament and people should have these restraints imposed on them. It is outrageous.

Other powers are also being taken away, not only control of public deficits and national debt ratios to GDP. Economic policy in general is to be taken over. After our previous debate, I am not sure how much economic policy will be left. Article 103 states: Member States shall regard their economic policies as a matter of common concern", which is perhaps not too awful a statement. But it continues: The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Community". What is covered by that? The answer is economic policies. It presumably covers anything dealt with by the Department of Trade and Industry and what was once the Department of Energy.

Photo of Mr Ted Rowlands Mr Ted Rowlands , Merthyr Tydfil and Rhymney

Paragraph after paragraph of article 103 contains references to new powers being given to the Commission. The idea has been presented to us that, through subsidiarity, the Commission would be pushed out of the nooks and crannies of our lives. Is not the Commission prepared to give up those nooks and crannies because it is to gain new powers to go into every economic nook and cranny of our society? That is what article 103 is all about.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

My hon. Friend is right. If I were a Brussels Commissioner, I should willingly give up powers over the nooks and crannies, the small change of regulating conditions in English zoos, for example, in exchange for the powers of control over the whole British economy.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

Does the right hon. Gentleman share my fear that, if we foolishly allowed this country to be committed to this aspect of this ghastly treaty, we should be encouraging the growth of a black economy, as has happened in other parts of the world? Where the economic circumstances have produced chaos, which Governments have been unable to control, the black economy has thrived. The British people are enterprising, and that would certainly be the outcome of that sort of nonsense.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

The results would be extremely serious—a total loss of faith in representative government and alienation from laws and policies imposed upon the British people by alien institutions in Europe. All that would be there. People would indeed feel massively betrayed.

I shall finish with my point about the Commission and the Council. Article 103(4) says: Where it is established, under the procedure…that the economic policies of a Member State are not consistent with the broad guidelines referred to". That means, "if a nation states wishes to pursue a certain kind of policy". Nation states might still do that; there are still some differences left between political parties, and one party in power might pursue a policy marginally different from that pursued by another. If a nation state's policies are not consistent with the broad guidelines", or if they risk jeopardizing the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public. There we are. The nation state will be put in the stocks and the international community will be invited to throw rotten fruit at us until we are allowed out.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

I wholeheartedly endorse my right hon. Friend's powerful argument. Is he aware that I have it on good authority that, even before the passage of the treaty, there has been a request from somewhere within the bosom of the Community for Governments to submit a programme for convergence? Various Governments have had to respond to that request.

I do not think that the request has been made public, and I do not know whether the Government intend to make their response public, but when the Financial Secretary replies tonight—or rather, when he makes what I hope will be his opening speech—perhaps he will tell us whether such a request has already been received, and if so, whether it has been made public in this country, whether the Government will respond to it, and how we are to hear about it. Surely what my right hon. Friend says may result from the treaty is already upon us: people are presupposing a request that may come afterwards.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

I think that that matter will be explored again in the next debate, if we are so foolish as to rush on and try to take in stages 1, 2 and 3 of the approach to economic and monetary union, which will be the subject of the third economic debate. It would be wrong to go on to that debate without having had time to consider what has been said in the first two economic debates.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Does the right hon. Gentleman agree that article 103(4), which he mentioned, contains at least an implicit risk that pressure may be put on the United Kingdom to waive its opt-out, and that our Parliament will be expected to agree before we move to stage 3 of the EMU? The article says that, if a nation's policies risk jeopardizing the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. In other words, if we are still laggards towards the end of the 1990s, notwithstanding the views of this Parliament we may come under serious pressure from the Council to move to stage 3 of the EMU.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Indeed. There are several powers—for example, those allowing criticism to be made public—which, although they fall just short of the extreme penalties in stage 3, would be greatly damaging to any country, especially in relation to markets, currencies and matters of confidence. The availability of the weapon of publicity and criticism is bound to be an important factor in stages 1 and 2, before we reach the final stage.

We have discussed today the two crucial powers of the British Parliament over the British economy that remain now that we have lost the power to control our trade and have transferred many other decisions to the European Community. I refer to the two powers that are crucial to macro-economic management—control over one's interest and exchange rate, and the power to decide one's own public sector borrowing requirement and the whole stance of one's budget. If we surrender both those powers in the middle of the night, we shall have done badly by the British people.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 2:30 am, 24th March 1993

I am delighted to follow the right hon. Member for Bethnal Green and Stepney (Mr. Shore), who has done the Committee and the House a great service by both his speeches today. The example that the right hon. Gentleman and some of his right hon. and hon. Friends, together with my hon. Friends, have set, represents the modest safeguard that we still possess in honouring our democratic procedures in the country and the House of Commons. As the Committee knows, immense pressure has been brought to bear upon those hon. Members, of whichever party, to minimise their opposition to the unnecessary, obsolete and irrelevant treaty on which we are spending so much time. It is an immense pleasure to follow the right hon. Gentleman, whose leadership on this matter I have always respected.

I read with interest an article by one Anatole Kaletsky in The Times of 18 March. I hope that the Committee will allow me to quote briefly from that article, which follows through the argument that the right hon. Member for Bethnal Green and Stepney has presented to us—especially in the latter part of his speech, which related to economic policy. The article states: The astounding figure of £50 billion for the public sector borrowing requirement was the clearest possible reminder of how badly the economy has been managed in the past, and of what a crippling burden the whole country must bear"— at this point, the article is slightly critical of the Treasury— to keep a handful of complacent Treasury officials in their ivory tower at Great George Street. But even more alarming evidence of the Treasury's grip on the Major Government came in the budget "Red Book", showing tax revenues and economic projections for five years ahead. The right hon. Member for Bethnal Green and Stepney referred more than once to the Red Book.

The article continues: These figures reveal that Mr. Lamont's tax increases of £10·5 billion from 1995 onwards will be nowhere near sufficient to plug the gap in public finances, if the Treasury's present expectations about the economy are fulfilled. In fact, if the economy grows from 1994 onwards at the Treasury's assumed average rate of 2·75 per cent. a year, Britain will still have a Government deficit"— I believe that the right hon. Member for Bethnal Green and Stepney mentioned this— of 4·75 per cent. of GDP in the last year of the present parliament. I hope that my hon. Friends on the Front Bench will bear that in mind. Even after Mr. Lamont's new exactions, Britain would in 1996 be guilty of a 'gross fiscal error' as defined at Maastricht. Thus, if Mr. Major ever succeeded in getting his treaty ratified, Britain would face great pressure to increase taxes at that time by another £11 billion annually to meet the Maastricht criteria and fulfil Mr. Major's longing to be at 'the heart of Europe'.

Photo of Mr William Powell Mr William Powell , Corby

I am grateful to my Friend for drawing to the attention of the Committee important material that has been overlooked by the Chancellor of the Exchequer. It is clear from my hon. Friend's remarks, if they are true, that the Government have embarked on an economic policy, underpinned in the Budget, that is massively out of line with what is required today. We need a policy for more vigorous growth, enabling the figures which my hon. Friend quoted to become irrelevant.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am not sure whether my close and hon. Friend, a Member whom I greatly admire, is trying to be helpful to me and my argument or to the occupants of the Treasury Bench. I endorse his view. If only the Chancellor realised what was going on at the grass roots his Budget would have been different because we need, above all, an expansion of the economy and the stimulation of economic growth.

I do not want to start a debate about the objectives of the Manufacturing and Construction Industries Alliance, which I launched here a few weeks ago. That alliance has the objectives that my hon. Friend the Member for Corby (Mr. Powell) outlined. But if my hon. Friend supports Maastricht—I believe he has in the past—he will not be able to achieve what he wants because, as the right hon. Member for Bethnal Green and Stepney forefully said, everything we are discussing will restrict growth and create higher unemployment, so creating a vicious circle.

As I pointed out in an intervention, a million jobs are costing the British Government £8 billion, so our present deficit could pale into insignificance, particularly when we consider a previous debate and the establishment of a European central bank, staffed and adminstered by unelected people to whom the Government of the day could not make representations.

The Minister, when replying briefly and inadequately to that debate, said that hon. Members could make their views known to the Government, and the officials of the central bank might, if the Official Report of the debate were brought to their attention, realise that there was concern. But what influence would an hon. Member here have with those officials in the European central bank whose salaries would make ours look like petty cash and who would disregard almost entirely the views of the properly elected Members of this Parliament?

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

I remind the hon. Gentleman of the role that the central bank will play in the scheme of things. At the start of the third stage, the monetary committee, which will play a powerful role in the disciplining of states, will be replaced by an economic and financial committee to which the central bank will have a right of appointment. the central bank will be fully involved, having membership of the successor body to the monetary committee.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman, who has intervened several times in the debate with great effect, has made another good point. I entirely endorse every word that he uttered.

Photo of Mr Christopher Gill Mr Christopher Gill , Ludlow

Is my hon. Friend basing his exposition on a technical understanding of the economic matters involved or on his superb common sense?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

It is interesting that we are getting absolutely no reaction from the Government Front Bench. It may be that, because I have some knowledge of manufacturing industry and what is required, throughout the debate I have adopted a practical, responsible, sensible and earthy approach to the economic difficulties which the country faces.

Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South

As the hon. Gentleman is pursuing that analogy in his illustration of this party's position on this group of amendments—and before we reach the Single European Act in this stage of integration—may I tell him that, when a Committee upstairs was dealing with an order which allowed garments to be marked with the source of manufacture, the then Minister in the Conservative Government, Mrs. Oppenheim, said clearly that we should not at any stage suggest that the order was designed to protect manufacturing industry because the Commission would be listening to our remarks in Committee in order to take action against the order if it was a trade barrier? The order was designed only to help consumers. That was before we reached the solemn stage of dealing with this treaty. If that was the argument of Ministers 10 years ago, what position have we now reached?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I can only agree with what the hon. Gentleman says. He enables me to mention a parliamentary question to the President of the Board of Trade which I tabled only a few days ago. Another objective of the Manufacturing and Construction Industries Alliance, which I hope will assist in the regeneration of the manufacturing base of the United Kingdom, was to get the Government to identify areas of potential for import substitution.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Indeed. My hon. Friend has immediately latched on to the unfortunate, sad, disappointing and depressing reply which I received from the President of the Board of Trade. The Minister said that the Government could not do that because it would be considered an impediment to free trade. My hon. Friend the Member for Southend, East (Sir T. Taylor) says that it could be defined as a Euro-crime.

Is it wrong that the Government, in seeking to build up our economy as part of their economic policy—this group of amendments is about economic policy and deficits—and with the intention of reducing the trade deficit and, as a result, the Government deficit on their current account, would be prevented by the European Community from identifying areas of manufacturing capacity to regenerate the manufacturing base of the United Kingdom?

I cannot believe that that should in any event be described as a Euro-crime. It would be offensive to this country, as it seeks to build up its economy, to be restricted in doing so by the European Community. The position would be made worse if we ratified the Maastricht treaty.

The overwhelming reason for the length and depth of the United Kingdom recession has been the policy—sadly, of my Government—of shadowing the deutschmark and then joining the European exchange rate mechanism. Many Conservative Members, as well as Opposition right hon. and hon. Members, urged that we should not join the ERM. The Government ignored us, and even entered at a rate that was always outrageously irresponsible and could never have been maintained. We know what happened.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am happy to give way to the hon. Member for Bolsover (Mr. Skinner), who is an immense parliamentarian, whatever people may think of his views.

Photo of Dennis Skinner Dennis Skinner , Bolsover

The hon. Gentleman is trying to increase my majority in Bolsover.

The hon. Gentleman said that people like himself were against entering the ERM. It was the same on this side of the House. I remember the manifesto meeting of the Labour party before the last general election. It ought to be placed on record that my right hon. Friend the Member for Chesterfield (Mr. Benn) and I moved an amendment to the Labour manifesto that we should not take part in the ERM and a Labour Government should withdraw from it. We lost that vote by 37 votes to two at a joint meeting of the shadow Cabinet and the NEC. All the marshmallows and pseudo-lefts and all the other rag, tag and bobtails went along with it. What happened? Within a few months the whole thing had collapsed. People on our Front Bench still talked about possibly returning to the ERM. It is like a dog returning to its vomit.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I accept much of what the hon. Member for Bolsover has just said, if not the tone of it. I have a sizeable majority in Macclesfield, as he does in Bolsover. I can only say to those on the Treasury Bench that perhaps some who are considered minorities are right. It is only a pity that the Government do not listen to those with some experience and those who have been consistent in the views that they have expressed.

My hon. Friend the Financial Secretary will know that the United Kingdom was first into recession and has, overall, been much harder hit than any other OECD country. No other OECD economy has contracted over two years as Britain has done. Other economies have done so much more slowly. They are slowing down, but they are still growing. That includes one of the important markets for the United Kingdom. I refer, of course, to the United States of America. Far be it from Britain to be dominated by Europe and look to Europe for its future. I believe that Britain should look to north America and the Pacific rim, where the real wealth is being created and economic growth is a major feature.

Photo of Mr Christopher Gill Mr Christopher Gill , Ludlow

Is it not wrong that we should do almost 60 per cent. of our trade with only 6 per cent. of the world's population and only 40 per cent. of our trade with 94 per cent. of the world's population? Would any business man regard that as a balanced debtors list? Would he not seek to expand his business and open more accounts with more people?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

As I come from a small business background, my answer to my hon. Friend, who also has a career as a successful business man, is in the affirmative. He would expect it to be in the affirmative.

Unfortunately, the Government are severely influenced by the Treasury, and far too few people in the Treasury have any real experience of industry and making money. They merely spend other people's money.

I quote from a leader published on 4 March 1993 in The Daily Telegraph, a paper not unknown to be favourable to the Government: The Government has had no coherent economic policy since Black Wednesday. It is this vacuum at the heart of Government which produces the caution and scepticism which so annoy Mr. Major. I quote that not to be helpful to my party or Treasury Ministers, but to be hopeful for the debate in the House of Commons.

I am sick and tired of the Government being totally committed to Europe and oblivious to what is going on elsewhere in the world. If they realised that there was a bigger and better world outside Europe, we should start to get some economic leadership and the British economy would begin to recover.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

I am sorry to interrupt my hon. Friend in full flow, but he refers to a void at the heart of British economic policy. Is not that void the great question mark over whether we will re-enter the ERM? Until the Government publicly eschew that option and say that we will not re-enter, uncertainty and lack of confidence will persist. We have been burnt once and thousands of people have been put out of work quite unnecessarily. Were that to happen again, it would be quite unforgivable.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I entirely endorse the views of my hon. Friend, who anticipated the remarks I was about to make.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Does my hon. Friend agree that such uncertainty does not exist? Has he seen the "European Special" issued by Conservative MEPs to every constituency office, in which it is made abundantly clear that the Government intend to allow sterling to return to the ERM? So there is no doubt about it. Not only does the treaty indicate that we have to, but the MEPs' paper which is about to be published—and they are to move into central office at Smith square—makes it abundantly clear.

