European Single Currency

Opposition Day – in the House of Commons at 6:56 pm on 21st July 1998.

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Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means) 6:56 pm, 21st July 1998

We now come to the debate on the European single currency. I inform the House that Madam Speaker has selected the amendment in the name of the Prime Minister. I call Dr. Vincent Cable. [Interruption.] My apologies, I thought that Dr. Cable was opening the debate. I call Mr. Malcolm Bruce.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury) 7:20 pm, 21st July 1998

I beg to move, That this House believes that membership of the European Single Currency will be in Britain's long-term economic interests because it will promote trade, increase competitiveness, secure inward investment, reduce interest rates, boost economic stability, consolidate the City of London's pre-eminent financial market position, and promote growth, employment and Britain's influence in Europe; calls on the Government to hold a referendum on the principle of the Single Currency during the current Parliament and to join the Single Currency at the earliest practical opportunity; and in the intervening period to implement a series of policies to prepare for Single Currency membership including: joint six monthly reports by the Treasury and the Bank of England on progress towards interest rate convergence with the Euro zone, steps to secure a stable and fairly valued pound, action to align UK and Euro inflation levels and targets, and discussions with the UK's European partners aimed at promoting an accountable structure for the European Central Bank and maximum possible fiscal subsidiarity. My hon. Friend the Member for Twickenham (Dr. Cable) certainly has the qualifications, Mr. Deputy Speaker, and will reply to the debate.

First, I want to explain why we have chosen to have this discussion at this time. It is not simply because my party believes that Britain should be a member of the single currency at the earliest opportunity, but because we believe that events are moving rapidly, and that the need for us to take early decisions is becoming greater by the minute. The continuing strength of sterling and the uncertainty over the euro could lead to a major flight of manufacturing investment from the United Kingdom in just a few months. If that happened, thousands of jobs would be threatened.

There is clear evidence to suggest that in crucial areas, such as key sectors of manufacturing, the United Kingdom is becoming uncompetitive. Productivity is well below that of our continental competitors, and investment is at rock bottom. We also face a higher inflation rate, higher interest rates and increasing exchange rate uncertainty. That is an awful lot of difficulties for business to take on board when making investment decisions.

To secure their markets within the euro zone when the pound is strong, some manufacturing companies may feel compelled to transfer their investments from the UK to euroland, rather than risk waiting for a possible collapse of sterling once the euro is established. Several such warnings have been made in a number of sectors, and they can no longer be ignored—the Government would be very unwise to ignore them.

The Liberal Democrats are calling for a clear declaration of intent. The Government should declare the UK's intention to join the single currency, and that should be reinforced by an early referendum and by detailed steps to achieve convergence. Why is it that our major continental competitors maintain consistently high levels of investment and productivity compared with the United Kingdom? Is it because they have enjoyed years of stable, low inflation, low interest rates and stable exchange rates?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Perhaps the hon. Gentleman will let me continue for a moment.

Our continental competitors have the certainty of knowing that they will be in the euro and what the exchange rate will be on 1 January 1999. Those factors make the climate for investment a great deal more attractive—and at much lower rates of return than are acceptable to the average British investor.

We support the Government's commitment to low inflation. We accept that it is a necessary precondition for a good investment climate. We welcomed the Government's decision to give operational independence to the Bank of England as a step towards achieving such a climate—we naturally welcomed that measure, as it is our policy. However, we deplore the unbalancing effect of the Government's fiscal policy. That is coupled with the failure of the previous Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is present and can tell us whether he accepts that he failed. When he took part in the Ken and Eddie show, he argued that time would tell who was right. Time is running out: it is now becoming more apparent who is right, and the right hon. and learned Gentleman cannot hide behind the clock for much longer.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

It takes 18 months to two years for monetary policy to take effect. The present inflation rate is 2.8 per cent. Is a 0.3 per cent. variation from the target a great failure? If I had taken any notice of the hon. Gentleman, I would have raised interest rates for no good purpose whatever, given the outturn.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Many independent commentators share my view that, had interest rates been raised before the election, the Monetary Policy Committee might not have been faced with its present dilemma. To a certain extent, I exonerate the right hon. and learned Gentleman, because the situation has been aggravated by the present Chancellor's decision to pursue a fiscal policy that has left the Monetary Policy Committee with no alternative but to put up interest rates. I am sure that we can agree on that.

Photo of Mr Teddy Taylor Mr Teddy Taylor Conservative, Rochford and Southend East

I appreciate the hon. Gentleman's great enthusiasm, but would he bear in mind the fact that every previous experiment with a single currency in Europe or elsewhere in the world has resulted in a great deal of unemployment, misery and distress? History shows us that the only single currencies that can work are those under one Government, one Treasury and one system of taxation. Will the Liberal Democrats face up to that?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

My hon. and learned Friend the Member for Orkney and Shetland (Mr. Wallace) reminds me about the single currency that came into effect in 1707. Surely the hon. Member for Rochford and Southend, East (Sir T. Taylor) would not regard that currency as a failure. It is not true that all single currencies have been failures. I would not be a radical if I listened only to the prophets of doom who say that the project is bound to fail. After all, 11 countries are determined to make a success of it.

Let me deal with the Government's amendment. The Liberal Democrats welcome the change of tone that the Government's position represents as compared with that of the previous Government. We accept that they are putting in hand some practical steps to prepare for the possibility of entry. Unlike the opponents and sceptics who regard even that with suspicion, we welcome it and want them to take more such steps.

However, we are concerned about the Government's determination to postpone the referendum until the next Parliament, and about their failure to set out a clearly defined path towards membership of the single currency. The Government's amendment to our motion says that making a decision to join during the present Parliament is unrealistic. I would argue that failing to accept that the national interest may require a decision during this Parliament is unrealistic and irresponsible. The Government's case may be that we will not achieve convergence during that time. If that is true, it is partly because their policies have aggravated divergence.

If we are to join the single currency, in this Parliament or in the next, we need a clear programme now; otherwise, we will suffer drift, uncertainty and a loss of investment and coherent momentum. We must face the fact that our competitors in countries that will be founder members of the euro will face none of the uncertainties that our companies will face with regard to investment for that market.

We advocate a declaratory policy on the single currency. By that, we mean that the Government should make an immediate declaration of Britain's intention to join, subject to approval from a referendum at the earliest opportunity. The referendum should not be arbitrarily postponed beyond the next election because it is inconvenient to address the matter before that.

Such an approach would allow time to achieve convergence—it would be helpful if the Government's policy were aimed in that direction—between our own and the continental economic cycles, and would also provide a sustained period of exchange rate stability before the currencies become locked. As has been said on many occasions, the policy would give the United Kingdom greater influence over the shape of EMU.

Changing to the single currency involves up-front conversion costs, but the single currency would bring significant long-term economic gains, some of which I shall address. There would be lower interest rates, which could cut mortgage costs for householders, and debt-servicing costs for business and Government. For example, a 1 to 2 per cent. reduction in interest rates would save the average mortgage payer £275 to £575 a year. Those are real benefits. [HON. MEMBERS: "Nonsense".] Conservative Members say that that is nonsense, but if we join the single currency, it will be at converged continental interest rates, not at British levels. Our job is to make sure that we can converge and deliver that benefit. It is interesting to note that the Conservatives favour high interest rates and high mortgage costs.

Such a policy would also benefit the Government. It would help cut their annual debt-servicing costs by between £3.5 billion and £7 billion. That is equivalent to a cut of 2 to 4 per cent. off the basic rate of tax, or £250 a year for the average taxpayer.

As a trading nation, we get enormous benefit if we can reduce uncertainty for exporters. Europe is Britain's biggest export market. We export more to Belgium and the Netherlands—just those two—than to Latin America, Africa, India, Australia, China and Russia combined. Some 55 per cent. of our exports go to EU nations. Those are facts.

The policy would also crucially consolidate the City of London's pre-eminent financial market position, and I include within the City of London all the finance companies throughout the UK economy that effectively lock in to that successful market. There are different views as to how the euro might affect the City, but there are growing worries that lengthy exclusion of the UK will encourage the development of other financial centres—especially Frankfurt, which is certainly missing no opportunity to increase its importance as a trading centre within Europe.

The dilution of the UK's role as a financial centre would not just be bad for the UK: the whole EU would be diluted. We are talking about an economy of scale which benefits the whole EU market.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does the hon. Gentleman agree that, in addition to his arguments, one of the reasons for stability in the rest of Europe is that Liberal parties throughout Europe are in favour of less Government spending and lower taxation, whereas in this country, the Liberal Democrats are in favour of more Government spending and higher taxation?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The right hon. Gentleman is incorrect. He misses the fact that the social provision basis in most continental countries is higher than it is here, and that expenditure as a percentage of gross domestic product on health and education is very much higher among all our major competitors. All we are anxious to do is to ensure that we have quality services here that are comparable to theirs.

The United Kingdom trades with the EU, but makes much of our investment in the United States. Some people see that as an argument for keeping our distance, but the reality is that we invest in the United States because that is the most effective way to secure a share of the North American market. As part of euroland, we can develop—using our close links with New York and other major American financial markets—as a conduit for euro-dollar investment both ways through the bridge of the UK. That will be denied to us if we are not part of the euro zone. That argument has been seriously underestimated.

Photo of Mr Alan Clark Mr Alan Clark Conservative, Kensington and Chelsea

Does the hon. Gentleman have any personal experience of the financial markets, or of working in them? If he did, and if he were taking his opinion from those who operate in them, rather than from some columnist who cannot get a job as a consultant and is simply writing in the financial pages of a national newspaper, he would not make remarks which are unsustainable.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I have had to buy my own furniture, so I suppose I have some knowledge of transactions. The right hon. Gentleman is wrong to suggest that someone has no right to comment if they have not got their hands dirty.

If we are to secure a successful eventual merger—in our view, the sooner the better—of the single currency and sterling, we believe that what we need now, apart from an early referendum, is to set out what we would call the docking procedures for monetary union.

We believe that there are a number of things that the Government should be doing now. First, they should provide assistance to British businesses to cope with trading outside the euro zone. That seems to be uncontentious, because that is where we will be. I accept that the Financial Secretary has said that that is being done, but we are simply asking the Government to do more. We want them also to provide information on hedging exchange risk from billing in euros. We have addressed the subject of a referendum.

We need to establish a period of exchange rate stability before joining the single currency. As soon as we have had the referendum, we need to open discussions on how we can establish an appropriate rate for sterling and establish the mid-point at which we would join. We will have to have wide bands of fluctuation, but that point is already incorporated in the treaty agreements. The objective is to reduce the volatility of the British economy and to get it on the same broad course.

One of the issues that we must grasp is the gradual switch from variable to fixed-rate mortgages—by which I mean mortgages fixed for 10 or 20 years, rather than for the five years being offered by the financial institutions. The Liberal Democrats would welcome and support active Government encouragement of that.

We suggest that the Treasury and the Bank of England should produce six-monthly joint convergence reports detailing progress on fiscal and monetary policy towards our preparedness to join the single currency, and to monitor our convergence on interest rates. I suggest that such a report could usefully be presented to the Treasury Committee.

Photo of David Curry David Curry Conservative, Skipton and Ripon

Does the hon. Gentleman accept that, in certain circumstances, the reduction of interest rates to the continental level could occasion a rise in taxation in Britain to maintain the fiscal balance? Would he speculate on what would be best for the economy? Is there a balance between interest rates and taxation against the background of the stable exchange rates in the single market? That is a very important question.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I completely agree with the right hon. Gentleman. There is a tendency for that debate—[HON. MEMBERS: "Answer the question."] I will answer the question. The debate has been stifled because there is somehow the assumption that we cannot talk about taxes as opposed to borrowing or other financial mechanisms. The previous Government said that they were cutting taxes, but put them up. The present Government said that they would not put taxes up, but they have put them up. We take the view that it is about time we started talking about the role of taxation as a fiscal instrument and as an alternative to high interest rates. If we had had that—as we would have wished—at the start of this Parliament, interest rates could have been lower than they are now.

Photo of Dr Alan Williams Dr Alan Williams Labour, Carmarthen East and Dinefwr

Does the hon. Gentleman agree that, next year—when the euro is launched—banks and building societies could allow people to take out mortgages in euros rather than in pounds? With the lower interest rates in euros, there would be a terrific flight to those mortgages, which would help bring down the value of the pound and would establish the popularity of the single currency.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

That is an interesting idea, but if people are to be encouraged to take it up in significant numbers, they have to have confidence in exchange rate stability. It must be set in that context. The Government would be in some difficulty if they encouraged people to do that and made them accept the risk of uncertain fluctuations in the exchange rate. I agree that in principle that is the right direction in which to move, and I have no doubt that some people will opt for it.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

No. I have given way to several hon. Members, and this is a short debate.

Our measure of inflation must be in accordance with the treaty standard and the agreed EU measure. I hope that the Government will explain their progress on that. To frame fiscal policy and stabilise growth, we need to recognise the role of taxation. In the context of the current pensions debate, if there is to be some kind of additional, earnings-related, compulsory pension contribution it could be used as a fiscal adjustment in some years. Compared with taxation, that would have the advantage of inviting or directing people to give up some of their earnings but to put the money towards their pensions rather than into the Exchequer. That might make the scheme more acceptable, and the idea is worth exploring.

The European central bank should be made more accountable. We do not entirely agree with the bank's mechanisms, as compared with those of the Bank of England, which has a degree of political accountability. However, we understand the reasons for the difference, which is due to historical factors. The United Kingdom could suggest beneficial ways to make the European central bank more accountable, and we could do that more effectively if Britain was a founder member of the euro. We welcome the statement by the Governor of the Bank of England that he would continue to give evidence on monetary policy to the Treasury Committee if he were a member of the European central bank.

We accept the case for amending the growth and stability pact to allow for greater flexibility in the domestic operation of fixed fiscal policy. That is perfectly reasonable because the Maastricht treaty sets a limit of 60 per cent. of GDP debt ratio. Countries that are well below that should not be subject to the same strictures as countries that are at or above it. Of course, they should adhere to the golden rule principle over the economic cycle, which accords with the Government's current policy.

Measures to ensure a genuine single market, free competition and a more flexible labour market, mutual recognition of schools and qualifications and the liberalisation of financial services and pensions are great advances which would be of enormous benefit to the British economy. We cannot afford to shut ourselves off for much longer. All those measures would help to lock stability into the British economy and would create a climate in which people would not only enjoy the fruits of investment, low interest rates and the removal of exchange rate uncertainty, but would know that what they had secured was long term, so that they could invest with confidence at much lower rates of return than have historically been acceptable in the British economy. I commend the motion to the House.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury 7:42 pm, 21st July 1998

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: welcomes the Government's conviction to pursue a prudent and balanced policy in respect of United Kingdom membership of the single currency; believes that, in principle, British membership of a successful single currency could bring economic benefits to Britain and to Europe; welcomes the Government's decision to make the national economic interest the key test for British entry; agrees with the Government that, barring some fundamental and unforeseen change in economic circumstances, making a decision to join during the current Parliament is not realistic; commends the actions of the Government to introduce a programme of economic reforms and practical assistance for British businesses which are both in the national economic interest and will help to create a real option of joining the single currency early in the next Parliament should Government, Parliament and the people so decide; and believes that the Government's policy will bring stability to business and reflects the long-term economic interests of the country. I should like to set out the Government's position and deal with the issues that were raised by the hon. Member for Gordon (Mr. Bruce) on behalf of the Liberal party. The hon. Gentleman may find that he agrees with more of the Government's policy than he made out.

Our position on the single currency was set out in October by my right hon. Friend the Chancellor. It is that, in principle, we see benefit in a successful monetary union and that a decision on membership of the single currency will be made in the national economic interest. Our decision on whether to join will be subject to the five economic tests that were set out by the Chancellor in October. If the benefits of membership are clear and unambiguous, the Government believe that Britain should be part of it. If we recommend joining the single currency, the decision will be subject to a referendum of the British people.

The test for us is based not on dogma but on economics—whether it is good for business, jobs and prosperity. Our economic interests will guide our decision. Of course there are constitutional implications, but we do not think that there is a constitutional bar to joining the single currency. Because of the constitutional implications, the economic benefits must be clear and unambiguous. To rule out monetary union in principle, even if the economic benefits are undeniable, is not the right way to further our economic interests.

Photo of John Bercow John Bercow Conservative, Buckingham

Does the Chief Secretary think that Dr. Tietmeyer is right? If his prognosis is that entry to the European single currency will entail secession of sovereignty over direct taxation policies in due course, if not immediately, would that represent a constitutional bar to British entry? Perhaps I could have a yes or a no.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Dr. Tietmeyer is not a member of the Government, and taxation matters are for individual member states. Since we joined the Common Market, which became the European Community and is now the European Union, there has been an inevitable pooling of sovereignty. The hon. Gentleman was not a member of the previous Government, but I assume that he supported them. When they signed up to the single European Act in 1986, there was a significant pooling of sovereignty because it was recognised that that was in this country's interests. [Interruption.]

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Europe excites Opposition Members in a way that puzzles many independent observers.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

No, not just now.

To rule out monetary union in principle, although it would be in our economic interests, is not the right way to proceed. As the hon. Member for Gordon said, the potential benefits are obvious in terms of trade, transparency in costs and currency stability. Provided that the single currency is soundly based and successful, it is worth joining. However, before we could consider joining, we would need to be confident that we meet the five economic tests. There must be sustainable convergence between Britain and the single currency economies; sufficient flexibility to cope with economic change, which is why my right hon. Friend the Prime Minister emphasised the need to promote employability; and the reform of the labour and capital markets in the EU. We must also consider the effect on investment, the impact on the financial services industry and whether the single currency would be good for employment.