The Conservative manifesto said that we were going to move into the narrow band of the ERM. Does my hon. Friend agree that my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) was in danger of misleading the Committee by saying that there was some doubt? Is it not abundantly clear that we are going back into the ERM? There is no doubt about it whatsoever, and it will be another great disaster for jobs.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

As yet, I am not able to speak for the Government. I am not being immodest when I say that there are some who believe that I might make a better job on the Treasury Bench than some of those who occupy it now.

Photo of Bill Cash Bill Cash , Stafford

Just in case my hon. Friend should be in any doubt whatsoever about the Government's position, I hope that, in common with other hon. Members, he noted that, when my hon. Friend the Member for Southend, East (Mr. Taylor) made his point about that scurrilous piece of paper from the European People's party, the Minister nodded his head in agreement and is now nodding again, so there is no doubt that the Government intend to take us back into the exchange rate mechanism.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Having sat through many hours of the debate today, my hon. Friend the Minister indicated that there was an option to re-enter the ERM, but, not seeking to be unfair to my hon. Friend or to my right hon. Friend the Prime Minister, let me say that they have made it clear that we will not go back into the European exchange rate mechanism until the Government believe that it is right to do so. By that, they imply that it would be in the interests of this country to do so.

Before I give way to my hon. Friend on the Front Bench, may I say to my hon. Friend the Member for Southend, East that it is absolutely scandalous that the money which the Conservative party raises has gone to produce this ridiculously nonsensical, irresponsible, irrelevant and obsolete document from the Euro-MPs who are members of the Conservative party.

Photo of Bill Cash Bill Cash , Stafford

The European People's party. It is nothing to do with us.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Or the European People's party, which, I am afraid, undoubtedly receives money from the United Kingdom's contribution to the European committee. But I do not think, Mr. Lofthouse, that you wish us to go into that matter.

Several hon. Members:

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Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Please would my hon. Friends contain themselves? I see my hon. Friend the Financial Secretary pensive and pregnant with anticipation of the question that he is going to put to me.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I am grateful to my hon. Friend, but, rather than have my views attributed to me and then have some of my hon. Friends say that I was indicating assent to their formulation of the Government's policy, perhaps I may be allowed to confirm what I said two or three hours ago, which is that the Government's policy in relation to the exchange rate mechanism is to return to it when we consider it to be in this country's interest to do so.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I entirely disagree with the policy of going back in, but I hope that my hon. Friend will accept that I interpreted what he said some three hours ago fairly accurately in my response to my hon. Friend the Member for Southend, East.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I shall give way in just a moment—

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am delighted to give way to the hon. Member for Great Grimsby (Mr. Mitchell), a fellow officer of the all-party media group, not least because I am attracted by his tie.

Photo of Austin Mitchell Austin Mitchell , Great Grimsby

The position that the Minister has just given us is a much closer advance to membership than the position when we came out, which was that we would not go back until the fundamental fault lines of the ERM had been repaired.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I know that this sounds repetitive, but again I can only agree with everything that the hon. Gentleman has just said. Certainly, when we came out, it was my understanding of the Government's position that we would not go back in until the whole thing had been reviewed and restructured. We have seen it in the sort of drip, drip, drip syndrome that we have become accustomed to from this Government. We have been told that certain things will not happen, but, in case they do happen at some time in the future, we are building up the structure to enable them to happen.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

Does my hon. Friend, with his business background, agree with me that one of the problems of making business decisions is trying to forecast the position in six or 12 months' time? Part of the problem of decision-making, in which I have often been involved, is having to make a judgment based on what one thinks will be the future economic and political circumstances. It is particularly important when one is interested in overseas markets, something in which companies are interested. Therefore, a statement to the effect that we will go back into the ERM when the Government judge that the circumstances are right is much worse than a clear-cut statement to the effect that we will join and these are the circumstances under which we will join, clearly laid out—and we have not had that—or, alternatively, a statement to the effect that we will not join at all. Either of these allows decisions to be made.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend, in yet another excellent intervention, has made a point that I trust the Treasury Bench will note. Those of us who are in business and have to take decisions for which we are accountable in every sense of the word need decisions, and I say to my hon. Friend the Financial Secretary that one of the reasons why I am strongly opposed to this protocol on the excessive deficit procedure is that a country might well need to have much more than 3 per cent. of gross domestic product as a deficit for a limited period in order to achieve a certain objective.

It is the same in business—one can borrow heavily. I advocate borrowing heavily only when one expects to get the money back with a profit that will enable one to pay back the debt. My hon. Friend's comments are extremely important.

Photo of Bill Cash Bill Cash , Stafford

My hon. Friend may not know that an interesting paper was prepared—it seems by Treasury officials—entitled, "Sterling in the ERM: Lessons from the September 1992 Crisis". It happened to arrive in my post in a brown envelope and is otherwise known as a leaked document. My hon. Friend may find it interesting to know that, with respect to the manner in which those things are supposed to be dealt with, the document states: The results of these discussions should be communicated by the officials concerned to Finance Ministers. Special meetings of Finance Ministers are best avoided since they attract such public attention. Secure video conference facilities would enable Finance Ministers to talk to each other without meeting. There is much more, as I shall explain to the Committee when I have an opportunity to speak. It is a remarkable inside document on what really goes on and what Ministers are up to.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I hope that my hon. Friend will be prepared to make that document available to his colleagues and to let it lie on the Table, although perhaps the Chair would not consider it to be a state paper. It appears that it may come from some official source and it may also indicate official advice to Ministers from qualified people within a Government Department, and it is therefore relevant for it to be drawn to the attention of the Committee.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

Given that we small band of men and women are engaged upon the parliamentary task of scrutinising the documents, line by line, I wonder whether the hon. Gentleman can help me. Can a member state, bedevilled by severe economic difficulties, seek a derogation from the provisions of article 104c?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Like the hon. Gentleman, I am not a lawyer. On many occasions during the debate he has said that it would be most helpful to the deliberations of the Committee if a Law Officer, such as the Attorney-General, were here to assist us with the sort of question that he has asked me as a Government Back Bencher.

3 am

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Exactly. My hon. Friend has anticipated my response. The answer to that question would be no. Any derogation would have to be granted before the treaty is ratified and signed, so the country suffering exceptional economic difficulties could not seek a derogation. I presume that under the protocol on the excessive deficit procedure, and other procedures that go with it, an explanation could be provided to that errant member country, and perhaps a less severe penalty would be imposed. I am being gracious and courteous towards the rather repressive and oppressive procedures that are laid down and that inhibit growth and the freedom of Governments to deal with the problems of their economy.

It is not in the Government's interests to emphasise that the plight of the United Kingdom is worse than that of any other country, or to point the finger of blame at the ERM. We all know that the ERM is to blame, but high interest rates to keep our exchange rates in line with those of Germany have wreaked havoc on business. As I have intimated in interventions, they also account for 1 million of the more than 3 million people who are unemployed. It is as simple as that. As we are talking also about deficits, I repeat that, in this respect, the Government's European policy is costing this country £8 billion.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

My hon. Friend has obviously studied this matter very carefully. Perhaps he could clarify something that I do not understand. If a member state, under article 104c, is instructed to increase taxes very substantially because of an excessive PSBR, and if the result is more unemployment and an even greater PSBR, is that state automatically fined for following instructions?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

This is one of the points made very dramatically and forcefully by the right hon. Member for Bethnal Green and Stepney.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The answer is that I assume that such a state would be fined.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

For doing what it had been told?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Indeed—for creating a deficit even greater than the one that was the cause of its being hauled before the monitor in the first place.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

In the most unfortunate absence of the Attorney-General, can my hon. Friend tell us what the outcome would be if a member state were fined for not keeping within the protocol's criteria on budget deficit and national debt? Refusal to pay the fine would seem to be the sensible course. Why should the misery of the people concerned be compounded?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

If this country were to follow the example of many members of the European Community—France, Italy, Holland, Belgium and even Germany—it would ignore most of the directives and regulations that are unhelpful. Those countries accept such directives and regulations but never implement them; and by the time the Commission catches up, it is too late, and the benefit has been gained.

As my hon. Friends have said, the Government want to return to the ERM, despite its dramatically damaging cost.

Photo of Bill Cash Bill Cash , Stafford

I can confirm what my hon. Friend has said.

The document from which I have already quoted, which was published—"published" is the wrong word; it was written—on 23 December 1992, concludes: Sterling should re-enter the ERM when the following conditions have been met: German interest rates have come down; the Bundesbank in particular accepts the new parity as realistic…Sterling should re-enter with a narrow band. In other words, the advice that is being given includes clear commitment. My hon. Friend may find that these conclusions are of some assistance.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend, not for the first time, has anticipated the point of what is almost my next sentence. The Maastricht treaty, whose ratification we are considering, will commit the United Kingdom to returning to the ERM under the second stage of European monetary union. We could be committed to doing that from 1 January next—nine or 10 months away. We would be returning to the horror of that cage—indeed, the ERM—that caused so much trouble in this country, and at least one million job losses.

The Conservative Government believe that they have an opt-out of the third stage of EMU, and can decide later whether or not to join the single currency.

Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South

On a point of order, Mr. Lofthouse. I apologise to the hon. Gentleman, whose speech I am enjoying—he will no doubt have the opportunity to resume his speech—but I beg to move, That strangers do withdraw.

Notice being taken that strangers were present, the FIRST DEPUTY CHAIRMAN, pursuant to Standing Order No. 143 (Withdrawal of strangers from House), put forthwith the Question, That strangers do withdraw:—

The Committee proceeded to a Division

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

I understand that we are having difficulty over the Doorkeepers, many of whom will be needed later in the morning. The Doors to my immediate left and my immediate right are locked, so hon. Members will have to use the other Doors.

The Committee having divided: Ayes 0, Noes 183.

Division No. 206][3.10 am
AYES
Nil
Tellers for the Ayes:
Mr. Bob Cryer and
Mr. Dennis Skinner.
NOES
Ainsworth, Peter (East Surrey)Goodson-Wickes, Dr Charles
Aitken, JonathanGorst, John
Alexander, RichardGreenway, John (Ryedale)
Amess, DavidGrylls, Sir Michael
Arbuthnot, JamesGummer, Rt Hon John Selwyn
Arnold, Jacques (Gravesham)Hague, William
Arnold, Sir Thomas (Hazel Grv)Hamilton, Rt Hon Archie (Epsom)
Atkinson, Peter (Hexham)Hampson, Dr Keith
Baker, Nicholas (Dorset North)Hanley, Jeremy
Baldry, TonyHarris, David
Banks, Matthew (Southport)Hawkins, Nick
Barnes, HarryHayes, Jerry
Bates, MichaelHeald, Oliver
Beresford, Sir PaulHeathcoat-Amory, David
Booth, HartleyHendry, Charles
Boswell, TimHill, James (Southampton Test)
Bottomley, Peter (Eltham)Hordern, Rt Hon Sir Peter
Bowden, AndrewHowarth, Alan (Strat'rd-on-A)
Bowis, JohnHunt, Rt Hon David (Wirral W)
Brandreth, GylesHunt, Sir John (Ravensbourne)
Brazier, JulianHunter, Andrew
Bright, GrahamJack, Michael
Brooke, Rt Hon PeterJones, Gwilym (Cardiff N)
Browning, Mrs. AngelaJopling, Rt Hon Michael
Burt, AlistairKellett-Bowman, Dame Elaine
Carlisle, Kenneth (Lincoln)Kennedy, Charles (Ross,C&S)
Carrington, MatthewKey, Robert
Channon, Rt Hon PaulKilfedder, Sir James
Chapman, SydneyKirkhope, Timothy
Churchill, MrKirkwood, Archy
Clarke, Rt Hon Kenneth (Ruclif)Knight, Mrs Angela (Erewash)
Clifton-Brown, GeoffreyKnight, Greg (Derby N)
Coe, SebastianKnox, David
Congdon, DavidKynoch, George (Kincardine)
Coombs, Simon (Swindon)Lait, Mrs Jacqui
Cope, Rt Hon Sir JohnLegg, Barry
Couchman, JamesLeigh, Edward
Curry, David (Skipton & Ripon)Lester, Jim (Broxtowe)
Davis, David (Boothferry)Lidington, David
Davis, Terry (B'ham, H'dge H'l)Lightbown, David
Day, StephenLuff, Peter
Deva, Nirj JosephLyell, Rt Hon Sir Nicholas
Dorrell, StephenMacGregor, Rt Hon John
Douglas-Hamilton, Lord JamesMacKay, Andrew
Dover, DenMaclean, David
Duncan, AlanMcLoughlin, Patrick
Duncan-Smith, IainMaitland, Lady Olga
Dunn, BobMalone, Gerald
Elletson, HaroldMans, Keith
Emery, Rt Hon Sir PeterMartin, David (Portsmouth S)
Evans, Jonathan (Brecon)Mawhinney, Dr Brian
Evans, Nigel (Ribble Valley)Merchant, Piers
Evans, Roger (Monmouth)Milligan, Stephen
Evennett, DavidMitchell, Andrew (Gedling)
Faber, DavidMonro, Sir Hector
Fabricant, MichaelMoss, Malcolm
Fenner, Dame PeggyNelson, Anthony
Fishburn, DudleyNeubert, Sir Michael
Forsyth, Michael (Stirling)Newton, Rt Hon Tony
Forth, EricNicholls, Patrick
Fox, Dr Liam (Woodspring)Nicholson, Emma (Devon West)
Gale, RogerNorris, Steve
Gallie, PhilOppenheim, Phillip
Garel-Jones, Rt Hon TristanPage, Richard
Gillan, CherylPaice, James
Godman, Dr Norman A.Patnick, Irvine
Pattie, Rt Hon Sir GeoffreyTemple-Morris, Peter
Pickles, EricThomason, Roy
Porter, Barry (Wirral S)Thompson, Patrick (Norwich N)
Portillo, Rt Hon MichaelThornton, Sir Malcolm
Powell, William (Corby)Thurnham, Peter
Rathbone, TimTownsend, Cyril D. (Bexl'yh'th)
Redwood, JohnTracey, Richard
Renton, Rt Hon TimTrotter, Neville
Richards, RodTwinn, Dr Ian
Robathan, AndrewViggers, Peter
Roberts, Rt Hon Sir WynWalden, George
Robertson, Raymond (Ab'd'n S)Waller, Gary
Robinson, Mark (Somerton)Wardle, Charles (Bexhill)
Rowe, Andrew (Mid Kent)Waterson, Nigel
Ryder, Rt Hon RichardWells, Bowen
Sackville, TomWheeler, Rt Hon Sir John
Shaw, David (Dover)Whitney, Ray
Shepherd, Colin (Hereford)Whittingdale, John
Smith, Tim (Beaconsfield)Widdecombe, Ann
Spencer, Sir DerekWilletts, David
Spicer, Sir James (W Dorset)Wolfson, Mark
Spink, Dr RobertYeo, Tim
Sproat, IainYoung, Sir George (Acton)
Stanley, Rt Hon Sir John
Stephen, MichaelTellers for the Noes:
Stewart, AllanMr. Timothy Wood and
Streeter, GaryMr. Robert G. Hughes.
Sykes, John

Question accordingly negatived.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

On a point of order, Mr. Lofthouse. Given the reduced number of doorkeepers on duty, will you confirm that if there are to be more Divisions throughout the night, the doors that remain locked are those over your right shoulder, and those over my left shoulder?