I now come to my first criticism of the Liberal position. As I have said, for us the economic tests are crucial and it is on the basis of meeting them that we would seek the endorsement of the people in a referendum. However, the decision has to follow the tests being met. The Liberals want us to decide in advance of the tests being satisfied. More than that, they are asking for a decision through a referendum that would be held perhaps a considerable time before we know whether the tests have been satisfied. Such a fundamental question should be asked on the basis of the facts and circumstances that prevail at the time at which people are asked to decide. Any significant gap between a referendum and joining the single currency would undermine the referendum's conclusion. The hon. Member for Gordon must explain how he can justify holding a referendum now, in a vacuum, before we know whether the convergence and the stability to which he referred have occurred. That would undermine the basis on which a referendum ought to be held.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The Minister makes a perfectly fair point. We say that a referendum should be held early rather than late and that Parliament's decision is arbitrary. We need to know what the Government are doing to achieve their tests and an explanation of how a referendum could be held at that point when it will take another three years to achieve membership. Is it not sensible to embark on a policy and then secure consent for the principle, with final details being determined by the Government? That is the only way to deliver.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

The hon. Gentleman contradicts himself. He says that, before we join, there must be convergence and preparations for a single currency and that, after that, there can be a decision. Surely the correct way to proceed is for the Government to recommend to the British people that, on the basis of the economic tests, we should join, and to ask the people to agree. To ask people to agree now in a vacuum, before we know whether the economic tests have been satisfied, would completely undermine the basis of a referendum. Tomorrow morning, when the hon. Gentleman reads what he has said, he will agree that his position is nonsensical.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

The Government have decided in principle to join the single currency; they believe that that it is the correct thing to do. Why can they not allow the British people to decide in principle whether it is the correct thing to do, or do the Government think that, somehow, the British people are sophisticated economic forecasters who can decide suddenly whether the five tests have been met?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

The Government's position is that, if we meet the economic tests that the Chancellor set out in this House last October, and if the tests show that it would be in our interests to join the single currency, we shall recommend that to the British people and invite them to endorse that proposition in a referendum. What we cannot do is ask people to vote some years, possibly, in advance of that decision, without people knowing what it is that they are voting for.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

No, I shall not at the moment.

The position that the Liberals are adopting is nonsensical.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

No. I should like to make some progress. I am aware of the fact that this is a Liberal debate and that many Liberal Members want to speak. I do not want to monopolise the time. I should prefer it if the hon. Gentleman reflected on the irrationality of asking people to vote before they knew whether the economic tests that we have set out have been satisfied. The people have to judge whether they believe that it is in this country's interests to join any single currency and they cannot do that in the abstract; they cannot do it in the way that the Liberals suggest.

Photo of Mr Christopher Gill Mr Christopher Gill Conservative, Ludlow

In terms of the question that should be asked of the British people, would it not be far more honest if the Government were to invite the British people to express an opinion on whether they wanted political union? It is totally unprecedented for there to be a single currency in any state that has not first created political union. Are not the right hon. Gentleman and his Government being disingenuous in putting the proposition of a single currency before the question of political union?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

No one is advocating political union. I know that the hon. Gentleman believes that there is a constitutional bar to joining the single currency; I do not. The Government's position is that, although constitutional factors have to be considered, there is no constitutional bar to joining.

The Liberals say that they want us to join the single currency at the earliest possible opportunity, yet the hon. Member for Gordon said that, of course, there had to be stability. He said that we needed stability, yet he wants to join before we have it. He well knows—indeed, he made the point—that one of the problems that this country has faced over the years is that we have had instability: periods of boom and bust, of stop and go. We need to achieve economic stability, which is precisely what this Government's economic policies are being directed towards.

Our position is clear: we join when it is in our economic interest to do so and we are not at that stage now. Let us look, for example, at interest rates. Interest rates here are at 7.5 per cent. In Germany, they are at 3.3 per cent., reflecting the fact that it is at a different stage of the economic cycle. We need a period of stability and settled convergence before we can join, and our policies are designed to achieve that.

The Government's economic policy is to achieve long-term sustainable growth, stability, an end to the damaging cycle of boom and bust and to the high interest rates that are way above those in Europe; the hon. Member for Gordon is right about that. We are committed to low inflation, which is why we set our target of 2.5 per cent.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I do not think that the hon. Gentleman has been in the Chamber until now, but I may give way to him later.

That is why we gave the Bank of England operational independence and we now have the lowest—

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Not just now.

We now have the lowest long-term interest rates for 33 years. It is beginning to bring the stability that we want. We need to avoid the historically higher rates that we have seen here compared with other member states in Europe. That is why we have put in place the code for fiscal stability and set out tough fiscal rules in the economic and fiscal strategy report.

It is all very well for the hon. Member for Gordon to say that, somehow, we are spending too much, but, every day, just about for the past 18 months, he has been telling us that we have not been spending enough. Today, he has changed his position altogether.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

So the hon. Gentleman wants us to spend more and less at the same time.

The Government are committed to stability, which is why we have set prudent and cautious spending plans for the next three years and why we have made other changes, adopting tough fiscal rules to ensure we get the stability that has eluded successive Governments in the past. It is a policy which will ensure stability and a competitive pound over the medium term, because a sound currency is a product of a sound economy. Therefore, we are creating a stable economic environment. We shall get sustainable long-term growth, low inflation and sound public finances. That is good for the country in itself, as well as being a necessary pre-condition were we to join the single currency.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Not just now.

The Liberals seem to be distracted by short-term pressures from the course that we have adopted. The hon. Member for Gordon said that one of the reasons why he wanted to join the single currency now was because of the difficulties with the value of the pound at present. That is precisely the wrong reason to join a single currency—to try to run away from short-term pressures here at the moment. That is no basis for any rational policy.

The hon. Member is right to say that the Government are committed to ensuring that we are able to make an informed choice at the appropriate time. He is right, too, to say that, when we took office, we found that no practical preparations had been made because of the paralysis that afflicted the previous Government over all matters European.

In five months' time, the single currency will become a reality. A German business selling products to France, for example, or the Netherlands will be able to do so without exchange rate risk and with lower transaction costs, which, of course, will pose a competitive challenge to companies in this country.

Next year, we shall begin to see the euro circulate and, in this country, some suppliers will price goods both in euros and sterling, so we need to prepare for the European single currency. It will affect us, which is why the Government have spent so much time over the past year or so preparing for the single currency. We have done that, so that our businesses are not placed at a competitive disadvantage because of the lack of preparations that we inherited.

That desire to ensure that we are part of the European Union—the hon. Member for Gordon is right: 50 per cent. of our trade is within Europe—led us to believe that we had to embark on an intensive period of preparation, so that we could make a realistic decision on whether to join the single currency, probably at the beginning of the next Parliament, when the decision may be made.

At least one part of the Conservative position will be advanced from the Conservative Front-Bench team tonight. I am aware of the fact that the other half of the Conservative party has turned out tonight. It will be interesting to compare and contrast the two positions that will be advanced. I do not understand how the Conservatives can rule out joining for 10 years. Why 10? Why not five, 15 or 20? There is no logic in their position. It is based not on economic considerations or constitutional principle, but on narrow party political considerations. It is whatever will hold the Tory party together at the next election.

As we can see tonight, the Conservatives are completely split and bitterly divided. Narrow party interest will triumph over the national interest of this country. As long as that remains the case, they will never be able to govern in the national interest.

Our policy is to prepare and then decide. We are introducing a programme of economic reform and practical assistance for British business. Our policy is in the national interest: a prudent and balanced policy that puts our economic interests first and reflects the country's long-term interests.

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer 7:58 pm, 21st July 1998

This is obviously an extremely important topic and it is good for the House to have the chance to debate it discursively. I appreciate that this is a short debate and I want to be as quick as I can. The only point that I should make at the outset on the Liberal Democrat motion is to lament the death of irony. The Liberal Democrats can solemnly, at teatime, move a motion mourning the departure of parliamentary democracy and, at suppertime, move a motion that, on any footing, has a serious impact on parliamentary democracy.

It is important that, on this subject, the issues and arguments are properly ventilated and examined, and that we do not proceed by way of assertion, as has sometimes happened. It is important also that parties are clear about their position. To their credit, the Liberal Democrats have been straightforward; they have expressed their full commitment in principle to the single currency. That has been their position for a long time, and that is perfectly honourable; there is nothing discreditable about it. However, for some time, Labour Members have tried to have it both ways. We need only cast our minds back to April 1997, shortly before the general election, when an exclusive interview with the Prime Minister, the then Leader of the Opposition, appeared under the headline "My love for the £". That affair was as short-lived as the Chancellor of the Exchequer's love affair with prudence—not very long.