The First Deputy Chairman:

Yes, I can confirm that.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

When my contribution to the important debate on this group of amendments was interrupted some minutes ago, I was advising the Committee that the Government believe that they have an opt-out from stage 3 of European monetary union and can decide later whether or not to join the single currency. I remind the Committee that under article 109m of the treaty of Rome, the Commission or another member state can take the United Kingdom to the European Court of Justice for not behaving "in the common interest". I submit, therefore, that opt-outs are probably not worth the paper they are written on. We should not base support for the Maastricht treaty on an opt-out that is as yet untested in the European Court.

It was mentioned in an earlier debate—but this has a major bearing on Government economic policy—that under the treaty we are likely to surrender certain rights to the European central bank. They include our ability to control interest and exchange rates, to issue bank notes, control foreign reserves, and—particularly relevant to this group of amendments—to control the level of Government deficit. Government spending and policies would therefore be handed over to six unelected bankers in Germany—I am not sure yet whether the central bank will be in Bonn or Frankfurt. As the right hon. Member for Bethnal Green and Stepney made clear, they will have an eight-year tenure and can only serve one tenure. As they can serve only one tenure, the bankers will not care whether they please or displease.

We know, because we have been told, that those individuals can be removed by the European Court of Justice only on a technicality, not for getting their policies wrong. Here in the Westminster Parliament, if a Government get their policies wrong and lose the support of the people, they can be turned out after four or five years. That does not apply to these distinguished individuals, these highly remunerated individuals, these individuals who ultimately need not be accountable for their policies, whatever problems they create for the countries that comprise the European Community.

Photo of Bill Cash Bill Cash , Stafford

My hon. Friend may be glad to know that, referring to the central bank's governors, this remarkable document states: Since there will always be a trade-off between domestic macro-economic management and exchange rate policy, this aim is perhaps utopian. Even this extraordinary document admits that the basis on which the decisions are made is utopian: in other words, the authors do not even believe in it themselves.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I believe that the author of "Utopia" was Sir Thomas More. There is a plaque commemorating him in Westminster Hall. Perhaps we are fortunate to be as close to Utopia in this country as we will ever be. I would not want that Utopia to be in any way diluted by a system in which all our affairs were controlled by the European central bank, whether based in Frankfurt or in Bonn.

Around such a bank, as I think we are all aware from the excellent speeches made so far, will be an immensely powerful group of people whom I have already described. For example, according to the statistics that I have before me, under Maastricht control the convertible currency reserves of all member states, which totalled £1,761 billion at the end of 1991, will inevitably become subject to fund management by the new European central bank.

Banking and currency businesses will take thousands of jobs away from an organisation not so very far from the Palace of Westminster—the City of London. Yes, this new set-up—this new central bank of Europe, or European central bank-could well deprive London and its financial centre of thousands of jobs. The City of London originally grew up around the Bank of England. As the Bank of England becomes a branch of the European central bank, perhaps rather a second-rate branch—it is all here in the treaty—so the City of London, which is important to the country and its economy, will contract. With Maastricht, we are committed to a re-run of the past three years—to a slowing and then a shrinking of our economy.

My interest in industry leads me to the subject of convergence. The requirement in the treaty for convergence is one of the most important policies affecting industry in this country, and Britain will be committed to it irrespective of the opt-outs—or whatever they were—negotiated by my right hon. Friend the Prime Minister. As the Committee will know, convergence consists of financing the industries of less well-developed European countries so that they can compete with our own. In other words—I think that this has been said before by hon. Members who are concerned about the treaty—Maastricht will set up an industrial equivalent of the common agricultural policy.

How many hon. Members who are present at this early hour of the morning are aware that many of our traditional industries have already faced severe competition from some of the new members of the European Community? I refer in particular to Portugal and Spain. The paper and board industry, with which I have been closely involved for many years, has lost not only through companies collapsing but through thousands of jobs going to Spain, in particular, and to a lesser extent to Portugal because of the assistance that those countries receive from various structural and improvement funds, to which we are the second largest contributor. We are positively contributing to transfer of jobs from the United Kingdom to other EC countries.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood 3:30 am, 24th March 1993

My hon. Friend is making a crucial point. The British public would be horrified, and I hope that his speech will percolate through. Are there not first three EC countries with which we have a balance of payments surplus—Ireland, Spain and Greece? We no longer have one with Portugal. If the transfer of funds under the Maastricht process continues, there will not be one member of the European Community with which the United Kingdom has a balance of payments surplus.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend is absolutely right, and I entirely endorse his view. If the people of this country realised what the Government were doing in their name, they would be extremely angry and would respond appropriately when the opportunity arose. It is vital that the United Kingdom does not accept the proposals.

My hon. Friend the Member for Southend, East is not in his place at the moment, but he is extremely well informed about the common agricultural policy. It is notorious for its cost and its waste. As many hon. Members are aware, it costs £1,000 a year for every four-person household in Britain. It is depleted by fraud and inefficiency, and only about 50 per cent. of every £1 reaches the farmers for whom it is intended. As I have said, the budget which is drained by the CAP is a budget to which the United Kingdom is the second biggest contributor.

I now touch on an issue to which I trust that the House will turn its attention later today if the business managers permit it. In March this year, The Guardian—a newspaper that I read although I do not always agree with it—pointed out that the United Kingdom pays France enough money for electric power to keep the equivalent of six British coal pits in operation. Six mines, in addition to those which we hope will be reprieved by the President of the Board of Trade later today, could be kept open, but we pay the money to France instead and put our miners out of work.

Convergence under the Maastricht treaty will mean the United Kingdom paying more money, hand over first, to industries in Spain, Portugal, Greece and Ireland. A number of hon. Members—no doubt including some of those facing me across the Chamber—might believe that that is a good thing. In the past year or two, I motored through Spain on my way to a holiday in Portugal. I was appalled by the number of road projects for which those countries have received funding from the European Community, making them more attractive and competitive than the United Kingdom. The people of this country do not want or support that. I believe that if they knew that it was going on to that extent they would register their firm opposition with the Government.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am delighted to give way to the president of the Liberal Democrats, with whom, despite our many differences, I share considerable common ground.

Photo of Charles Kennedy Charles Kennedy Shadow Spokesperson (Foreign and Commonwealth Affairs), Party Chair, Liberal Democrats

I am grateful to the hon. Gentleman for giving way, but he is systematically slashing to bits those of us who are attempting to contribute to the debate before we even intervene. I do not know to which road projects he specifically referred, but I suggest that countries such as Spain may appear to have more road infrastructure projects supported by EC funding because, unlike this country, they do not systematically and persistently abuse the concept of additionality for European regional development fund cash.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am not sure whether I have the information readily to hand to be able to answer the hon. Gentleman's question fully, as normally I would wish to do, but I can tell him that the United Kingdom, perhaps stupidly, is one of the most honourable countries in the Community and implements any regulation or directive that the Government accept, even if they have accepted it unwillingly. We cross all the t's, dot all the i's and put full stops at the end of all the sentences. We are as communautaire, as honourable, as any country in the Community. Indeed, in my view we are considerably more honourable than most.

I am not sure what sort of response to his question the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) expected from me.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I give way to the hon. Gentleman again, if he insists.

Photo of Charles Kennedy Charles Kennedy Shadow Spokesperson (Foreign and Commonwealth Affairs), Party Chair, Liberal Democrats

How could the hon. Gentleman know what kind of reply I wanted? I did not expect the reply that he gave but, equally, he will not have expected me to agree with the one that I thought that he would give. I did not want to agree with that in the first place.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman is always most courteous and most charming, and it is difficult to disagree with him in an aggressive way. He seems to agree with the response that I actually did give him, although I could not reply to the specific question that he asked.

It has not been mentioned much in our debates that convergence is a critical cost upon the people and the industry of this country. Some people argue that, if Britain finances the development of other EC countries they will then become customers of Britain's manufacturing companies and take our goods. The falsity of that idea is shown by the trade figures to which my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) has already alluded. The only EC countries with which the United Kingdom has a favourable balance of trade are two of the three poorest nations. That does not suggest that, as the Government may say, the more money we pour into other countries and the better we make them, the more business we shall do with them. The record shows that that does not happen.

Because of my total commitment to the role of manufacturing industry in the economy of this country, I again ask the Government why, if they believe in spending money to invest in industry, they do not invest in United Kingdom industry. I ask that with a great deal of venom, and I repeat what I said earlier in my short contribution to the debate—that when I sought to concentrate the mind of a responsible Department, the Department of Trade and Industry, on areas in which we might achieve import substitution and a regeneration of sectors of this country's manufacturing base, I got from the Minister for Industry the unhelpful response that the Department could not possibly do that because it would contravene the treaty of Rome, and the Commission would come down on us like a ton of bricks. What a load of wimps they are. Is it not about time that we stood up for the interests of manufacturing industry and jobs in the United Kingdom?

My hon. Friend the Financial Secretary has been sitting on the Front Bench for rather too long. I am amazed that he has not been relieved, as I believe that merits—

Photo of Bill Cash Bill Cash , Stafford

Does my hon. Friend agree that one of the tragedies of the Government's policy on the trade matters to which he is referring is that we are running a multi-billion pound deficit with the European Community? We are in an absolutely ridiculous situation. We are receiving orders from unelected officials and subscribing to a Euro-framework—which, good though it may be in theory, needs to be sorted—while at the same time running that massive deficit.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Yes, and our deficit with Europe has been increasing ever since we joined. I have long believed that the United Kingdom should look to the four corners of the world for trade and customers and should not be blinded by Europe or concentrate all its efforts on the European Community. One day, we shall learn that the European Community is only a small part of the overall trading world. We should look to north America, where the economy is growing rather faster than almost anywhere in Europe. I believe that there are rich pickings to be had if only we would turn our eyes in that direction.

I pay tribute to the Government for one or two of the measures that they introduced in the Budget—not least the increase in the moneys available under Export Credits Guarantee Department schemes and the more competitive premiums now available to industry. That will undoubtedly enable the United Kingdom to bid for very important contracts in the far east, Indonesia and elsewhere, where there are, I repeat, very rich pickings as regards employment and manufacturing.

Photo of Mr Stephen Day Mr Stephen Day , Cheadle

My hon. Friend and I were heavily involved in trying to secure for British Aerospace the deal that it has recently secured with Taiwan Aerospace. My hon. Friend knows the great importance of British Aerospace both to our constituents and to the United Kingdom in general. He will also, I believe, have received from British Aerospace—I shall be surprised if he has not—a letter asking Parliament to ratify the Maastricht treaty immediately because the company feels that it is of major importance to it. Will my hon. Friend address that point, as he gives me the impression that he believes that there is some conflict of interest—a belief which British Aerospace, one of the major employers, does not seem to share?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend tempts me to start my speech again, but I know that you, Mr. Lofthouse, would not wish me to go back over the brief comments that I have made so far. If my hon. Friend had read one of those distinguished, more serious newspapers on Sunday—I refer to The Sunday Telegraph, although I believe that the story also appeared elsewhere—he would be aware that a certain amount of disinformation and misinformation is being peddled—[Interruption.] I shall come to inward investment in a moment. A great deal of disinformation is being peddled about the support of industry for the Maastricht treaty. The Institute of Directors, which is surely fairly representative of big business, is strongly opposed to the Maastrich treaty, for a number of the reasons that I have spelt out to the Committee during my speech.

I know from my knowledge of many members of the CBI that they, too, oppose Maastricht, as do many small business men. But with the political patronage available to Government, certain people who head major companies and who in the past, by tradition, have automatically been rewarded with honours, have done what they perceive is expected of them. I refer without malice, for example, to the chairman of ICI, who was a signatory with other leading business men—the Arnold Weinstocks of this world, the leaders of British Aerospace and others. I am not sure that they are committed to Maastricht in a meaningful way. Indeed, I am not sure that any of them have read the Maastricht treaty, together with or separately from the Single Act and the treaty of Rome, although all three must be read to understand the position fully.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Is it not a fact that major aerospace companies, such as British Aerospace, have collaborated over the years with European and other partners, as Boeing co-operates with the Japanese, the Italians and many others, on purely commercial and technical grounds? They find the partners who best suit their commercial and technical requirements. It has nothing to do with Maastricht.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 3:45 am, 24th March 1993

I agree absolutely with my hon. Friend who, speaking from the heart and the head—because few in the Committee know as much about certain sectors of industry, including aerospace, as he does—puts it in a nutshell.

My hon. Friend the Member for Cheadle (Mr. Day) drew my attention to certain senior executives of British Aerospace. I could introduce him to many executives who take a totally contrary view over the ratification of Maastricht. But does our ratification of it make the slightest difference to the excellent arrangement that British Aerospace has entered into with the Taiwan Aircraft Corporation in a joint venture for the design, manufacture, marketing and sale of their regional jet aircraft? It does not.

As I anticipate a third partner for British Aerospace in that joint venture, does my hon. Friend the Member for Cheadle believe that if that partner does not come from the European Community, that third partner's participation will be affected by whether or not we ratify the Maastricht treaty? Being a close neighbour to my constituency, I am sure he will reply that it will have no bearing whatever.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

The hon. Gentleman referred to our shrinking manufacturing base. He will be aware of industries which utilise wide-ranging skills. For them, we are almost at the point of no return. For example, P & O recently ordered two cruise liners, not from a United Kingdom yard but from German and Italian yards. Not one British merchant yard bid for those two lucrative contracts. The European Commission is denying our warship yards the right to bid competitively for such merchant contracts, and I fear that, within 10 years, we may not possess the skills to enable us to build such advanced vessels.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman has drawn that and similar matters to the attention of hon. Members on previous occasions. He raises a valid and important point. Sadly, the Government—this applies to Governments of both parties—have sold our manufacturing base short and have failed to support it in various forums. The sort of matter which the hon. Member for Greenock and Port Glasgow has drawn to my attention is valid because, once that skill has left our shores, it will never be replaced. As the hon. Gentleman is from that part of the country, he knows that that skill has been a huge earner of money for the United Kingdom and a huge employer of labour in the past.

Photo of Bill Cash Bill Cash , Stafford

I do not wish in any way to preempt anything that my hon. Friend may say in his excellent speech. I refer to the Confederation of British Industry, the Institute of Directors and, indeed, the Federation of Small Businesses. The Federation of Small Businesses has not been mentioned in this debate—I addressed its annual conference in Bournemouth recently. About 60,000 members have endorsed the call that I and many others have made for a referendum. Does my hon. Friend agree that the absolutely extraordinary report of the Confederation of British Industry demonstrates that there are no substantial grounds whatever for these continual smears and allegations that failure to ratify the Maastricht treaty will affect inward investment into the United Kingdom in any material way?

The Confederation of British Industry sent the report to Members of Parliament and peers. The report gave a totally misleading impression, which is remarkable. Does my hon. Friend agree that the report sets out what will happen if we do not ratify the Maastricht treaty? For example, a major computer manufacturer in the United States says: A United Kingdom decision to stay out of the ERM would not affect our decision on United Kingdom investment. In so far as possible, UK policies on Maastricht, a two-tier Europe and withdrawal from the EC and investment decisions would not be affected. That is typical.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am happy to answer by saying yes and yes to my hon. Friend's questions. I believe that the Confederation of British Industry received a nod and a wink and that the specific briefing document was sent out at the request of certain political friends, who may have been in Government. Subsequent to the issue of the report, many members of the CBI have said that they do not agree with many of the comments in it.

My hon. Friend the Member for Stafford (Mr. Cash) has anticipated another area to which I wish to refer—Maastricht and the single market. That is important with regard to our economic policy and has a direct bearing on the Government's deficit. It is not said often enough or forcefully enough that Maastricht has next to nothing to do with the single market.

At one time, we were repeatedly told that the single market could not come into force unless the treaty was ratified. Maastricht has not been ratified, and the single market has been with us since 1 January. The single market has been with us since 1 January, even though—dare I say it—Germany has not ratified the treaty because of a technicality. I am not sure when Germany will ratify the treaty. The point that we will remain in the single market even if we do not ratify the treaty should be made time and again to our trading partners, especially those outside the European Community.

I suspect that those well-informed gentlemen in the top echelons of Centrepoint—I refer to the CBI—have deliberately misunderstood this, believing that the single market will collapse and our membership of the single market will end if we do not ratify the treaty.

Photo of Mr Ivan Lawrence Mr Ivan Lawrence , Burton

My hon. Friend is making a most impressive speech, and is using some material which is obviously well informed. He made the point before about British business men. They believe that signing up for Maastricht will save their businesses. They believe, because they have been told it and they have not read the treaty and do not understand anything about what it means, that they would have to leave the Common Market if the treaty was not ratified. They are told that time and time again.

I was in Copenhagan last week. People there who said no in the referendum because they believed that it was not in the interests of Denmark to sign up to Maastricht are now being told left, right and centre that, if the treaty is not ratified, they will be out of the European Economic Community and all their businesses will collapse. Whoever one asks says exactly the same thing—that they will be left out of Europe if they do not sign up. Something has to be done to bring an element of honesty back into government and business so that that particular myth is killed.

My hon. Friend may be coming shortly to the views of the chief executive of Jardine Matheson, who wrote a letter to the The Times and telephoned around leading business men. He found that most of them believed that the future was not in the signing of Maastricht.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Representations have been made to me by Jardine Matheson, but as my hon. and learned Friend has given the information to the House, I know that you would say that I was being repetitive, Mr. Lofthouse, if I repeated it to the Committee. My hon. and learned Friend's request for honesty should be answered by the Government and the CBI and all the other organisations which have peddled inaccurate and biased information, for whatever reason.

Before I come to the next issue, I return to the Budget. Again, it is relevant to economic policy and the deficit. The deficit is particularly relevant to the matter that I wish to raise. The Government have decided to extend value added tax to heat and light. I wonder why they chose to do that. Was it to reduce the deficit? That was the explanation provided by the Chancellor and other Ministers. Perhaps, Mr. Lofthouse, you will say that I am being too suspicious. Perhaps I am not trusting enough of my colleagues on the Treasury Bench. Did they extend VAT to bring the tax structure and the base of value added tax in Britain more in line with the rest of the EC?

I wonder what further measures my right hon. Friend the Chancellor will announce to the House in the years that lie ahead. He has extended VAT to heat and light. I did not support that, and I will not support it unless he provides certain assurances to me that the vulnerable groups, whom we all know about, are fully and adequately covered.

Photo of Mr Barry Porter Mr Barry Porter , Wirral South

I can think of better things to do at 4 o'clock in the morning. I would not mind if we were discussing what is before the Committee, but in the past half hour I have heard a broad onslaught on the treaty of Rome, the Single European Act and the general wickedness of the European Community. It is not possible for you to bring the speeches into order, Mr. Lofthouse, so that they deal with the Maastricht treaty and nothing else?

The First Deputy Chairman:

Order. That is a matter for the Chair. However, on occasions my patience has become somewhat exhausted because the hon. Member for Macclesfield (Mr. Winterton) has ventured into industrial policy, whereas the amendments deal with economic policy. If the hon. Gentleman would bear that in mind, I would be extremely grateful.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Of course I fully accept the view that you have just expressed, Mr. Lofthouse, and as a member of the Chairmen's Panel I accept without question the ruling of the occupant of the Chair. You have always been impeccably fair whenever I have taken part in any debate in the Chamber. However, if industrial policy and the importance of manufacturing are not inextricably entwined with economic policy, I do not know—

The First Deputy Chairman:

Order. As the hon. Gentleman is fully aware, there has been a separate debate on industrial policy.

4 am

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Sadly, on that occasion I did not succeed in catching your eye because, yet again, the Government sought to short-circuit debate in the House on a vital constitutional issue and I was unable to make a speech. I do not wish to get out of order, Mr. Lofthouse, or to tempt you to rise to your feet again, but the issues that I have touched upon are relevant to economic policies and deficits.

If my hon. Friend the Member for Wirral, South (Mr. Porter) doubts my reference to value added tax on heat and light, he will know that the Chancellor apparently introduced that policy to reduce the Government deficit. He may have done it partly for that reason, but I am suspicious that he has done it to bring the base of taxation in Britain closer to that of the European Community and I am strongly opposed to that.

Once again, I am referring to the deficit and my hon. Friend the Member for Wirral, South is tempting me, provoking me and forcing me to go further. Having introduced that measure, we are putting a number of vulnerable groups into grave financial difficulty. As a result, the Government will have further to increase the deficit in order to increase the pension and raise by the appropriate amount state income-related benefits and income support.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

Is not my hon. Friend saying that the redeeming feature was that it was our Chancellor who took the decision to adjust the deficit or do whatever he wished with it? The amendments are about whether or not the House, the Chancellor or any future Chancellor will have the opportunity to do just that. That is what the debate is all about.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend is correct in that we wish the House to have the authority to decide economic policy in all the areas that I said would be handed over to the European central bank, for example, if the Maastricht treaty is ratified, and inevitably other measures that are in the pipeline would follow.

Let me now move on to Maastricht—[Interruption.] Perhaps my hon. Friends are inexperienced in theatrical delivery and did not take account of the pause. I was about to move on to Maastricht and inward investment, which is closely tied up with economic policy.

Inward investment into Britain comes from a number of sources such as the United States and Japan. As my hon. Friend the Minister is inclined to talk, lecture and ram down our throats in economic and other debates in the House, we have been an extremely successful recipient of inward investment. This has been a notable ingredient of our economic success, particularly during the 1980s.

I would like to give a number of reasons for that investment. I pay tribute to the United Kingdom Government, a Conservative Government, for their sympathetic and positive attitude to inward investment. Also, dare I say it—and in no way seeking to upset the nationalists, who are not here, although we have with us the president of the Liberal Democrat party—the English language is one of the reasons why we get inward investment. English is especially important for the Japanese whose second language it is. Another reason is the culture of this country.

Photo of Mr Ivan Lawrence Mr Ivan Lawrence , Burton

My hon. Friend and the Committee might like to know that two weeks ago I asked a Japanese ambassador if our not signing Maastricht would mean the withdrawal of the Japanese investment in Toyota, which is just outside my constituency. He said that, provided that not signing Maastricht did not mean that Britain would come out of the European Community, there would certainly be no withdrawal of investment, thereby making two points. The first was that their investment is in Britain because we are in the European Community. The second and sinister point, which links up to the point that I made when last I intervened in my hon. Friend's speech, was that there is still the idea going round that if we do not sign Maastricht we will be out of the European Community. That idea must be killed.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. and learned Friend makes the point extremely well, so much so that if ever I need a lawyer he will certainly be my man because he expresses the case so positively, so forcefully and so accurately.

Photo of Mr Trevor Skeet Mr Trevor Skeet , Bedfordshire North

Perhaps I can endorse what has just been said, in alignment with my hon. Friend's own speech. Mr. George, the incoming Governor of the Bank of England, is reported as follows in the Financial Times of 3 March 1993: He told a seminar organised by British Invisibles, the export promotion body for services, that the City's position depended on the completion of the single market rather than monetary integration. That, I think, is conclusive.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I can only say that I am eternally grateful to my hon. Friend the Member for Bedfordshire, North (Sir T. Skeet), whose knowledge of industry and certain sectors important to our economy is well respected. The point that he has made is a good one—and far be it from me to argue with the future Governor of the Bank of England. I entirely endorse the view that he has expressed.

Another reason why this country is so attractive for inward investment—I pay tribute to many hon. Members on the Opposition Benches, not necessarily on the Government Benches—is that we have a highly trained and highly productive work force. Given the opportunity to work, they work, and work very well. I suspect that my hon. and learned Friend the Member for Burton (Sir I. Lawrence) may seek to intervene again because I have had this out of the mouths of business men from Japan. They believe that our work force are even better than their work force, and they are very happy to come here for that reason. They are skilled, they are hard-working, they are committed—

Photo of Mr Stephen Day Mr Stephen Day , Cheadle

And released from the shackles of socialism.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I will not enter into a party political debate, even though I am tempted to do so, because on this I am sure that I carry both sides of the Committee with me.

Again, they want to come to this country because of our strategic position and because we have a relatively good and improving infrastructure and communications.

I make this challenge on economic policy: think of the improvements created for industry and industrial efficiency, if only the Government would spend the £3 billion that we contribute to the European Community on this country's infrastructure. Think how many tens of thousands, or perhaps hundreds of thousands, it would put back to work, especially in the hard-pressed construction and allied industries.

Our membership of the European Community and the single market is important, but the ratification of Maastricht is of no importance.

Photo of Mr Barry Porter Mr Barry Porter , Wirral South

What are we doing here then?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend is tempting me again. What is the Committee doing spending so much time on this confounded, irrelevant and unnecessary debate on the Maastricht treaty and the Eruopean Communities (Amendment) Bill? He also has the good sense to come from the north-west of England, albeit from the other side of what was the county of Cheshire, on the Wirral, and if only he would make the strong representations to the Government that I have suggested, perhaps this whole charade and farce would be brought to an end.

For all the reasons that I have described, the United Kingdom is recognised as a centre for inward investment by the Japanese. My hon. and learned Friend the Member for Burton referred to the huge investment by Toyota close to his constituency.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Yet again, I am happy to give way to an informed Opposition Member.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

The Japanese are not the only investors who are ready to acknowledge the high qualities displayed by our work forces. I met senior directors of IBM recently, in the immediate aftermath of the bad news that they recently had to announce. They assured me that the plant at Spango valley in Greenock was among the best in IBM worldwide, and that it would always receive the support of the headquarters in America. They spoke very highly of the work force on the lower Clyde.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman never misses an opportunity to advance the interests of his constituency and the interests and success of Scotland, which is such a vital part of the United Kingdom. I can only entirely agree with him.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

IBM had been in Scotland for a long time.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend the Member for Tayside, North (Mr. Walker) agrees with the hon. Member for Greenock and Port Glasgow.

For all the reasons that I have given, the United Kingdom is recognised by the Japanese as a free-trading nation, with a distinguished and long tradition and an open attitude to world trade, which is epitomised by the City of London. For that reason, one is so saddened that the City has joined—for whatever reasons—the disinformation about business being almost entirely in favour of the ratification of the Maastricht treaty.

Our country attracts inward investment, but the same is not true of our major European Community partners, in particular France and Germany, for reasons that are well known to Conservative Members. It is unlikely, however, that inward investment will return in the immediate future to the levels of the 1980s, which were a build-up from a very low base of inward investment.

Japan is a very powerful country. Bearing in mind the strictures of my hon. Friend the Minister in the previous debate—if you will allow me about 15 seconds, Mr. Lofthouse—about the importance of an independent bank, the most economically successful country in the world has been, and still is, Japan, which has a central bank—the Bank of Japan—which is extremely dependent. It is not independent but extremely accountable to the Japanese Government. All the nonsense that Ministers talk about the vital role of an independent European central bank is similar to much of what they say.

Sadly, the Japanese now have a shortage of capital, and that is likely to continue for some time. They have had to withdraw some of their overseas investments and to cut back their banking and securities operations. Indeed, even those in the United Kingdom have had to be reduced. However, Japan is still a major investor in this country. As my hon. and learned Friend the Member for Burton has said, it has absolutely no intention of withdrawing its huge investment. Indeed, that investment will be added to. The only stipulated important criterion is that the United Kingdom should stay in the European Community. No Conservative Member suggests for one moment that we should come out.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 4:15 am, 24th March 1993

I have never been able to speak with confidence on behalf of my hon. Friend the Member for Southend, East, although one of his luncheon clubs, at his suggestion, has asked me to speak in his constituency. I am very happy to have accepted the invitation, and I look forward to visiting Southend, East, where I know I shall come across a very large number of people who believe that Maastricht is a total waste of time and should be shelved for good—if not, as some of my hon. Friends might say, just for the foreseeable future.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

We want a credible case for staying in the EC. No such argument has been heard by the people to whom my hon. Friend refers. What we are facing up to now is nonsense, and what has happened under the Single European Act and the treaty of Rome has turned out to be a disaster for Britain and for democracy.

The First Deputy Chairman:

Order. This group of amendments is not about coming out of the EC.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Nor is it about going to speak in Southend, East, but I wanted to mention that visit in passing.

The fact that these amendments are not about coming out of the EC is important from the point of view of reassuring those countries that make considerable and important investments in the United Kingdom. Neither the United States nor Japan, despite their domestic difficulties, has withdrawn manufacturing businesses from this country. I only wish that our Government had as positive an attitude towards manufacturing as have many overseas investors. It is unlikely that either the United States or Japan will ever remove any manufacturing capacity from the United Kingdom. The very good reason, which will appeal to Conservative Members and—I say to the hon. Member for Liverpool, Walton (Mr. Kilfoyle)—to Opposition Members, I believe, is that their businesses here are highly profitable. Professor Williams' report to the CBI confirms this: most of the investment has already been made, and substantial follow-on investment from Japan is still to come but may be delayed because of the financial squeeze in that country.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

Does my hon. Friend agree that part of the deficit problem that the United Kingdom faces is accounted for by the fact that, for decades, we have been reducing substantially our ability to generate sufficient wealth to meet the expenditure that the Government have undertaken and added to? This situation has been brought about in part by the fact that the Japanese have been able to sell to the United Kingdom goods worth more than £7,000 million, whereas, as the most recent figures show, we sell goods worth just over £2,000 million to Japan. The Japanese have been able to penetrate the United Kingdom market and the market in the rest of the European Community. Thus Japan, which is not a member of the Community, has improved its deficit situation.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I can only say that my hon. Friend the Member for Tayside, North makes an interesting and valid point. He has said that the Japanese are prepared to invest here because of the huge market to which that gives them access—perhaps the European Community has not had as much access to the Japanese market as the Japanese have had to the European market. It is to this country that the Japanese have wanted to come to locate their manufacturing.

The report of Professor Williams to the CBI continues in a manner that is relevant to our debate. It states: Only a small number would see this"— the non-ratification of the Maastricht treaty— as having any major effect on their investment those that come to this country with inward investment— provided it did not lead to withdrawal or exclusion from the single market. It is for that reason that I have grave concerns about the briefing document put out by the CBI to which my hon. Friend the Member for Stafford referred.