It was not long after the election that the Labour party became fully committed in principle. It has tried to hedge around monetary union since then, but we have only to go back to Hansard to read the Government's actual words. Labour Members did not try to fudge it then in the way that they have subsequently tried to do. The Chancellor was admirably explicit; indeed, he was quite boastful and very pleased with himself. He said: We are the first British Government to declare for the principle of monetary union, the first to state that there is no overriding constitutional bar to membership".—[Official Report, 27 October 1997; Vol. 299, c. 588.] The Government have tried to deny it since, but that was a clear, dogmatic commitment in principle to joining the single currency. They have taken a curious path to get to that point, but it is now the clear, unequivocal position—a dogmatic commitment in principle, subject only to technical issues of timing. Last week, the Chancellor went all the way to "Sun valley" to reassert that dogmatic commitment in principle.

Today's debate allows us to expose the divide between the dogmatic approach of Labour and the Liberal Democrats and the pragmatic approach of the Conservative party—[Interruption.] I will cheerfully elaborate on that. The Labour Government are committed in principle, although they acknowledge that it would be disastrous for Britain—the Chief Secretary in effect admitted that—at the present time. As we know, the Liberal Democrats favour entry at the earliest possible opportunity. The Conservatives' pragmatic approach is to monitor how the euro performs over an economic cycle, in good times as well as bad; only then should responsible politicians start to come to a decision on whether it is right for Britain to join. That is why we have made it clear that we oppose Britain's joining the euro during this Parliament and the next. That is the pragmatic approach.

The Chief Secretary sought to have some merriment around the idea of a period of 10 years. I have to tell him that the Conservative party has never talked about ruling out joining for 10 years—

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

The right hon. Gentleman is quite deliberately perpetrating a myth. We have said that we rule out joining for this Parliament and the next—[Interruption.] We do not know how long that will be. It is wrong to suggest that ruling out something for the lifetime of a Parliament is alien and difficult for politicians—it is the sort of period in which politicians operate. That is the position we adopted and the one with which we will stay.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Does the right hon. Gentleman foresee any circumstances in which a Conservative Government would ever join the single currency?

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

At the moment I cannot, but I am not arrogant enough to believe that I know what the position will be for all time. Serious economic issues rule out joining in this Parliament and the next, and the right hon. Gentleman has referred to some of them. The principal one is cyclical convergence. It is no accident that, for many years, the pound has had an extraordinary degree of stability against the dollar. That exchange rate stability reflects the interest rate tracking between the two economies, which in turn reflects the fact that our economic cycles—I have never heard a good reason for this; it is just a simple fact—are closely aligned. If Britain were to join the single currency without that cyclical convergence, we would have the wrong interest rate.

It is all very well for the hon. Member for Gordon (Mr. Bruce) to say that, if we were to join, we would have lower interest rates—I accept that, if we joined today, we would have lower interest rates because Germany, France and the other founder members of euroland—the EMU 11—have a different economic cycle. They have the appropriate interest rate for their economic cycle and we have what the Bank of England currently believes to be the appropriate interest rate for Britain. That shows that we are at a different stage of the economic cycle.

To say that we should have a lower interest rate when the state of our economy demands a higher one is absurd naivety or deliberate disingenuity. It is as fatuous to say that as it is to argue that, at the next point in the cycle, when we may have low interest rates but the EMU 11 have a higher interest rate, it would automatically be right for us also to have that higher interest rate. On the basis of what the hon. Member for Gordon has argued so far, in those circumstances he would argue that it would not be right to join because it would mean higher interest rates for Britain. The point is that, unless there were sustainable cyclical convergence, Britain would have the wrong interest rate. I do not believe that the House should vote for Britain to have the wrong interest rate at any time in the future—

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Does the right hon. Gentleman not recognise that we want to join a club that has a more successful record than Britain of securing lower interest rates and lower inflation over a long period? Can he name a significant period during which the average interest rate in, for example, Germany has been significantly higher than in Britain at any stage of the cycle?

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

The hon. Gentleman is talking about our joining a club that does not exist—[Interruption.] The euro does not exist; EMU will not come into operation until 1 January next year. On any footing, it will take time to be tested and explored, to determine how it works. None of us knows at this stage whether it will be a strong currency or a weak currency; none of us knows how the pound will behave in relation to it; none of us knows how quickly or otherwise it may become an international reserve currency, or even whether it will become one at all. Those are all important unanswered questions. It is responsible and—I repeat — pragmatic to take time to explore how EMU works and develops and to determine whether it works in a way that makes it possible for Britain to join.

The Treasury's own figures show that, far from there being cyclical convergence with the founder members—the EMU 11—our economy is negatively correlated. That may change and, in many ways, it may be helpful to Britain if it does. The EMU 11 will be, and already is, an important trading partner for Britain. However, it must be right for Britain to want to see what happens—if it happens at all—and how quickly it happens before we rush into any decision.

Without there being any evidence that cyclical convergence is happening, surely that should be the end of the story for the time being. It is not practical for Britain to join a single currency when our interest rates and economic cycle are so divergent. The reasons for that cyclical divergence from Europe and why we are not quickly moving together are clear. There are important structural differences, which in many respects are to the economic advantage of Britain. Our trade flows are different. They are not concentrated—in the way that they are in many of the founder countries of EMU—within the EMU area; they are much more global. That is not a statement of value; I am not saying whether it is good or bad; it is simply a fact. Such facts make a difference to the decision that has to be made.

Before those matters are concluded, it is important that there should be a proper assessment of convergence costs, for example. What is the estimated cost to British business of converting to the euro and of our joining the single currency? Has such an assessment been made? Has one been made by the European Commission? If the Chief Secretary can tell me that such an assessment has been made and that he has a figure that he can reveal now to the House, I shall gladly give way to him. If he, like the Government, is committed in principle to joining the single currency, he should at least be able to tell us the price tag on doing so.

Although many assessments—of greater or lesser reliability—have been made of the advantages in transaction costs of our joining the single currency, so far as I know, neither the Treasury nor the European Commission has assessed the cost of converting to the euro. It is quite important that such an assessment is made. Assessments made by others range from £20 billion to £50 billion. In the absence of the Treasury's own estimate, will the Chief Secretary confirm that that is the right range?

There has already been some discussion—I am confident that there will be more—about the constitutional effects of Britain's joining the single currency. The Chief Secretary said that no one was seeking to create a political union, but I must disillusion him on that. There are some—I make no criticism of them, as it is a perfectly honourable thing to seek to do—among our partners in Europe who wish to create a political union—[HON. MEMBERS: "Who?"] Chancellor Kohl, for one. He is perfectly open about it. I am not making a charge of conspiracy against him.

Those of us who, like me, were involved at the early stages in discussions and negotiations on the Maastricht treaty know that political union was very much the dominant motive for the German political establishment pressing for the single currency. I make no criticism of them for seeking that objective—which is a perfectly honourable one—and they have been very open about it. However, the Chief Secretary should clearly realise that there are some who wish a common currency to be created specifically for that reason.

It has never been clear to me how a currency union can exist without a political union. However, I do not claim omniscience in the matter, and retain a readiness to be persuaded by experience that a currency union can be created without a political one. Some good friends of mine—some of whom are in the Chamber—earnestly believe that such a union can be created. I respect that belief and am willing to be persuaded, by experience, over time. The need for time is another reason for Britain not joining the currency in this Parliament and the next, so that we can begin to see the effects on political union of our being part of a monetary union on the continent.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I am sure that I will not persuade my right hon. Friend. Nevertheless, I remind him of the experience, between 1923 and the early 1970s, of the Irish Free State and the United Kingdom. Although they were in monetary union throughout that time, I do not think that President de Valera entered into any type of political union with this country.

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

My right hon. and learned Friend and I have discussed that matter before, and we are unlikely to reach agreement on it. There is a profound difference between a small country, as an exercise of its sovereignty, temporarily pegging its currency to that of a larger country and the single currency.

There was not a monetary union then. The Irish were in effect treating the pound sterling as a gold standard. The nearest modern equivalent is Hong Kong and the US dollar. The Hong Kong Government, under British sovereignty, pegged their currency to the US dollar, and that arrangement has continued under Chinese sovereignty. However—to continue the analogy—I do not think that anyone is contending that the Chinese leadership has conceded sovereignty of Hong Kong to the United States.

There are other examples on the continent—[HON. MEMBERS: "Precisely."] The Liberal Democrats utterly fail to take the point. Establishing a single currency is very different from a small country pegging its currency to that of a larger one. The Netherlands and Germany provide an example on the continent of the latter arrangement. However, it is very different to propose creating a genuine monetary union that is not part of an exercise of sovereignty that is revocable at any stage—unlike the pegging of Ireland's currency to sterling, Hong Kong's currency to the US dollar and, in effect, the Netherlands' currency to the deutschmark. Even the Liberals must be able to see that those arrangements are different.

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

I am tempted by my hon. Friend, but I want to press on. This is a short debate, and I know that many other hon. Members wish to speak.

I am therefore not prepared, arrogantly and dogmatically, to say that I know for all time that I am right. I believe that the right stance is to say, "No, we will not join in this Parliament or the next." At the end of that time, there will be some experience of how the single currency has worked in practice among economies that, at first sight, are well-equipped to work together in a monetary union. At that stage, decisions can be made on the basis of not perfect but better knowledge than we will have at any stage in this Parliament or the next.