The argument so often advanced by Ministers of a two-speed Europe that will be to the disadvantage of the United Kingdom as we would no longer be at the heart of Europe is specious. Under the second and third stages to the run-up to the European central bank—the heart of Maastricht—countries will be able to unify their economies completely only when they have satisfied four convergent criteria. The latest date for the start of the European central bank is 1999, but it could start with only two member states as its members.

Photo of Michael Spicer Michael Spicer Chair, Parliamentary Office of Science and Technology

I appreciate that the debate is not about coming out of the Common Market, but does my hon. Friend accept that there is no single EEC country with a higher standard of living per capita income than any single country of the European Free Trade Association, including Austria and Finland—except Luxembourg? Does not that show that there is some sort of life to be had on the margins of Europe?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

My hon. Friend is correct to draw the Committee's attention to the fact that being a member of Europe is not necessarily a recipe for a successful and good-quality life. However, the currency and economy of Austria are quite closely linked to the deutschmark. I say that as one who has a skiing holiday there every year, as well as many friends there—we have a home quite close to the German border. Perhaps the Austrians gain some benefit from their German bedfellow—the German republic. My hon. Friend made a valid point in respect of the other EFTA countries, not least Sweden—although, like most other countries, Sweden currently has an economic problem.

It could be that, initially, only two member states will be members of the European central bank. It is likely that, thereafter, for a time there may be five, then there could be seven or 10. We could have a five-speed Europe, a seven-speed Europe or a 10-speed Europe. Therefore, to talk about a two-speed Europe is specious and dishonest.

The United Kingdom cannot be excluded from the single market or any decision about the future of the single market. Whatever happens to Maastricht, our participation in, and membership of, the single market—and that of our partners in Europe and the single market—is a matter of international law. To say that we could be damaged arid that our membership of the Community and our involvement in the single market would be affected is nonsense.

Secondly, after Germany, we are the largest single contributor to the EC budget. I fully support the expansion of the European Community—if it was merely a trading unit and a free trade area, which is what most of our people voted for in the early 1970s. I note that the Opposition's main spokesman in the debate, the hon. Member for Newcastle upon Tyne, East (Mr. Brown), nods in assent. He believes what I believe, that a majority of our people thought that that was what they were voting for in the 1975 referendum. I am surprised that the Opposition are not now in favour of a referendum, because when they were in government they passed legislation for the 1975 referendum. The people of this country know rather more than the Government are prepared to give them credit for, although at that time they thought that they were joining a trading partnership. However, there was far more to it in the small print of the treaty of Rome.

I have said that we are the second largest contributor to the EC budget. We are also running a massive trade deficit with our EC partners. I have made many speeches all over the country outlining my reasons for opposing the Maastricht treaty and any further step along the path to a federal, centralist state. I repeat what I said in those speeches: that the countries of mainland Europe need us far more than we need them, for the financial reasons that I have spelt out.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am happy to give way once more before I sit down.

Photo of Mr Stephen Day Mr Stephen Day , Cheadle

My hon. Friend said why he thinks that the Maastricht treaty is a threat, especially to industry. He also said that he was totally opposed to a centralised, bureaucratic Europe, as are most hon. Members and certainly Conservative Members. Why does he think that Europe has developed in that way? Why is Britain reactive rather than proactive? Could it be because Britain has never been positive about its membership of Europe and gives the impression of having one foot in and one foot out? Some of my hon. Friends give the impression that they do not want to have even one foot in.

The First Deputy Chairman:

Order. We are departing from the subject of the debate, which is economic policy.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I hope that you will not blame me, Mr. Lofthouse, for my hon. Friend's intervention. That would be unfair and I have the greatest admiration for you in the Chair. My hon. Friend tempts me to say that I would rather have one foot in the grave than two. Some people, and especially the members of the Government, wish that I had both feet in the grave, but they will have to do better than they have been doing so far to bring that about. You have been extremely patient, Mr. Lofthouse, and tolerant of my brief contribution to the debate on these important amendments.

My right hon. Friend the Prime Minister has said that we will remain at the heart of Europe. Even without Maastricht, Europe wants us and our influence is greatly appreciated. Wherever I have travelled in Europe as a holidaymaker rather than as a Member of Parliament or with Select Committees or other groups, I have found that the people of the country that we are visiting are always immensely impressed by the United Kingdom and its parliamentary system. Does my hon. Friend the Member for Cheadle not believe that this country's culture is slightly different from those of France, Germany, Belgium and Holland?

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. As the hon. Gentleman knows, we have had a debate on culture.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

You, Mr. Lofthouse, were of course right to call me to order.

The United Kingdom has a unique, positive and responsible contribution to make to the European Community. We have done so and can continue to do so—and we do not need the Maastricht treaty to enable us to do it.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

On a point of order, Mr. Lofthouse. I have been sitting in the Chamber since 9.30 pm, and it occurs to me that the central heating has been switched off, because it is very cold. I wonder whether the temperature is below a tolerable level. It has certainly cooled down quite dramatically—which is purely coincidental with the forceful and brilliant speech of the hon. Member for Macclesfield (Mr. Winterton) lasting upwards of an hour.

The First Deputy Chairman:

I noticed that some heat had been generated over the past couple of hours, but as to the temperature in the Chamber, those responsible will no doubt have taken note.

Photo of David Winnick David Winnick , Walsall North 4:30 am, 24th March 1993

It is scandalous that we should be debating these matters at 4.30 am. There was no justification for the Government to proceed after 10 o'clock, and they could not have carried the business motion without the support of the Liberal Democrats. The Jopling report, which will be debated in due course, argues that the House should rarely sit later than 10 pm.

To debate these vital constitutional questions, whether one is for or against them, in the early hours of the morning is quite wrong. It makes a mockery of the Government's commitment to proper and adequate debate. Clearly, they want—so far as they are able—to get most of the economic issues out of the way. I have registered my protest.

The hon. Member for Macclesfield (Mr. Winterton) gave us an overview of the amendments and new clauses under consideration. I say straight away that I am not in favour of the Maastricht treaty. I will remain in order and address immediately article 104c and related matters, but I do not want to give the impression that, if it were not for article 104c, I would favour the treaty. I am against it. I am against the transfer of sovereignty in such a way.

I am not in favour of Britain leaving the European Community, whatever the pros and cons. After 20 years of membership, I think that it has become accepted that there would be many more problems and headaches in leaving the Community than remaining in it. Since the 1975 referendum, I have never argued that we should leave it. There is no question in my mind but that we should remain a member of the Community.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

Does my hon. Friend agree that, whether one is pro-Community or a critic of it, because there is no promise of a referendum, each and every right hon. and hon. Member owes it to his or her constituents to scrutinise the Bill in as tough-minded and rigorous a way as possible? Surely that is the case.

Photo of David Winnick David Winnick , Walsall North

That is certainly the case. I live in the real world, and I am under no illusion but that the Government will get their way one way or another and that the Bill will be passed in due course. However, the problem will not go away for the Government, or even for my party. Given that there is such a division of opinion and dissatisfaction in the country, the treaty will remain an issue of great controversy. It is sheer nonsense to imagine that it will no longer remain so once Parliament approves the Bill. The debate will continue. I certainly will not change my mind as a result of the Bill's passage; it would be very odd if I did.

I have said that I would remain opposed to the treaty even without article 104c, but I am even more opposed to the deflationary flavour that characterises so much of it—and, in particular, characterises the article, the clauses and the amendments that we are now discussing. I hope that every hon. Member—not just those who are present now—will read article 104c, if they have not already done so. It uses two and a quarter columns to set out the way in which member states should avoid excessive Government deficits, and goes on to explain the procedures that will be involved when a member state is considered to have exceeded the permitted deficit. We know the related protocol, which clearly states that the deficit should be no more than 3 per cent. of GDP.

Earlier, I asked the Library to check the present position. The Library responded in the efficient and courteous way in which it usually deals with Members' queries. I am informed that a United Kingdom deficit of 8·2 per cent. is forecast for 1993. Achieving the convergence required by the 3 per cent. figure would require a £33 billion cut in public spending, unless taxes were increased.

Unlike some Conservative Members, I have little confidence in the Government's commitment to public spending. Over the years, they have carried out a number of cuts with which Opposition Members have strongly disagreed. But if there was ever an incentive for a Conservative Government with no great love of public expenditure to make further reductions in basic services, surely it is article 104c of the Maastricht treaty. Let me point out to Opposition Front Benchers in particular that, however critical we were of the Government's cuts in public spending, as long as convergence was being secured the Government would have an alibi.

It is not just a question of when the treaty will come into force. The emphasis will be on trying to achieve economic convergence before it comes into force, and before the third stage. That is part of the emphasis in article 104c. It does not merely refer to economic and monetary union as such; measures will need to be taken, and member states will be encouraged to take those measures before the third stage is reached, whether or not the United Kingdom decides to go ahead with EMU in 1996.

I know that those on the Opposition Front Bench will say, "We are not committed to the 3 per cent. figure." That may well be so, and I shall listen carefully to what my hon. Friend the Member for Oxford, East (Mr. Smith) has to say; but the treaty is the treaty, and no remarks from either Front Bench can change its nature. Article 104c directly contradicts all that the labour movement has fought: and campaigned for ever since it came into existence, and I find it inconceivable that we could support a treaty that contains such an article. It is of course true that, if a member state exceeds the 3 per cent. limit, there is no immediate fine or punishment. It is not part of my case that stern disciplinary measures will be taken at once if a member state goes over the limit. I concede that point, but article 104c outlines the steps that will be taken to ensure that a member state is kept in line.

The requirements will mean that a member state must go to the Commission and the Council and explain precisely what is being done to reduce the deficit. That is a very humiliating experience for an independent country. If we believe that certain measures are necessary in our overall interest, but the Commission decides that they are creating a deficit above the permitted level, we shall have to explain our position. Do those who support the treaty believe that we should have to do that?

When we have a Labour Government, do we want Labour Ministers to go first to the Commission and then to the Council of Ministers to explain, as far as they can, why the deficit has gone above the permitted limit and what action is to be taken? Is that the role of an independent country? Those who argue that the treaty is not as bad as we paint it must explain how and why they support such a measure.

Photo of Clive Betts Clive Betts , Sheffield, Attercliffe

I do not understand why such a scenario should concern my hon. Friend. Is he objecting to countries in the European Community trying to work together on economic policy and to one country discussing with others why it is pursuing certain policies, what its objectives are and how they match those of the whole Community? I see nothing wrong with such a process.

Photo of David Winnick David Winnick , Walsall North

I should have been surprised by my hon. Friend's response even if the proposal were not so deflationary. Why should we have to defend and justify our position in the way he outlined? Why should a country which has retained its independence for so many centuries have to virtually grovel and explain why it was necessary to exceed the permitted limit? Have we reached a stage where the practices and policies of the other member states are so superior to ours, and our practices of parliamentary government and democracy so inferior, that we have to do what my hon. Friend suggests?

Photo of Bill Cash Bill Cash , Stafford

Does the hon. Gentleman agree that, basically, we are being put through this humiliating and absurd procedure because it is within the framework of what is intended to be a united states of Europe? Are not people literally deceiving themselves and the British public continuously, in the belief that we shall somehow gain some advantage from the miserable negotiation that led to the pathetic treaty? The European People's party, to which my party is now apparently married, is the prime advocate of a united states of Europe. That is the truth of what is happening.

Photo of David Winnick David Winnick , Walsall North

I entirely agree, and no one should think otherwise. The other countries involved in the negotiations found it odd that the British dislike the word "federal", so they decided to humour us by leaving it out. Anyone who believes that the process is not leading to a federal Europe lives in a dream world. The hon. Gentleman is absolutely right. I would have more respect for those who are in favour of the treaty if they would say so openly. However much I disagree with the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), he at least knows where he stands. He is for a federal Europe.

The right hon. Gentleman supports the article because he believes that it is a necessary ingredient in securing the sort of federal arrangements that he wants. Indeed, when he was challenged by my hon. Friend the Member for Newham, South (Mr. Spearing) to say whether a single currency would mean a single Government, the right hon. Gentleman nodded. He was perfectly happy with that idea. He would argue that he is a deeply patriotic individual, and I have no reason to say otherwise; we all know about his military service during the war. He believes that the treaty is the best way in which Britain's role in Europe can be set. But I fundamentally disagree with the right hon. Gentleman. I do not want us to be part and parcel of a federal Europe. The hon. Member for Stafford (Mr. Cash) could not be more right; all the preconditions are there for the road that will ultimately be taken.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow 4:45 am, 24th March 1993

My hon. Friend said that a country, a member state, could be forced to grovel at a meeting of the Council. May I point out to him that it is not a country but a Government that would be in that position. If a Government are criticised and censured in public during an election year, the Council's intervention could have a decisive effect on the outcome of the election. The Council could play an important role in censuring Governments in public under article 104c(8), especially in an election year. The Council is an extremely exclusive club; is that criticism likely to be administered during an election year?

Photo of David Winnick David Winnick , Walsall North

It is possible to argue that if, during the 18 months leading up to a general election, a Government decided to adopt certain measures that might help them to be re-elected, and that involved more public spending, what my hon. Friend suggests could happen.

However, when I said that a country could be in a humiliating position, with its Ministers having to grovel, I meant, of course, that those Ministers and that Government would represent the people of this country. I do not believe that there is any mandate for us so to abandon our economic sovereignty in the manner outlined in the articles.

I am working on the assumption that Governments would be reluctant to raise taxation anything like enough to cover a deficit such as the present United Kingdom deficit, and that would mean not less unemployment but more. I have great respect for my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts). He and I usually agree, but this is one issue on which we disagree. None the less, I know that my hon. Friend is no less committed than I to trying to end, or at least substantially to reduce, the curse of mass unemployment, I shall refer to my hon. Friend's maiden speech now, and I hope I am not embarrasing him by doing so, because this is the second time that I have mentioned that speech; the other was at a party meeting.

In that speech, my hon. Friend said that he was entering the House at the age of 42—an age at which so many of his constituents were not only unemployed, but had probably given up hope of ever being able to work again. My hon. Friend is fortunate, as we all are, to be able to continue in employment. But if we in the Labour party are not concerned about unemployment, what could we possibly be concerned about? I do not question the commitment of our Front-Bench spokesmen to ending or substantially reducing mass unemployment, but how can we argue with any real conviction in favour of measures to try to reduce unemployment and end the curse affecting so many people in Britain and throughout the European Community while at the same time agreeing to measures that would involve a substantial cut in public spending? I do not understand it.

I have already said that Britain is likely to have a deficit of 8·2 per cent. To get anywhere near the 3 per cent. limit, we should need billions and billions of pounds' less of public spending. That is why I believe that we should be very critical indeed.

My right hon. Friend the Member for Chesterfield (Mr. Benn) argued that, if people have no recourse, as they may not if the treaty is ratified, they may riot. I do not know whether they will riot or not; circumstances differ. [HON. MEMBERS: "Nonsense."] What I do know is that, if the House of Commons loses its authority on such fundamental issues, it will be perfectly understandable if people conclude that voting makes very little difference and that the House of Commons makes little difference.

At the moment, when people are dissatisfied, they write to their Member of Parliament. Of course, they work on the assumption that, especially if their Member of Parliament is an Opposition Member, not much will come of it, but at least they know that we will do our utmost and that, ultimately, if the Government who are in office want to act, they can do so: power resides here in the House of Commons. It will not reside here if the treaty comes into force.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

The hon. Gentleman has been in the House some time. He will have witnessed the feeling among hon. Members on both sides of the House who represent peripheral parts of the United Kingdom, especially Northern Ireland and Scotland, that the House does not fully understand the aspirations of the people in those parts of the United Kingdom. The hon. Gentleman should consider what implications there would be for the unity of the United Kingdom if those people felt that Parliament had no purpose because it had lost all control of finances. Does the hon. Gentleman really believe that that would not lead to some kind of unrest outside?

Photo of David Winnick David Winnick , Walsall North

The hon. Gentleman is right to suggest that people already feel that Whitehall, the Government and the rest are rather remote from their ordinary lives. One of the purposes of writing to a Member of Parliament is that that Member of Parliament then writes to the Minister: there is a reply setting the position out in detail, which one sends on to one's constituents. In other cases, of course, one brings the battle to the House.

I do not want to be provoked, but I am rather concerned because my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) said a moment ago from a seated position that I was talking nonsense. If I am talking nonsense and my hon. Friend is disagreeing that such powers will be taken away, perhaps my hon. Friend would care to intervene and explain why he thinks I am talking nonsense. Has he read article 104c? Why does he conclude that my thesis—that the House and therefore the country would lose tremendous economic power that would be transferred elsewhere—is wrong?

Photo of Peter Kilfoyle Peter Kilfoyle , Liverpool, Walton

The utter nonsense to which I was referring was the suggestion that there would be riots in the street over Maastricht. I have no evidence of that, and neither has anyone else in the Committee. That is the utter nonsense to which my hon. Friend refers.

Photo of David Winnick David Winnick , Walsall North

I am glad that I provoked my hon. Friend into intervening. He misunderstood me. [Interruption.] I do not know what sarcastic comment my hon. Friend wishes to make, but perhaps he will be courteous enough to listen to my reply. I hope that we can conduct this debate in a courteous manner. I have respect for my hon. Friend, as I had respect for his predecessor, with whom I also sometimes disagreed.

It is not part of my argument that people will riot over what we are debating, and if I did not make my position clear, I apologise. I am simply saying—my right hon. Friend the Member for Chesterfield said it with greater emphasis—that, if the treaty comes into force and power is transferred, as it will be, and people find that the House of Commons cannot deal with issues, a certain situation may arise. We must consider what view people will take if there is much concern over mass unemployment and so on. I do not want rioting to occur.

I have always defended some of the scenes that take place in this Chamber. People often ask why there is so much noise at Prime Minister's Question Time and on other big occasions. Far better, I say, that the outlet for the noise should be here than on the streets. When there is controversy—over, say, the poll tax—the divide is great, there will be scenes that some people do not like but which do not bother me. But I assure my hon. Friend that I am not suggesting that people are rioting or even that they are writing letters about what we are debating. I am pleased to have resolved any misunderstanding that may have existed.

Photo of Bill Cash Bill Cash , Stafford

Is the hon. Gentleman aware that we could be in grave danger of underestimating the consequences of what might happen if this massive arrangement for convergence were brought into effect? Already people in France are rioting over the lamb question, and there is the fishing situation. Difficulties have arisen in Italy and there are problems in Rostock and Frankfurt. The problems in Russia are getting more worrying, and there is Bosnia, Kosovo and so on.

All will be exacerbated by an implosion of the arrangements for economic and monetary union, which will disintegrate just as the exchange rate mechanism has disintegrated. With voluntary euthanasia by national parliaments and, as the hon. Gentleman says, without any means of redress, people will have no base point to which to refer. They will not be able to vote people out, and they will certainly not be able to turn out the bankers.

The First Deputy Chairman:

Order. Perhaps we can have more about finance and less about riots.

Photo of David Winnick David Winnick , Walsall North

Rather than pursue a course of action that will not help to resolve the problems of Europe, we should be spending our time, at Community level, dealing with the problems of Europe, inside and outside the European Community.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Does the hon. Gentleman agree that, if people lose the ability to influence matters and decisions close to them, affecting their everyday lives, because of the inability of this place, through its economic policies, to respond to people's aspirations and expectations, then in due course, following the build-up of frustration, the sort of situation to which reference has been made—of people going on to the streets—could occur?

While the hon. Gentleman may not be receiving letters about the treaty, I am receiving at least a dozen a day, 99·9 per cent. in favour of the anti-Maastricht stance that I have taken. They come not just from my constituency but from all parts of Britain.

Photo of David Winnick David Winnick , Walsall North

Those are valid points, which go to the core of the article and the protocol which we are debating. What are the roles and functions of the House of Commons? Certainly, it is an outlet for grievances. It is a way in which constituents can express their concerns and we can echo those concerns, as we do daily at every opportunity.

Above all else, the function of the House of Commons is the supply of money. All the battles which took place for the supremacy of the House of Commons against the sovereign and so on were, to a large extent, involved in that issue. If the treaty goes ahead and steps are taken before the third stage—whether we go for economic convergence or not—what will be the function of the House of Commons? However much we may wish to pursue policies—even if the Government of the day take the view that such policies are desirable—if the Government know that they will go over the spending limit and, in so doing, be brought before the Commission and the Council, it is clear that they must take the view that they cannot do what they may wish to do and what they may consider desirable.

Although we are debating the deficit and so on, the core of the matter is the future of the House of Commons and Parliament. I do not wish to say that the House of Commons will have no functions and will virtually close down if the treaty is ratified. To exaggerate the position would be bad enough.

If the powers to decide how the money is spent, what polices are pursued and so on are removed, what are we left with? Effectively, we will be left with the same powers as those of an existing county council. That would be a great disservice not only to ourselves—after all, we are but the servants of our constituents—but to the people of the United Kingdom who, over centuries, struggled to obtain the sort of parliamentary democracy which we have and which I greatly value. I hope that other hon. Members also value it.

As my remarks were not meant to be lengthy, I shall conclude with two points. Unemployment is perhaps one of the most important and crucial issues at present. The hon. Member for East Lindsey (Sir P. Tapsell) referred to the 1944 White Paper on employment. It is interesting to note the last speech of Lord Merlyn-Rees in the House of Commons, which was excellent. It was one of the best speeches he ever made. Anyone who did not listen to it should read it. He specifically referred to the need to go back to the values of the 1944 White Paper on employment and the emphasis which existed just before the war ended, and said that the curse of pre-war unemployment should not return to the United Kingdom, which it has now done.

If one takes the view that we should return to as near full employment as possible, the remarks of Labour Members and the criticisms of some Conservative Members would be of little value if policies along the lines which we are debating were pursued. Such policies would make it virtually impossible to go back to what was intended in 1944 and what was carried out for some 25 or 30 years.

Therefore, it would be wrong to look on article 104c as a technical, academic matter which is not of great importance and which we are using for mischief. The policies that we want to see to end mass unemployment, provide necessary spending on health and welfare and ensure that the people most in need in our country get their right due are related to this issue.

5 am

The Liberal spokesman, the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy), obviously takes a different view. If he is so critical—as I know he is—of mass unemployment, he should recognise that he is defending a policy which would make it so much more difficult, if not impossible, to end the curse of unemployment in Britain.

I regret that we are debating the Bill at this hour. I have mentioned that before, so I shall not repeat it simply because there has been a change of occupant of the Chair. It is disgraceful that such matters should be debated at 5 o'clock in the morning. I hope that I shall not be seen as unduly critical of other hon. Members on both sides of the House—I am not criticising one side in particular—when I say that it is unfortunate that they have not taken a greater interest in the debate.

I know that Labour Members' commitment to the policies about which I have spoken is no less than mine. They have campaigned in their working and political lives no less than I have done. But in so far as they may be sympathetic to Maastricht and all that goes with it, they should recognise that so much of what they want to see done for the British people, will be undermined if the treaty goes ahead.

The hon. Member for Stafford (Mr. Cash) said in an intervention at the beginning of my speech that the treaty was a substantial step towards a federal Europe. I agreed. It is a step towards a united states of Europe. Those who are in favour of that, including Ministers, have not the honesty openly to declare what they want. In a federal Europe, we would lose even more political and economic independence than we would lose under the Maastricht treaty.

When I look back on my life, I value my working life because I have had the honour and privilege to be a Member of Parliament, however much people disagree with some of my remarks and however much I may cause upset. I hope that it will continue for many years to come. The House of Commons has achieved powers and privileges over the centuries. The House of Commons is the forum of the country. It gives me no pleasure to be in the House of Commons at a time when so much of what we have achieved over the centuries is being undermined by a treaty which I most ardently believe to be against the interests of Britain.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

When he moved his amendment, the right hon. Member for Bethnal Green and Stepney (Mr. Shore) made it clear that this group of amendments dealt with the other side of the coin from the group immediately before. The former group addressed the institutional arrangements that would be necessary for the conduct of monetary policy if there was a single currency in the member states and in Britain.

This group of amendments deals with the arrangements for the conduct of fiscal policy in the context of the introduction of a single currency. As I said in the last debate, it follows as night follows day that, if there is a single currency, it is necessary to have a single monetary authority. Therefore, it must follow that the authority is divorced at least to some degree from the member states of the Community.

There is unanimity among Members of all parties that, even if there is a single currency managed by a monetary authority and divorced from the member states, the fiscal side of economic policy making should remain the responsibility of member states.

The purpose of the right hon. Gentleman's amendments is to remove from the treaty the qualifications on the responsibility for fiscal policy which rests on the individual member states. Under the terms of the treaty, the main responsibility for fiscal policy, even at stage 3 of monetary union, rests with the member states. It is, however, a responsibility that is qualified both in article 104c and in the protocol that is supported by the article.

The debate on the effect of the article has proceeded on very much the same basis as the debate on the implications of introducing a single currency. It has been based on a similar leap of logic, because it has tended to concentrate on the implications for sovereignty and for the power of the House of the full effect of article 104c as it would apply if a single currency were introduced and we moved to stage 3.

It is therefore necessary to restate the proposition that Britain has given no commitment to move to stage 3 of economic and monetary union as defined in the treaty. We have given no undertaking to introduce a single currency. The House will have to address another time the question whether we would accept the full force of all the paragraphs of article 104c. It is not a question that we have to address later tonight.

Photo of Bill Cash Bill Cash , Stafford

Will my hon. Friend explain something that so far no Minister has sought to explain or, I believe, can explain? There is another protocol immediately adjacent to the stage 3 protocol—I am glad that the Minister is looking it up as I shall quote parts of it verbatim—that states that we shall not exercise the veto in respect of other member states' movement towards stage 3, that it will be irreversible and irrevocable and that we, as a member state, have agreed to it.

Does my hon. Friend agree that if we have agreed that we will be at the heart of Europe but that we will not prevent other member states from going ahead with stage 3 we are locking ourselves into an arrangement that necessarily presumes that we will go down that route? The decision that the protocol refers to as our so-called opt-out is no more than a fig leaf. It is a clever fig leaf, but it will not kid us.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I do not accept my hon. Friend's proposition. He seems to be confusing a treaty obligation set out in a protocol not to obstruct the development of monetary union on the part of other member states with a rhetorical flourish used by my right hon. Friend the Prime Minister to describe his frame of mind in approaching European policy. The frame of mind of my right hon. Friend the Prime Minister is of considerable interest and importance to me and, I would hope, to my hon. Friend, but it does not constitute a treaty obligation.

The treaty obligations are set out in the document to which my hon. Friend and I have access, and the protocol on the United Kingdom set out on pages 114–15 of the treaty states clearly: The United Kingdom shall notify the Council whether it intends to move to the third stage". It also sets out clearly in the context of that protocol what the implications would be if we decided not to move to stage 3 of monetary union.

Photo of Bill Cash Bill Cash , Stafford

The Minister must reply to my point about the protocol of transition to the third stage of economic and monetary union. If, as a member state, we are a high contracting party and, together with the other member states, we declare the irreversible character of the Community's movement to the third stage of economic and monetary union stating that it is irreversible and irrevocable, surely my hon. Friend is bound to admit that we as a member state have said that we would go down that route.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

With respect to my hon. Friend, that is a rather different point. He was quoting the phrase that our right hon. Friend the Prime Minister has used about his desire to pursue a policy based on the proposition that we should be at the heart of Europe. That is a rhetorical flourish not found anywhere in the treaty.

5.15 am

As regards the question of the irreversible character of the Community's movement to the third stage of economic and monetary union by signing the new treaty provisions on economic and monetary union, the treaty provisions in this document set out a total package, and part of the package is the following protocol on the position of the United Kingdom. The protocol makes it abundantly clear, in words that do not, frankly, require a professional lawyer to interpret them, that the United Kingdom has preserved for itself a freedom to join or not to join a single currency, that decision to be made by the United Kingdom in accordance with arrangements that we make for ourselves and which are set out in the Bill which the Committee is considering.

Photo of Malcolm Chisholm Malcolm Chisholm , Edinburgh Leith

I accept what the Minister is saying about stage 3. Strictly speaking, he is saying what is stated in the words of the treaty, and I accept that because I am interested in looking in detail at the words of the treaty. The question that I want to ask him is about stage 2. Are the Government fully committed to implementing—

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. The hon. Gentleman is anticipating. He specifically said that he wished to ask a question about stage 2, and the next debate is about stages 2 and 3. I imagined that he would be trying to catch my eye in the next debate. Perhaps he would like to rephrase his question.

Photo of Malcolm Chisholm Malcolm Chisholm , Edinburgh Leith

I am talking about budget deficits because in stage 2 there is an undertaking to get budget deficits down, and most of article 104c actually refers to stage 2. Are the Government committed to all the parts of article 104c, apart from paragraphs 1, 9 and 11? A related question would be about the exchange rate fluctuation: are the Government committed to getting back into the ERM at the narrow bands in stage 2? That is what I am interested in.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

The question about exchange rate fluctuations is a question on convergence criteria and the effect of convergence, which really arises in the next group of amendments. As regards the hon. Gentleman's straight question—whether we acknowledge that article 104c, with the exception of paragraphs 1, 9 and 11, applies to us in the course of the stage 2—the answer is that we do accept it. Article 104c.1 is substituted in stage 2 by the provision in article 109e.4, which is that, during the second stage of the progress to economic and monetary union as defined by the treaty, Member States shall endeavour to avoid excessive government deficits. The introduction of the word "endeavour" makes the obligation at stage 2 significantly different from the obligation in stage 3.

I want to describe percisely our obligations in stage 2. There is a lead obligation to endeavour to avoid excessive budgets deficits and during stage 2, as the hon. Gentleman quite rightly pointed out, the teeth, when it comes to making the obligations in article 104c compulsorily applicable, are drawn, because the teeth of article 104c are to be found in paragraphs 9 and 11 of the article. The other paragraphs of the article interpret the meaning of the phrase "excessive government deficits", and the obligation that we accept in stage 2 of the progress to economic and monetary union, as defined by the treaty, is an obligation to endeavour to avoid those deficits.