What should the United Kingdom be doing meanwhile? Businesses in Britain should certainly be preparing for 1 January, as any business that is trading with the EMU 11 will have to accommodate use of the new single currency by them and, eventually, the euro. However, preparation is very different from the Government pushing businesses into sinking money into preparing for British membership of the single currency. The Government themselves have accepted that, although they are committed in principle to the currency, it may not be possible.

Some suspect that a process is in train of making Britain's membership of the single currency inevitable by encouraging businesses to sink money in it, so that people say, "We have already spent a lot of money on it. We may as well do it." The Government perhaps give the game away in their own amendment, which states that the House commends the actions of the Government to introduce a programme of…practical assistance for British businesses which…will help to create a real option of joining the single currency early in the next Parliament should Government…so decide". It would be quite wrong, when investment is already scarce—the Government's own figures show that investment will fall over the rest of this Parliament, with all the implications that that will have for jobs—for British business to be lured into sinking money into unproductive investment, for an eventuality that by no means is certain to happen. The only effect of business investing that money is to make that eventuality marginally more likely. I emphatically tell Ministers that, although the politics of that may work for them, the economics will not work for business.

I ask the Government to give an absolute undertaking that businesses will not be encouraged to sink money in that manner. I support Ministers in encouraging businesses to prepare for creation of the single currency, on 1 January 1999.

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

The only change is that we have begun to be able to penetrate the mists surrounding the Government's intentions, to try to discern what Government policy is aimed at achieving. It has not been at all clear whether the Government's extremely expensive preparations have been devoted to encouraging businesses to prepare for creation of the currency on 1 January 1999—that will happen; it is a fact—or to prepare for our possible future membership. I ask Ministers to give an absolute undertaking that that effort, money and propagandising—it is a perfectly proper use of the word—will not be used in that way.

The single currency may well work for its founder continental members—the EMU 11—in the short to medium term, but that does not mean that it will certainly work for Britain. In the absence of cyclical convergence, which is an absolute precondition for Britain's successful membership, the House should not be discussing the issue. Membership is simply not a practical possibility. If the decision to join is made at some stage, it must be on the basis of clear information, following properly funded campaigns for both sides of the argument.

Since the Labour party came to office a year ago, we have seen three referendums on the mainland. Experience of their being run remotely satisfactorily is lacking.

Photo of Francis Maude Francis Maude Shadow Chancellor of the Exchequer

The Chief Secretary is clearly having difficulty counting. Referendums in Scotland, Wales and London seem to me to make three. On each occasion, legislation has not been published before the referendum, so the public have not been able to see the pig in a poke. Campaigns against the Government's view have not been properly funded, which has been objectionable and deeply unsatisfactory. If we reach the point at which there is a referendum on the single currency, it must be conducted properly. We shall look to the Economic Secretary to the Treasury to make commitments on that. In summary, the Liberal Democrat motion and the Government amendment are equally flawed.

Photo of Bill Rammell Bill Rammell Labour, Harlow 8:21 pm, 21st July 1998

I am happy to participate in this debate and to support the Government's amendment. I do so as a positive, pro-European who believes that, in the longer run, Britain does not have an economic future outside the single currency. I welcome the opportunity to air some of the arguments.

When I talk to people in my constituency and observe opinion poll evidence on matters surrounding the single currency, I am struck by the fact that, fundamentally, people in Britain are not hostile to the idea or Euro-sceptic. They are concerned, fearful and lack an understanding of what the single currency will mean to them and their families. They therefore want the issue to be opened up.

Photo of Julian Lewis Julian Lewis Conservative, New Forest East

The hon. Gentleman mentioned opinion poll evidence. Is he aware that, in the latest Gallup poll, in which people were asked whether, if there were a referendum, they would vote to replace the pound with a single currency, only 33 per cent. said yes, 65 per cent. said no and 2 per cent. were undecided?

Photo of Bill Rammell Bill Rammell Labour, Harlow

As with all statistics and opinion polls, it depends which one is quoted to support one's argument. There has been a detectable shift in opinion in polls since the election. Attitudes have softened; there is greater support for the concept of a single currency, and more people are prepared to accept that they are undecided.

Photo of John Bercow John Bercow Conservative, Buckingham

Is the hon. Gentleman aware that, in the poll that my hon. Friend the Member for New Forest, East (Dr. Lewis) has just quoted, no fewer than 58 per cent. of Labour voters declared that they were opposed when asked, "Would you support the abolition of the pound in favour of a single European currency?" Even his party's supporters are opposed to his position on the subject.

Photo of Bill Rammell Bill Rammell Labour, Harlow

I remind the hon. Gentleman that, at the start of the four-week referendum campaign in 1975 on Britain's membership of the European Community, opinion polls showed a 2:1 majority against the idea, but, by the end of the four weeks, when the issues had come out into the open and people had understood the arguments, the position was reversed.

I welcome the opportunity to support and to restate the Government's position, which is very positive, clear and a breath of fresh air compared with what went on under the previous Conservative Government. I pay tribute to the Liberal Democrats for calling this debate in order to open up the discussion, although, as will become clear later in my speech, I cannot support—indeed, I disagree with—several of their policy prescriptions.

The debate is helpful in underlining the fundamental mess of the Conservative party on this issue—even to this day. I do not say that as pure party political knockabout; I am not one of those who believe that the Labour party will be in power for ever and a day. It may be in government for 15, 20 or 25 years, but, at some stage, the Conservative party will return to power. If it does so with today's split policy on Europe, woe betide this country's economic interests.

Let us address some of the arguments that Conservative Members have made in the debate. The genuine position was put forward by the hon. Member for Ludlow (Mr. Gill) who, if I understood him, was arguing in favour of complete British withdrawal from the European Union. He said that the question in a referendum should be whether the British people support political union. If he believes, as I am sure he does, that the answer would be no, and if he believes, as I know he does from previous comments in the Chamber, that political union is already taking place, he is clearly arguing for such withdrawal. It is very worrying that there is still such a firmly held strand of opinion in the Conservative party.

The shadow Chancellor then accused the Labour party and the Labour Government of inconsistency on the issue. To anyone who remembers the election campaign, in which, day after day, a different Conservative Front Bencher and a different Conservative Back Bencher came out with their individual positions on the Conservative party manifesto, that is an example of the pot calling the kettle black. Before the Conservative party lectures the Labour party on consistency, it needs to put its own house in order.

I was very taken by what the shadow Chancellor said about the Conservative party—allegedly—taking a pragmatic stance, waiting for a full economic cycle to elapse in order to judge the effectiveness and success of the single currency. We can have a debate on whether two full terms means 10 years or eight years, but, whatever the answer, we are talking about a long time. Are Conservative Members really suggesting—perhaps this can be picked up in the winding-up speeches—that if the single currency is up and running, strong and successful and, consequently, we must pay a 2 per cent. premium on our interest rates to protect the value of the pound outside such a single currency, they would still argue that we should stay outside? That would be putting ideological dogma before common sense.

I should like to state the case for the single currency—it must be made. Despite what Conservative Members said repeatedly for years when they were in government, the single currency will go ahead. They told people and businesses that there was no need to prepare for it. There is a case in this debate for their admitting that they were fundamentally wrong. Eleven countries are launching the single currency with an unprecedented degree of economic convergence. Let us look at the facts.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does the hon. Gentleman accept that this is a serious matter which ought to be discussed seriously? It is a little difficult for those of us who have been totally consistent to be told that we have been inconsistent by a member of a party whose leader asked us to withdraw from the European Union on several occasions during several election campaigns. Whatever the divisions, they ought to be treated seriously. He does his case no good at all by making such points. He can be reminded about the enormous divisions in the Labour party. Some of its members are deeply opposed to the single currency—and perfectly reasonably so, since it is a matter of some importance. It would help the House if the hon. Gentleman addressed the issues.

Photo of Bill Rammell Bill Rammell Labour, Harlow

There are clearly different strands of opinion across the parties on the issue, but I was not the one who introduced the issue of inconsistency into the debate. It was introduced by the shadow Chancellor. The remarks of the right hon. Member for Suffolk, Coastal (Mr. Gummer) would be far better addressed to his Front-Bench team.

I was addressing the issue of economic convergence. Since the Maastricht treaty was agreed, average Government deficits across the 15 EU countries have fallen from 6.5 to 1.6 per cent. To pretend, as some Conservative Members still do, that such convergence has not occurred and is not continuing is not an economic argument but a political argument in principle against the concept of the single currency.