Photo of David Winnick David Winnick , Walsall North

As the Minister states, the appropriate paragraph reads Member States shall endeavour to avoid excessive government deficits in the transitional stage.

Is it the Government's wish, as far as possible, to bring the deficit to 3 per cent. in the period between ratification of the treaty and 1996? If so, what are the implications for public expenditure cuts?

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I shall discuss the impact of the reference values in a moment. Government policy is in line with the treaty obligation which we wish the House to bless and which we wish to sign up to—to endeavour to avoid excessive budget deficits. I will describe how the reference values inform that commitment.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

So that we may know exactly what Government policy is, if the Council makes a recommendation under paragraph 7 of article 104c, naming a time limit, would the Government endeavour to seek to achieve that budget deficit within the given time? It is important for people to know the Government's intention. We accept that they are not legally bound by paragraphs 9 and 11, but if the Council recommended that Britain do something specific with the budget deficit within a specified time, would the Government seek to achieve it? It would be helpful if the Minister were to answer that question.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

If the Government found themselves in receipt of an opinion issued under paragraph 7, we would seek to avoid excessive budget deficits, not primarily because of the opinion received under the paragraph but because we think that the policy commitment is sensible in its own terms, for reasons that I shall describe. I will return to that theme because it is relevant to discussion of the treaty of Maastricht and to the great majority of what a Treasury Minister spends his life doing.

I do not accept the argument advanced by the hon. Member for Walsall, North (Mr. Winnick) that a choice must be made between the delivery of social objectives and the avoidance of excessive budget deficits. The two propositions go hand in hand and, for reasons outwith the treaty of Maastricht, it is Government policy to seek to avoid excessive budget deficits.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am aware that my hon. Friend has certain business experience. He has just mentioned his responsibilities at the Treasury, but may I direct my question to him as a business man? Can he not foresee a number of occasions when a business and perhaps the Government, of which he is a member, might need a budget deficit in excess of the 3 per cent. of gross domestic product specified in the treaty and the Bill; but find that they are restricted? We might rightly need that deficit for a good purpose.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

Yes, I can envisage such circumstances, for example, in 1993–94 when we shall want to be in excess of the reference level values. To suggest that there is some automatic level beyond which we cannot under any circumstances go is a misrepresentation of the treaty, and I will deal with that when I discuss the effect of reference values within it.

In stage 2, we undertake the commitment to endeavour to avoid excessive budget deficits. We are not subject to sanctions in the forms provided for in paragraphs 9 and 11 and, therefore, it is true to say that we have accepted a treaty obligation which, to some extent, diminishes our national responsibility for fiscal policy. None the less, it remains true that responsibility for fiscal policy rests with the member state and, furthermore, in the exercise of that responsibility, the state or the United Kingdom Government and institutions cannot be liable to any sanction arising from the treaty.

If, as a matter of political choice, within the terms of the treaty and of the Bill, the Government, with the consent of the House of Commons by way of an Act of Parliament, as is provided for in the Bill, were to decide to move to the third stage of economic and monetary union, the nature of the obligations taken on with regard to excessive budget deficits would, of course, change. If we go down this road—the issue is obviously one that the House of Commons will consider when deciding whether to do so—our treaty obligation will change. It will cease to be an obligation to endeavour to avoid excessive budget deficits—as a former Whip, I am very familiar with the words "best endeavours"—and will become an obligation, set out in paragraph 1 of article 104c, to avoid excessive deficits. Furthermore, the sanctions provided for in paragraphs 9 and 11 will apply to the United Kingdom.

There is no denying that that is a clear limit, defined by the treaty, on the proposition that fiscal policy will remain the responsibility of member states. In a moment, I will explore the precise nature of that limit, but it clearly is a limit defined in a treaty. I do not, however, accept for one moment the development of that proposition put forward by hon. Members who say that because the national responsibility of member states for fiscal policy is qualified, there is no meaningful responsibility left with the member states. There is a qualification, but it is not true to say that responsibility has shifted. The qualification is defined by treaty, under which responsibility clearly remains with the member states.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

May we take it that, while some of the United Kingdom's immunity against the imposition of sanctions by way of paragraph 11 survives, the United Kingdom will not sit in judgment on a state that is being examined because of its failure to adhere to these regulations? Will the United Kingdom take part in the disciplining of another member state when, or if, it loses or gives up its immunity?

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

As I said in an earlier intervention, my understanding is that when the Council is reaching decisions about those questions, it meets as the Council of Ministers, and not as any special body, and that all its members, whether or not they are in stage 3, are entitled to participate within the terms of the article. I am sure that if that information is incorrect I shall be appropriately advised so that I may inform the Committee.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Is not my hon. Friend accepting that if and when we go to stage 3 the Government of the United Kingdom will be put into a straitjacket—and I mean a straitjacket—as the only possible action, if we perceive a budget deficit beyond the 3 per cent., will be to raise taxation? In fact, the Government will not be able, in stage 3, to do what the Chancellor has done this year. Is this the sort of decision that my hon. Friend believes is right for the country?

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I am about to explore the precise nature of the obligations that we would be assuming. It is the Government's objective to avoid excessive Government deficits—I hope that I share that commitment with my hon. Friend the Member for Macclesfield (Mr. Winterton).

When he introduced the debate, the right hon. Member for Bethnal Green and Stepney correctly drew attention to the fact that the provisions of article 104c do not provide for automatic application of limits, either to budget deficits or to the relationship between gross Government debt and GDP. The reference values set out in the treaty are not commitments. The treaty's commitment is to avoid an excessive budget deficit.

5.30 am

Article 104c.3 clearly sets out the consequence of a failure to fulfil a reference value. It is not to declare that an individual member state is in default of its treaty obligations. The result of an individual member state's failure to satisfy the reference values is set out in paragraph 3, where it states: If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. That is the beginning and the end of the precise consequences of failure to satisfy a reference value. The paragraph goes on to discuss the issues that the report prepared by the Commission has to cover if a report is occasioned by the failure of a member state to satisfy the reference criteria.

Photo of Diane Abbott Diane Abbott , Hackney North and Stoke Newington

Much has been made of the specific concrete sanctions in article 104c, but long before fines and votes were encountered, would not the very fact that a negative report had been prepared and possibly published lead to the country involved starting to lose access to the capital markets and capital flows? Rather than focusing on the end of the road, would it not be better to focus on the beginning of the road, where a country that was not hitting its deficit targets would be in a position similar to those countries that receive a bad report from the International Monetary Fund? The IMF does not have to impose concrete sanctions; the minute the international capital markets are aware that a country is failing its IMF tests, capital flows, whether from multinational institutions or commercial banks, cease to enter that country. We can harp on about the sanctions to the exclusion of looking at what would happen naturally in the market if a country were perceived to be failing its tests, whether at the second or third stage.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) makes a good point. The truth is that, whatever the treaty of Maastricht says, the financial markets watch the performance, not merely of member states of the Community, but every member of the United Nations. The criteria set out in the treaty are well known to any operator in the sovereign lending market.

The mistake of so much comment on the treaty obligation is to assume that, merely because the Commission is under an obligation to prepare a report, the Commission will necessarily come to the conclusion that failure to deliver one reference value constitutes an excessive budget deficit. There is no basis for that assumption.

Article 104c.3 makes it clear that, in preparing the report, the Commission has to look at the values that are measured in order to assess reference values—deficits and gross Government debt. But paragraph 3 also states that the Commission must have regard to the relationship between the deficit and Government investment, and it must also have regard—this is the key answer to my hon. Friend the Member for Macclesfield and to one of the issues raised by the right hon. Member for Bethnal Green and Stepney—to the medium term economic and budgetary position of the Member State. The hon. Member for Sheffield, Attercliffe (Mr. Betts) got that exactly right. That provision not merely allows but requires the Commission to take account of the trade cycle in assessing whether a member state is running an excessive budget deficit.

The treaty recognises that budget deficits will fluctuate according to the state of the trade cycle. The key criterion is none of this mechanistic stuff but the words "an excessive budget deficit". In assessing that, the Commission and, on the basis of its report, the Council must look at the economic position in which a country finds itself. These are guides and there is nothing automatic about the conclusions to which they lead.

Photo of Malcolm Chisholm Malcolm Chisholm , Edinburgh Leith

This matter is at the heart of the debate on budget deficits and it is important to examine article 104c 3. The last two lines of that are central to the reinterpretation of this part of the treaty. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) dealt with Government investment and said that, as it was only 2 per cent. of GDP, it was not very relevant to the argument. The key words in the article are the medium term economic and budgetary position". The Minister and my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) are interpreting those words in a Keynesian way as if they refer to cycles and mean that sometimes we can have budget deficits and sometimes we cannot. But the thrust of the treaty is anti-Keynesian and does not mean that. It merely says that a year or two will be given to get the budget deficit down to 3 per cent. and then it must be kept there. It is not about Keynesian reflation and troughs and peaks and so on.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

I will later discuss the supposed divide between Keynesians and monetarists. I sometimes wonder which side of that argument Keynes would have been on if he were alive.

I should like to deal with another question posed by the right hon. Member for Bethnal Green and Stepney. He asked whether the decisions of the Council, which are provided for in paragraphs 9 and 11 of article 104c are appealable to any Community institution. They are appealable in the normal way under article 173 of the treaty of Rome, which states: The Court of Justice shall review the legality of acts of the Council and the Commission other than recommendations or opinions. The provisions of paragraphs 9 and 11 are neither opinions nor recommendations and are therefore subject to review on the initiative of the affected member stale.

Any hon. Member is legitimately entitled to ask why the provisions for confining the fiscal responsibility of a member state are in the treaty. I hope to give a clear answer to that question. Once again, I must ask the Committee to recognise that the provisions, when they have teeth, apply only in the context of a single-currency system. Those who will not accept under any circumstances a single currency clearly do not have a basis for engaging in the argument, because to be against a single currency means that one is against all the paraphernalia that goes with it. The provisions are part of that paraphernalia.

In the context of a single currency in the member states, every member state has a clear interest in avoiding excessive official borrowing because that would influence financial conditions in every member state. If some member states engage in such borrowing, it would lead to a distortion of capital markets and it is not difficult to see circumstances in which that distortion might lead to market turbulence which would damage the interests of every member state.

It would in a sense introduce into the single currency area decision-making process precisely the market pressures to which the hon. Member for Hackney, North and Stoke Newington referred. We do not want the position where market operators can conclude that sovereign borrowers within a single currency area have collectively become a bad risk. If we enter that world, the countries within a single currency region would collectively run a serious risk of damaging their interests as a result of market turbulence.

Photo of Mr Bill Walker Mr Bill Walker , North Tayside

I admire the intellectual way in which my hon. Friend is answering the debate. Is he saying that, if we accept a single currency and we cannot borrow and cannot print money, we will still have financial control?

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

If we chose—and I emphasise that point—to go for a single currency, we would have satisfied ourselves that the arrangements for managing it were adequate. We would also accept the obligation placed on ourselves—as on every other country within the single currency area—to limit official borrowing to avoid the market turbulence and damage to our collective interests that would flow if that restraint did not exist.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Is it the Minister's view that, when stage 3 is reached, it would be more damaging to Britain—if it had an excess deficit like that of the coming year—to upset the smooth running of the system, or would it be in our interests simply to accept the reasons for our excess deficit, and that it would be far too harmful to reduce it, even if that had the effect of ruffling the surface of the single currency?

Mr. Derrell:

Earlier, there was some discussion of confidence in our own abilities. If we reached the conclusion—and the Government have done so—that in the circumstances of 1993–94 an 8 per cent. budget deficit was not excessive, we would have done so on our own authority. In the belief that that stood up as a rational analysis, we would be able to persuade the Commission and the Council of the truth of that. That is the importance of recognising that reference values are not absolute limits. The only result that will flow from breaking a reference value will be an obligation on the Commission to produce a report.

As to whether there is a deflationary bias, the hon. Member for Walsall, North said that the system is contrary to everything for which Labour has always campaigned. The Committee must ask what is contrary to everything for which Labour has campaigned. It is not a 3 per cent. deficit or a 6 per cent. debt to GDP—it is excessive budget deficits. Although I might want, on a partisan platform, to represent Labour as pursuing a voluntary policy of pursuing excessive deficits, I cannot believe that Labour Members want, out of their own mouths, that policy ascribed to them as being the ambition of 100 years of political activity.

Photo of David Winnick David Winnick , Walsall North

I certainly did not want to give the impression that the labour movement, or the Labour party, was started with the aim of achieving as high a deficit as possible; that has never been our position. My argument is that at times—such as the present time—a deficit far higher than 3 per cent. may well be necessary if we are to reduce mass unemployment substantially, and to implement health and welfare policies. We should not have to apologise for such a deficit; certainly, we should not have to grovel to a foreign body. I was complaining about that, rather than suggesting that a high deficit was necessary or desirable at all times.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

Clearly we could continue to argue about the issue for some time; and no doubt we shall do so, in the context of the Finance Bill.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

No. I want to end my speech.

I am not in favour of excessive budget deficits. I favour restraint for its own sake, because I believe that it is the best way of delivering growth and improving living standards. I also recognise that, if this country opted for a single currency at some future date, a necessary part of the collective obligation of operating such a currency would be not to allow excessive official borrowing by any of the participants. For both those reasons, I do not support the amendments.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

On a point of order, Mr. Morris. I do not wish to detain the Committee, but before he sat down the Minister promised that he would answer a question that I had asked him. He has not honoured that promise. I should be content if he said that he would write to me.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

Further to that point of order, Mr. Morris. I should be grateful if I could write to the hon. Gentleman.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

I am delighted that bonhomie has prevailed at this early hour.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I must take up the Financial Secretary's remark about being tempted to misrepresent Labour's position on deficits. I hope that, now that he has made that confession, he will take the earliest opportunity to correct a gross misrepresentation of our position that was repeated not just immediately before and during the general election, but in the Budget debate over the past few days. It was suggested that we were committed to £35 billion of extra expenditure.

I strongly agree with hon. Members on both sides of the House that it is appalling that we should debate such important matters in the middle of the night. Whatever view hon. Members may take of the treaty, the Bill or deficits, the House cannot do proper justice to such issues after more than 12 hours of debate. We know that the Liberal Democrats, as well as the Government, are responsible for this; the public will draw their own conclusions.

Photo of Michael Spicer Michael Spicer Chair, Parliamentary Office of Science and Technology

Far be it from me to defend the Liberal Democrats, but in casting aspersions on them the hon. Gentleman must accept that his own party polled considerably under strength in the vote concerned.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

That certainly is not true. [Interrupton.] I understand that the majority was 17, and that 17 Liberals voted with the Government.

I do not think that the Minister has really addressed the points that have been raised, especially those raised by Labour Members. He seemed to be trying to convince the House that the Bill and the treaty did not need to be reinterpreted to operate satisfactorily: I wish to make the opposite case.