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings

The hon. Gentleman surely would not claim that the convergence criteria were met. No objective empirical analysis suggests that. No commentator—even the pro-European ones—would suggest that the criteria were not fudged.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Conservative attacks on convergence criteria have been directed at Belgium and Italy. I am prepared to bet that if Belgium and Italy had not been included in the first wave, the Conservatives would simply have moved the goalposts, and argued against other countries. The true position of those who hold that convergence has not taken place was best summed up by the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) who said: I find the word fudge is now being used in negotiations. That is obviously just a cover for those who never want a Single Currency, or even a European Union. Let us consider the positive case for the single currency. One role of politics and government is to try to give ordinary people greater control over their lives and the decisions that affect them. The single currency is first and foremost about tackling currency speculation and the instability that flows from it, which can be tremendously damaging to a country's economy. Around 90 per cent. of transactions on foreign exchange markets are not about imports and exports, or trading and business, but are made for speculative gain. We know how damaging that can be. We all remember September 1992, when interest rates went up 4 per cent. in one day while billions of pounds were being lost in a futile attempt to protect sterling against speculation.

The crux of the matter is that if pooling some sovereignty allows us greater control over our economic affairs and the value of our currency, it is a price worth paying. I was disappointed by the intervention of the right hon. Member for Suffolk, Coastal (Mr. Gummer) because I intended to quote the concise and effective argument on sovereignty that he advanced when I shared a platform with him recently to discuss the single currency. He said that sovereignty without power is meaningless, and he was absolutely right. He cited our sovereign ability to declare war on the United States, adding that we would never do so—no matter what the circumstances, or the justification—because we do not have the power to win. That argument applies just as well to sovereign control of the currency if we have no ability to control the currency or to gain stability.

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings

May I test the hon. Gentleman's philosophical position? He has said that a right is not worth having unless one exercises it. That position could apply to an enormous number of political and personal rights, but not to exercise a right surely does not make it not worth having.

Photo of Bill Rammell Bill Rammell Labour, Harlow

If we can achieve our end more effectively by pooling some sovereignty than we can by standing alone, it is worth considering it.

Photo of John Bercow John Bercow Conservative, Buckingham

When the United Kingdom was forcibly ejected from the extended recession mechanism, we exercised sovereignty for the betterment of our commercial interest by cutting interest rates, which we were powerless to do within the mechanism, of which the hon. Gentleman was a strong supporter.

Photo of Bill Rammell Bill Rammell Labour, Harlow

I do not want to rake over the coals of the previous Conservative Government's problems. A balanced judgment needs to be made. If we pool sovereignty and join the single currency, the downside is loss of immediate operational control of interest rates within our national boundaries, but the benefits of the single currency will outweigh that loss. Among the benefits are reduced transaction costs, and the European Commission estimates that the UK would save about £3 billion a year. Price transparency is another advantage. When we enter the euro, we will be able to make genuine comparisons between prices, ending the nonsensical situation in which a Ford Fiesta costs 50 per cent. more in Britain than in Portugal, for no justifiable or logical reason.

The red herring always offered by opponents of economic and monetary union is that the single currency will remove our ability to set our tax levels. Nothing in the Maastricht treaty justifies that view. The treaty seeks to establish Government deficits at the sensible level of 3 per cent. of gross domestic product. That still means that member states can have a high-tax, high-spend sensible deficit, or a low-tax, low-spend sensible deficit. The false argument about taxes needs to be nailed.

Before coming here tonight, I took the trouble to re-read my right hon. Friend the Chancellor's October statement. The passage of time sometimes affects the memory, and that statement was more clear and positive on the single currency than I had remembered. The Chancellor said that we supported the principle of the single currency, that we wanted it to succeed and that we recognised that there would be significant gains in terms of trade, transparency of costs and currency stability. He said that there is no constitutional bar to joining. He said that we were not convergent with the economies of the rest of Europe, particularly because of our interest rates, and that sustainable convergence was required.

The Chancellor also said that preparations for the single currency had barely begun because of the splits in the previous Conservative Government, and because of their heads-in-the-sand approach. I have read polls stating that only 14 per cent. of businesses are preparing for the single currency, which emphasises how right the Government are to address preparation. Once preparation and convergence have occurred, support for the principle of the single currency should mean that we recommend entry early in the next Parliament.

The Liberal Democrats are trying to play a constructive and supportive role, on this matter and others. However, constructive criticism can be effective only if it is credible. That requires it to be based in the politics of the real world, and I found the Liberal arguments flawed on several counts. For those of us who believe that we should participate in the single currency, it would be the worst of all worlds to time the referendum wrongly so that the argument was lost.

The Liberal Democrat motion fails to address the lack of convergence between our economy and the economies of the rest of the EU. There is a gap in interest rates of 3 to 4 per cent. To converge suddenly would mean a dramatic fall in interest rates, which would create unsustainable consumer demand that would fuel inflation and probably initiate an unsustainable housing boom. There would be massive destabilisation, which is the opposite of what the currency is intended to achieve. The right hon. Member for Yeovil (Mr. Ashdown) said recently that if the Prime Minister set a date to join the single currency, the pound would come down tomorrow, interest rates would come down next week"—[Official Report, 8 July 1998; Vol. 315, c. 1069.]. That is a simplistic view.

In a spirit of friendship and understanding, I believe that instead of arguing for a precipitate decision on the single currency, the Liberal Democrats could spend some time on persuading their own supporters of the case for it. The irony is that the Liberal Democrats sell themselves as the most pro-European party while all available evidence suggests that Liberal Democrat supporters are the most hostile to and sceptical about the single currency.

Photo of Julian Lewis Julian Lewis Conservative, New Forest East

In support of that, in the poll to which I alluded earlier, the figure for Lib Dem supporters of economic and monetary union was 33 per cent., the same as the national average. The figure for Lib Dem supporters who opposed it was 65 per cent. The hon. Gentleman is right.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Counselling is available for people who indulge in too much opinion poll reading. I will give some evidence. Lib Dem supporters have been shown to be hostile to the single currency. In October 1996, a MORI poll showed Lib Dem supporters to be more likely than those of any other party to support ruling out joining the single currency in the first wave of entrants. The NOP exit poll at the general election showed Lib Dem voters to be 37 per cent. more likely than Labour voters to say that Britain should never join the single currency. I highlight that because we all have a job to do in educating people, opening up the issues and explaining what the single currency is about and why it is important to our economic future. The Liberal Democrats should spend some time on that.

The single currency is the most important strategic economic issue that this country will face in a generation. In many senses, the way in which we ensure that Britain faces up to the decision will be one of the defining judgments on the new Labour Government. I am confident that our tactics and strategy will enable the country to face up to this hugely important issue.

Photo of Sir Ray Whitney Sir Ray Whitney Conservative, Wycombe 8:40 pm, 21st July 1998

I agree with the hon. Member for Harlow (Mr. Rammell) about the crucial importance of this topic, but I have some questions about his implied claims on the alleged consistency and unity of his party. I join him in congratulating the Liberal Democrats on giving us an opportunity to debate this crucial subject.

To say that we must have a clear debate is a commonplace; everyone says it. Sadly, we get a series of monologues, a dialogue of the deaf. It is the same old faces in the Chamber, with a few exceptions. We make little progress. There is a debate going on, but unfortunately it is only in my party. Whether it is productive is another matter, but at least there is a dialogue.

The contrast with the Labour party is interesting. When the debate started, one or two well-known troublemaking Labour anti-European Back Benchers were here. Whether through the influence of the Whips, spin doctors or whatever, they took better advice, and have departed the field.

Apart from the divisions among Back Benchers, there are divisions in the Labour Cabinet. It is also clear that the Prime Minister's real concerns are not about his Cabinet or parliamentary colleagues but about Mr. Murdoch and The Sun. That is obvious from the extraordinary performance of the Chancellor of the Exchequer, aping Mr. Blair's performance two year years ago when he tripped off to Queensland on the instructions of Mr. Murdoch. This time it was Mr. Brown to Idaho, but at the expense of the British taxpayer.

We need this debate. I want to make my position clear at the outset. We must recognise that the euro is beginning to happen. It comes into force on 1 January, but the impact on decision making is already with us. The fact that we are not in the euro 11 decision-making process is of significance to this country. Whichever side of the debate one is on, it is difficult to deny that we are affected already by those decisions. It is incontrovertible that we must carefully monitor how the euro develops from now, today—not 1 January or 2002 or some other date, but now. We must watch how it works, and how it impacts on Britain.

It surely makes sense to keep all the options open. We should keep the "sooner or later" options open, subject only to two criteria. The first is the referendum, on which just about all hon. Members now agree. Secondly, the decisions and recommendations of the Government and of the House, when they are made, must be in the national interest.

The phrase "in the national interest" strikes me as an otiose platitude. Who comes into Parliament or politics without taking account of the national interest? The Chancellor of the Exchequer and the Government harp on about it, but it is the concrete decision and the perception that we have to understand. We must all grasp the nettle. Simply mouthing the idea of the national interest takes the debate not one inch further forward.

"Bete noire" is perhaps too strong a phrase, but my particular problem is with those who seek to wrap themselves in the Union flag with the idea of saving the pound. They assume that they are patriotic, and the rest of us are not. That strikes home to me strongly. I left a very happy, secure job in the Foreign Office, with what I hoped would be a happy future, precisely because I was deeply concerned about the threat to this country from the last Labour Government and the way that they were leading us.

Because of all this flurry about saving the pound, the Union Jack and all the rest of it, with some immodesty I was moved to look up my maiden speech. Its theme was used later by a weekly newspaper with the headline, "Stand up and speak for Britain". I therefore accept no suggestion from any hon. Member or anyone else on the other side of the debate that, if I take a positive attitude to the possibility that we might join the European single currency, whether sooner or perhaps a little later, there is something missing from my sense of patriotism or national identity. Far from it.

I believe that we must protect our country by the most sensible means. Simply to mouth, "Let us save the pound," is no way to protect the national interest of this country which we all hold so dear. If it were, the record of both Conservative and Labour Governments on saving the pound is not happy. After the war, £1 could buy $4. Now one would be lucky to get $1.50. Since 1960, the pound has dropped to 58 per cent. of its value against the dollar in 1960; against the deutschmark to 24 per cent; against the Japanese yen to 19 per cent; against the Swiss franc to 19 per cent. If that is what saving the pound means, I should like to find a more effective way of preserving the national interest.

Photo of Mr Alan Clark Mr Alan Clark Conservative, Kensington and Chelsea

I am interested in the implication of what my hon. Friend says, which is that the value of the pound must be sustained and is something worth maintaining. Most Labour Members, and many Conservative Members, never cease to complain that the value of the pound is too high. Where does he sit in that debate?

Photo of Sir Ray Whitney Sir Ray Whitney Conservative, Wycombe

Those who argue that saving the value of the pound is all that matters must make that case.

My point is that we must work towards an effective economic position. Two separate issues are involved: the long-term position of the currency, to which I have referred, and its tactical immediate position. It is now fashionable to believe that a lower pound is better. I do not subscribe to that view in the long term; I do not believe that we can devalue our way into prosperity—leaving aside the arguments we have had in the past year about the import problems associated with a high pound.

The idea that we can enjoy the freedom of remaining outside the single currency, allow our pound to devalue and all live happily ever after is extremely dangerous. My right hon. Friend the Member for Kensington and Chelsea (Mr. Clark) and I have agreed strongly on that point in recent years; it is one of the things that have held us together on this side of the political debate and of the Chamber. We believe in sound finance.

I am always surprised when the good housekeeping criteria—which the EMU criteria represent—appear to be such anathema to some of my right hon. and hon. Friends. They seem to want the privilege of devaluing the pound, putting up Government spending, and so on. That surely is not a policy which should unite Conservatives.

Emotional appeals to sovereignty are misleading and dangerous. They do not help this country's national interests. It must be obvious that no country—certainly not a great trading nation of this size—can be immune to international pressures and the effects of the global economy. Ever since the first world war—at the very latest—Britain has been vulnerable to international economic pressures. No Chancellor of the Exchequer can stand at the Dispatch Box and pronounce a Budget or a comprehensive spending review while remaining oblivious to, or careless of, what is happening in the world and the many pressures on sterling and our trading position.

Our national identity is not a question of sterling as such, but of how British interests are best advanced. I believe that those interests will be seriously endangered if and when the euro currency is successfully launched and becomes stable. Our famous pound would then be subject to instability and speculation. No one would argue that interest rates would be significantly higher—they would rise by two or three percentage points. Therefore, the case for keeping open the option for our entry must be overwhelming. I hope that we will consider that option much more calmly, both in my party and in the Labour party. The Government are seriously endangering that possibility.

The previous Government, to which my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made such a great contribution, left a tremendous economic legacy to the incoming Labour Government last May. That legacy is being quickly squandered. In the past few days, report after report has made it clear that the rosy hue in which the economy was cloaked, or befogged, by the Chancellor last week is a mirage. An article in The Times of yesterday states that Britain has again become the sick man of Europe. Two or three leading financial companies have analysed Britain's economic prospects and found them to be very worrying. If we are not careful, and if the Government continue in the way they have begun, having quickly abandoned the righteous cloak of Conservative economic policy that they pretended to assume, there will be no option. There will be no point in the Financial Secretary or the Chancellor of the Exchequer saying that they will recommend that Britain joins the single currency in 2002. Our European partners will not want us, because the gap will be too wide, and that option will be closed.

As to the question whether political union automatically follows EMU, the answer must certainly be, not necessarily. Of course it could, but I know very few people in this country or in continental Europe who want anything like a centralised state. People fuss about what the word "federal" means, but I hope that we have reached a more adult stage in the debate. The idea of a centralised state has very few supporters.

Photo of Sir Ray Whitney Sir Ray Whitney Conservative, Wycombe

No, my right hon. Friend is wrong.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

My hon. Friend may have noticed one supporter of Britain's being part of a much more centralised state. Articles in The Daily Telegraph suggested that Britain would be better off being dictated to by Washington rather than being a partner in the European Union.

Photo of Sir Ray Whitney Sir Ray Whitney Conservative, Wycombe

My right hon. Friend does me and the House a service, but I shall not be tempted to discuss the damage that Mr. Black and Mr. Murdoch have done to the interests of this country.

We believe that Britain has the nous, the political experience, the wisdom and the stability to belong to a European Union that is active and effective, and that can introduce a single currency without sliding into a centralised state. Far from being unpatriotic, that is true patriotism; that is to believe in Britain, as I do most sincerely. Those on the other side of the debate—many of them my right hon. and hon. Friends—who think that we shall be somehow lured, trapped and sunk unwittingly by a centralised state do us a great disservice. I hope that they will think carefully about the implications of their position.

Several hon. Members:


Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Before I call the next speaker, I remind the House that a large number of right hon. and hon. Members are seeking to catch my eye. Unless contributions are much shorter, many hon. Members will be very disappointed.

Photo of John Cryer John Cryer Labour, Hornchurch 8:57 pm, 21st July 1998

I shall try to bear your words in mind, Mr. Deputy Speaker.

This has been an intriguing debate. From the Liberals we have heard the usual vacuous waffle. The idea proposed by the hon. Member for Gordon (Mr. Bruce), that the European central bank can somehow be made more democratic or more accountable, absolutely beggars belief. What are we going to do? Are we to have elected bankers running it? Are we going to run it along the lines of, say, the Church of England, with the Prime Ministers of western Europe appointing the bankers? I do not recall the Church of England being held up as a symbol of democracy. It is a shame that the hon. Gentleman is not in his seat to intervene.

The contribution from the shadow Chancellor, the right hon. Member for Horsham (Mr. Maude) was an attack on Maastricht and everything that goes with it. I, too, am opposed to the European single currency. However, when the previous Government negotiated what became Single European Act 1985, the right hon. Gentleman was a Member of Parliament, and I do not remember him manning the barricades at that time. He was involved in the negotiations in the lead-up to the signing of the Maastricht treaty, and he then put his name on the bottom of that treaty.

It is all very well to be worried now, but the time to have called a halt to Maastricht, the convergence criteria, the stability pact and everything else, was before the treaty was signed, not five, six, or seven years later, when the European juggernaut is already hurtling toward us at speed.

To pick up a point made by my hon. Friend the Member for Harlow (Mr. Rammell), I believe that an overwhelming majority of people in this country are opposed to Maastricht and to the single currency. My hon. Friend drew attention to what happened in 1975, during the last referendum on Europe. I hope that the parallel will not be too close next time around, but what happened in 1975 is that there was a U-turn by the Labour Cabinet very late in the day, which either swung behind it many Labour party members and trade unionists, who were naturally fairly opposed to membership of the Common Market, or at least sowed the seeds of confusion and division.

In 1975, there were no spending limits on the two campaigns during that referendum. I was only 11 years old at the time, but I remember how poverty-stricken the no campaign was. The yes campaign was flooded with money, as multinational companies, business men and banks poured in contributions, with the result that it was a hugely powerful, well-financed campaign which had an enormous impact at the end of the day.

Let us not forget that, in 1975, we had already been taken into the common market by the Conservatives, even though they had had no mandate to do so. During the referendum campaign, a feeling of paranoia was sown—a feeling that, even if we had not wanted to go in in the first place, to come out would mean economic catastrophe. I am sure that an attempt will be made to sow those seeds again, but I doubt whether it will work as successfully the second time.

My hon. Friend also referred to the possibility of tax harmonisation. It is true that the Maastricht treaty makes no mention of tax harmonisation, but it has to be admitted that, under the auspices of the Economic and Finance Council, there have been extensive discussions on that subject. In an answer to a question I put some time ago, and which I should perhaps have brought with me today, the Treasury refused to rule out future discussions on the harmonisation of income tax. There is plenty to worry about in that respect.

I do not deny that there are genuine euro-idealists on both sides of the House. I am not a little Englander; I am opposed to the single currency because I am an internationalist and because, sentimental old fool that I am, I believe in democratic accountability, not only in Britain, but for the people of Spain, Belgium, Germany, France and everywhere else in western and eastern Europe.

Over the past 10 or 15 years, among Labour party members and Labour Members of Parliament, there has undoubtedly been an increase in support generally for the European ideal, and an increase in the number of European idealists in the party. The reasons are, to some extent, understandable. I remember that, years ago, opposition to the common market was almost a Labour party badge of identity; the Labour party was automatically associated in people's minds with opposition to the common market, whereas the Tory party, under the leadership of the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), was completely supportive.