We have never claimed—and I would not do so now—that the treaty or the Bill was perfect. We had to judge the package as a whole, as did the Labour party conference which decided: Conference believes that the Maastricht Treaty, while not perfect, is the best agreement that can currently be achieved.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

I have made the point several times but not, I think, in public, that the very judgment to which my hon. Friend refers surely depends on our three important financial debates. Many of us will have concluded that although, as the Labour party judged, the Maastricht treaty offers the best terms available, they are not good enough. My hon. Friend and his immediate colleagues have not paid sufficient attention to that issue; if they did, they would realise that the terms are not good enough and that we should not support the treaty.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I will endeavour to convince my hon. Friend otherwise, although in view of what I know about his long-held position and the arguments that he advances in support of it, which I genuinely respect, I am not overly optimistic about my ability to do so.

Several important issues arise from the question of the deficit, as mentioned by my right hon. Friend the member for Bethnal Green and Stepney (Mr. Shore) and my hon. Friend the Member for Walsall, North (Mr. Winnick). We must make it clear that the criteria set out in the treaty are not blanket requirements but triggers, aspects of economic performance to be evaulated in determining how far the economies of the various member states have converged prior to the establishment of economic and monetary union and, in part, as one set of considerations to evaluate comparative economic performance after such a union. They are not cast in stone, and we have made it clear several times that it is not acceptable for them to be interpreted in a mechanistic or inflexible way.

As has been said, the articles applying the criteria explicity require them to take account of wider economic considerations. For example, the article on Government deficits requires the Commission to take account of the extent of Government investment expenditure. My right hon. Friend the Member for Bethnal Green and Stepney referred to that point. He began by saying that because investment expenditures were, I think, about 2 per cent. of gross domestic product, they were not too significant. However, in relation to a target within the treaty of 3 per cent. for the overall deficit, the extent of that 2 per cent. room for manoeuvre and whether or not one has it—I argue that we should—makes a considerable difference.

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney

Perhaps the Minister could advise us on this matter. Are we talking about a 3 per cent. guideline plus the public investment programme? I believe that that is highly unlikely.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

The treaty establishes a 3 per cent. guideline, but says that account must be taken of Government investment expenditure as well as the medium-term budgetary position, with which I shall deal in a moment. I suggest that there is an ambiguity, which should be exploited in the interests of flexibility.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman is replying to the debate rationally and reasonably. If I put a hypothetical case to him, will he consider it? If we had proceeded to stage 3—

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. Interventions have been getting longer since I have been in the Chair. Interventions are traditionally very short, and I hope that this one will be short.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am sorry, Mr. Morris, but I had hardly got to my feet.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

There would be little point in my intervening after the hon. Gentleman had spoken at excessive length, so I invite him to make a short intervention.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

Of course, Mr. Morris. I greatly admire your dexterity in such matters.

Bearing in mind the restrictions that are apparently laid down in the legislation, will the hon. Member for Oxford, East (Mr. Smith) tell me what action he believes that the Government would be able to take if we were at stage 3 and had a budget deficit of £50 billion, and the Commission hauled us over the coals and found our explanation unacceptable?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

If a Labour Government were in office we would have implemented our proposals for growth and expanding employment, so the GDP would be high enough to bear the level of borrowing within the criteria, interpreted with flexibility appropriate to the circumstances on which we would also have insisted.

I was saying that the criteria require the wider issues to be taken into account, including the medium-term economic and budgetary position of the member state.

Photo of Diane Abbott Diane Abbott , Hackney North and Stoke Newington

We are now back to the familiar line of argument from Labour Front-Bench spokesmen—that the text of the treaty does not mean what it appears to mean. If the criteria are as flexible as my hon. Friend with the collusion of Ministers, argues, when the German Bundestag ratified Maastricht last year why did it pass a specific resolution on EMU saying: The stability criteria for the move to stage 3 of EMU will be narrowly and strictly defined…the German Bundestag will oppose any attempt to evade the stability criteria that were agreed in Maastricht"? Is my hon. Friend not whistling in the wind? Does not the flexibility exist only in the imagination of Front-Bench spokesmen?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I would always be happy to take more than one question from my hon. Friend.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

On a point of order, Mr. Morris. I seek your advice. Is it not the practice that interventions in Committee must be both brief and concise? I seek your advice, because I was of the opinion—

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. The answer to the hon. Gentleman's question is yes.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

My hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Abbott) referred to the words of the treaty and suggested that I was trying to deviate from the text. The relevant part of the text says: The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure, and take into account all other relevant factors, including the medium term economic and budgetary position of the Member State. I am talking about the way in which we should argue with our colleagues in Europe that those words should interpreted.

My hon. Friend is right to say that there are people in Europe, including some people in the German Parliament, who may wish to take a different view. I suggest that we should ally ourselves with those who are pressing for a flexible interpretation, as opposed to some of the: arguments that I have heard in the debate, which would cement us into acceptance of a narrow definition which would not be in the interests of the Labour movement, or of this country.

To return to the thread of my argument, the third key point about the criteria is one about which we have not heard much in the debate so far. It is that the protocol on convergence criteria specifically requires the Council of Ministers to adopt appropriate provisions to lay down the details of the criteria, which will then replace those set out in the protocol. So the opportunity is there for member states to make it clear, as we urge the British Government to do, that the criteria should not be defined or deployed to implement monetarist policies or to inhibit economic recovery in the member states.

We have long advocated the course that the Government should advocate—the course that they should have advocated when they held the Community presidency: that convergence should include the measures for employment, industry, investment and the environment which are essential for economic recovery in this country and in the rest of Europe. There is a powerful injunction on them to do that in article 102a, which states: Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2".

6 am

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

Does my hon. Friend agree that the proof of the pudding is in the eating? Earlier, I asked a question about the current request to nations to report on their convergence programme. I believe that such a request has come to Her Majesty's Government. I understand that, in that request—even before the treaty—the wide interpretation that my hon. Friend advocates has not been placed on the provisions. Should not we ascertain from the Government the request that they have received and the reply that they have given, so that we can test the proposition that my hon. Friend puts to the Committee?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

My hon. Friend is right that the treaty contains a provision for a report on convergence to be submitted. It would clearly be inappropriate for the Government to submit such a report before the Bill giving effect to the treaty had been approved by the House. I am sure that if the Government have submitted one, or are working on it, the Minister will intervene to tell us the exact position. If the Bill and the treaty are implemented, such a report will presumably be submitted.

I was referring to the need for more flexible interpretation of the criteria in the interests of economic recovery not merely in this country but throughout Europe. Reference was made earlier to the comments of my right hon. and learned Friend the Leader of the Opposition. I will quote from my right hon. and learned Friend's speech in Paris on 15 January. It is important to make the Labour party's position on these issues clear, and there is no better way of doing that. My right hon. and learned Friend said in that speech: It would also, I believe, be misguided for the European Community as a whole to make the same mistake of seeking arbitrarily to curb public deficits at a time when the European economy is poised on the verge of recession. There is clearly a danger that this may occur if the fiscal deficit rules of the Maastricht Treaty are rigidly interpreted. An excessively strict application of the protocol which specifies a target of 3 per cent. for government deficits would compound the existing financial squeeze which has been caused by high interest rates in Germany.If all member states of the EC tried to satisfy the 3 per cent. target by the end of 1996, for example…the combined effect on total EC output would be a reduction of over 2 per cent. This is obviously absurd and simply not feasible for a majority of member states of the Community. I would argue very strongly that the 3 per cent. rule must exclude all deficit-funded capital investment and take full account of the state of the economic cycle in each member state and in particular trends in unemployment.The Community will need to clarify these points if it is to avoid adding a fiscal choke to the monetary grip that has already sharply reduced growth in the European economy. I put it to the Committee that there could be no clearer, firmer or more persuasive statement of the Labour party's position. We are opposed to a deflationary impact of the criteria and to an inflexible or mechanistic interpretation of them.

Photo of Peter Hain Peter Hain , Neath

I warmly welcome my hon. Friend's reference to the Labour party's official policy as expounded by its leader. Is there not a difficulty in interpreting the flexibility of the convergence criteria, however? All the countries are locked together seeking to achieve the criteria required by the treaty. No country wants to achieve what is required and then find that another country is being let off the hook. The countries are forced, in a sense, to follow each other in achieving the aim. If they do not, there is no level playing field. The difficulty with establishing the criteria in the way in which the treaty establishes them is that the countries are placing pressure on each other to achieve them, and that, if some do not, others will start to complain. That is why it is difficult to interpret the criteria flexibly.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I agree with my hon. Friend. He is saying that it is important to have co-ordination for flexibility and recovery and not for inflexibility and deflation. Not just the Labour party in this country is saying that. There has been increasing support in the Commission for the view that I am putting forward. There has also been support in the European Parliament and in other members states. I will give examples. On 17 February, the Commissioner for Economic Affairs, Henning Christophersen, said in Brussels that the interpretation of the criteria involved political judgment, and a deficit of more than 3 per cent. would not necessarily infringe the criteria if this was caused by action to tackle a cyclical recession. On 23 February, the Finance Minister of Belgium was reported to have said: It is not to be ruled out that the member states will revise one of the four criteria foreseen by the Maastricht Treaty for entry to the final phase of economic and monetary union, the one relative to the maximum threshold of the budget deficit set at 3 per cent. of the national product. He was reported as saying that if the rate of growth of the economy remained next year as low as that for the present year, the threshold could be increased to allow EC states to support economic activity.

On 9 March, in relation to the European Parliament debate on unemployment and the annual economic report, Mr Christophersen said it had been established that the criteria should not be used in a mechanical way. On 12 March this year the European Parliament adopted a resolution on the annual economic report calling on the Commission and the Council to make it clear that the excessive deficit criterion defined in the Maastricht Treaty must be applied over the economic cycle and that increases in budget deficits resulting from economic recession should not in themselves lead to tax increases or public spending cuts which could damage long-term development and drive the European or national economy further into recession. I give those examples—there are others—to show how opinion in the rest of Europe, reacting to the scale of the recession, on the verge of which Europe as a whole is poised, is saying that it must be interpreted flexibly and that we need growth and not deflation.

Photo of Dr Norman Godman Dr Norman Godman , Greenock and Port Glasgow

Does my hon. Friend agree that effective implementation of article 104c depends heavily on article 109c? What is his view of the structure of the monetary committee? Is it a European Community-wide select committee, or some kind of police force which can decide to investigate the economic management of member states?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

It will not be an effective police force, as it has only advisory powers, although I agree that they will be strengthened when the financial committee comes into effect, if progress is made towards economic and monetary union. But I agree with my hon. Friend that much turns on the interpretation placed on article 104c, and I have been developing that argument. I suggest that in common with the growing volume of voices in Europe calling for the flexible interpretation of the provisions, we should conclude that instead of imagining that the convergency criteria are fixed and cannot be changed, we should be arguing that they are capable of a more flexible interpretation. We must continue to stress that it is vital for economic recovery in Europe that that flexibility is secured.

Photo of Mr Ron Leighton Mr Ron Leighton , Newham North East

Nobody seems to be bound by those words. The Leader of the Opposition said in his speech in Paris that it could lead to a cut in overall output of more than 2·5 per cent.—in other words, it could lead to another recession—and he added that the position must be clarified. The position has not been clarified. Therefore, we should vote against the provision. My hon. Friend seems to be saying that 3 per cent. does not mean 3 per cent.—that it might mean 5 or 6 per cent. We now have 8·5 per cent. He also says that it is meaningless. It is not meaningless. He knows that we attended a meeting with a representative of Jacques Delors who said that the criteria mean something. They are provided by the Germans, who are not prepared to have their mark made into a Mickey Mouse currency. They want real guarantees for their currency.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I was not suggesting that the criteria did not mean anything. Clearly, they mean something.

No one is suggesting that any level of public deficit can be sustained indefinitely. The important question is the relation of the level of public deficit to the position in the economic cycle, how that pans out over the whole of the cycle and how it stands in relation to investment expenditure. Those matters will be clarified at the end of the day through the various Community institutions. The European Parliament will have an influence and, obviously, the Commission will have a voice. Ultimately, the determining factor will be the statements issued by the European Council.

In conjunction with our colleagues in the rest of Europe, we must take every opportunity to argue for a rational interpretation of the criteria which make some growth possible.

Photo of Bill Cash Bill Cash , Stafford

I can understand the hon. Gentleman's attempt to put some latter-day rationale into his argument. Does he accept that the whole object of the arrangement was to be modelled on the Bundesbank, which had a rigid, determined approach that all of this would somehow achieve price stability? The whole argument has been blown open, as happened with the exchange rate mechanism. People must acknowledge that the arrangement will not work but that somehow we must continue marching with this. Therefore, one comes up with another adaptation to it; we will be flexible. If there is such a tremendous desire to get this through, does the hon. Member for Oxford, East (Mr. Smith) recognise that we have reached the point at which we recognise that the arrangement will not work at all and that we should pack up our bags and take the whole thing back to where it came from?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

No. The record of past years shows that we are in a weak position, especially when the hon. Gentleman is so contemptuous of what the Bundesbank has achieved. We do not want to emulate it in every respect, but the achievements in Germany in terms of low inflation, generally high employment, growth and living standards deserve to be examined constructively.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

My hon. Friend is arguing for a flexible approach to the criteria. As Labour Members are in favour of a single currency because they believe that it is a good thing, is my hon. Friend becoming worried about such flexibility? Would it be better to be inflexible, get the pain over quickly and reach the ideal on a single currency as quickly as possible?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

Inflexibility in these matters threatens to plunge us into a deep recession which I do not want to see.

How one judges the 3 per cent. depends on the period it covers. There were some references to this earlier. It is important to stress that the treaty commitment and the definitions in the treaty do not refer to the public sector borrowing requirement; they refer to the Government's lending position on the ESA definition. The ESA definition is not the same as the public sector borrowing requirement.

If one takes the record of general net lending borrowing by the Conservative Government from 1979–1991 and applies a 3 per cent. criteria, saying that the Government should have spent 3 per cent. of the gross domestic product, we would have not less but more public expenditure, to the tune of £39 billion over that period. I do not make that point to suggest that the criterion is always easy to live with, even across the medium or longer term, but to illustrate that it depends what period one takes the criterion to apply to.

Photo of Malcolm Chisholm Malcolm Chisholm , Edinburgh Leith

With reference to the 1980s, surely the surplus was a result of privatisation and North sea oil. Those were unusual circumstances. The effect across Europe of the 3 per cent. criterion would be massive public expenditure cuts. Are not the two main thrusts of this monetarist treaty zero inflation and the cutting of public expenditure to make Europe have the same level of public expenditure and social provision as the rival economic powers of Japan and America?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury) 6:15 pm, 24th March 1993

The figures that I quoted excluded privatisation receipts because the definition excludes them. I merely used them to illustrate that it depends on the period across which one takes the 3 per cent. to apply.

I argue that we should have deficit finance public expenditure, especially for investment and counter-cyclical purposes. As hon. Members have said, article 104c specifically excludes circumstances in which the excess over the reference value is exceptional and temporary. There is an argument, and we certainly must make it, that action taken to counter a recession is, of its nature, temporary, precisely because of the nature of the cyclical process.