It is not too difficult to perceive the seeds of the shift in Labour's attitude toward Europe: we were stripped of much of our confidence by four election defeats, and there was a tendency to look to Europe to help us out in many ways. There was a feeling that the democratic process was starting to fall apart, and that it could be revitalised through Europe. There was a feeling that the economy was going down the chute, and that it could be pulled out by Europe. Those beliefs were completely illusory, but it is understandable why people held them.

However, even among European enthusiasts and idealists on the Labour Benches and outside the House, once they get into the nitty-gritty and the detail of the Maastricht treaty and see what the reality is, all of them—at least the ones that I know—run a mile. They have good cause: the Maastricht treaty is a charter for taking political power away from the people and away from voters, and handing it to a tiny, unelected and unaccountable elite, who sit in a boardroom in Bonn or Frankfurt. To be frank, it does not matter where they sit—they can sit in London, for all I care. The fact is that they are unelected and unaccountable; they cannot be held to account by the voters of this country or of any other.

That brings me to the most important point that I want to make. The Maastricht treaty, and, for that matter, the stability pact—in fact, all the treaties that have resulted from the treaty of Paris, which was signed in the late 1940s and is the original, rather than the treaty of Rome—were concerned with a political venture.

Maastricht is a political treaty. It does not consist merely of some obscure, "ivory tower" economic argument that does not have much impact on people's lives, on Parliament and its decisions, on the legislature and on the Executive; it is a political venture. What it means is handing over the levers of power to a small group of unelected individuals—a political and economic elite who, as I have said, are accountable to no one.

Without a shadow of a doubt, Europe's political elite has had a few scares over the past 60 or 70 years or more. Following mass demobilisation after the first world war, for the first time in Britain's history the men who came home from the trenches and the women who came out of the munitions factories elected more than 100 Labour Members of Parliament. That caused a scare. Four years later, there was the general strike.

In 1945, there was a real socialist Government under the leadership of the greatest peacetime Prime Minister the country has ever seen—Clement Attlee. That Government created 3 million jobs in three years, and created the national health service, the finest socialist venture that the country has ever known. They took into public ownership utilities such as the mines, in which the number of men who had been killed was legion. Safety records went through the roof after nationalisation.

I believe that all that gave cause for concern to the political and economic elite. What the establishment has always detested is the sight of ordinary working people using their economic and political power, thinking for themselves, holding Government to account and keeping Governments out when they do not like them. Through Maastricht, members of the establishment have found a way of removing that power and handing it to their mates in the boardrooms, and to the bankers they appoint and then stick in the European central bank in Frankfurt. That is the top and bottom of the Maastricht treaty.

Photo of Mr Alan Clark Mr Alan Clark Conservative, Kensington and Chelsea

What the hon. Gentleman has articulated is the Labour party's traditional attitude, over a long period, to the European Community. What does he think altered that? He knows that, although his hon. Friends around him may instinctively feel the same, they will no longer say so. How does he account for that? He has given us—briefly encapsulated—the history of his party; what does he think has happened to his party now?

Photo of John Cryer John Cryer Labour, Hornchurch

I think that I made that clear earlier. Four election defeats drained away some of the confidence that the Labour party had before 1979. As I said, however, even among the European idealists on the Labour Benches, the vast majority are very critical of the Maastricht treaty, the stability pact and the Single European Act. I do not think that that has changed appreciably over the past few years.

I want to put two questions to my hon. Friend the Economic Secretary. She will know of the McDougall report, which said that, in the creation of a single currency and a European central bank, it would be necessary to create large structural funds that would have to be moved around Europe. At the bare minimum, that means increasing the standard rate of income tax by 5p in the pound. We are talking about a huge amount of money. Where will it come from?

My second question is this. We are already seeing the cranking up of the propaganda machine in favour of a single currency. We are seeing 32-ft trailers going around the country, visiting schools and communities, packed with pro-European monetary union material that is being distributed to schoolchildren. I find that rather worrying; it smacks of 1984.

The people who are paying for that propaganda are us, and those whom we represent. The taxpayers' money is going to Brussels, and is then being pumped back into the propaganda machine that pays for those trailers to trail around the country. It will pay for all sorts of other things in the run-up to the referendum, whenever that happens—presumably involving advertising, posters, leaflets and so forth. May we have a guarantee that taxpayers' money will also be used to provide information—propaganda—opposing a single currency?

Photo of Julian Lewis Julian Lewis Conservative, New Forest East

Is the hon. Gentleman aware that, in 1986, an Education Act was passed, one of whose provisions was that politically controversial subjects, if taught in schools, must be taught in an impartial and balanced way? If his picture of the one-sided propaganda is correct—as I think it is—what is happening is not only undemocratic and immoral, but illegal.

Photo of John Cryer John Cryer Labour, Hornchurch

I am not sure it is, because this activity is not taking place in schools. I may be wrong, but I do not think that that is happening. It is happening outside schools, largely in communities. My real point is whether taxpayers' money will be used to provide the opposite case and to argue against the single currency, the Maastricht treaty and everything that goes along with them.

I was elected to this place to represent 60,000 people in Hornchurch and Rainham. I exercise my vote in this place on their behalf. They obviously have a right to a say in any dilution of that vote. I was elected to defend living standards, jobs and public services such as the national health service. I see the Maastricht treaty and the stability pact and everything that goes with them as a direct threat to the reasons for my election.

It occurs to me that, during the election campaign, the single currency was raised, I would think, by one in three or one in four of those I approached on the doorstep. I never came across anyone who supported the single currency. No other issue was raised as much on the doorstep.

Photo of Bill Rammell Bill Rammell Labour, Harlow

I understand my hon. Friend's concerns about accountability and control. However, if he is opposed to the Maastricht treaty and the single currency as he argues, what alternative mechanism would he suggest for dealing with international currency speculation?

Photo of John Cryer John Cryer Labour, Hornchurch

Probably we saw it 50 years ago with Bretton Woods, which provided quite an effective method for quite a long time, or a few decades.

I remind my hon. Friend that we were told that the exchange rate mechanism was necessary, and that we had to be part of it. It was do or die—we had to join, or outside we would perish. We ended up spending £10 billion in one day. We crashed out, and from Black Wednesday we ended up devaluing and dropping interest rates. That led to a recovery in manufacturing—fairly modest, but it was recovery. If we were inside the single currency, we could not do that, because we would not have the sovereign power to devalue and to change interest rates. We would also lose power over the other economic levers.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe 9:11 pm, 21st July 1998

It is a pleasure, and rather surprising these days, to follow a Labour party Euro-sceptic. I think that every faction in the House would agree that we are discussing probably the most important political and economic decision of the past few years, as the hon. Member for Harlow (Mr. Rammell) said.

If members of the public read the report of the debate they will find that the greatest confusion exists among all factions about precisely how the decision should best be taken. That gave rise to the most animated debate between the hon. Member for Gordon (Mr. Bruce) and the Chief Secretary about the timing of the referendum.

I shall confine myself to the official Front-Bench positions and leave out the positions of the hon. Member for Hornchurch (Mr. Cryer) and me as Back-Bench dissidents. The Liberal position appears to be that there should be a referendum now and that we should join the single currency almost straight away regardless, in the optimistic hope that economic conditions will prove right. The Government's position is, "Let us wait until we have decided that the economic conditions are right and then have the referendum on the whole issue." My party's official position is that these economic problems will be terribly difficult to determine one way or the other for at least the next two Parliaments, and that at some time after that we should move to a referendum, when the political and economic issues can be discussed.

All this is confusing. I have to say, as an opponent of the Liberal Democrats, that I find myself nearer to their position, but I am not very satisfied with the economic part of it. We must ask ourselves what the referendum is meant to be for. Everyone in the House is agreed that the House will not determine the issue. We have handed over its determination to a referendum.

The time was when the respect in which I agreed with my right hon. Friends the Members for Henley (Mr. Heseltine) and for Wokingham (Mr. Redwood) and our erstwhile colleague Mr. Michael Portillo on this subject was that I was against deciding the issue by means of a referendum. We agreed to have a referendum in the interests of party unity. The agreement did not quite achieve that, but there was a better argument. The argument was that the referendum would determine the constitutional issue. It is the constitutional issue which divides the House across party lines; which divides the Conservative party; and which divides the Labour party, as we have just heard.

There are those who believe that there is a constitutional bar, and that regardless of whether the single currency succeeds, there are political objections to joining. For that reason, I believe that we should hold the referendum comparatively early: the value of that is that it will enable us to move on to a debate. Until we resolve that issue by the route that we choose, there will be tremendous political and economic uncertainty surrounding the United Kingdom's relationships with the European Union. The political uncertainty is bad for this country's interests, and the economic uncertainty is extremely bad for our economic prospects.

Personally, I do not think that there is a constitutional bar. I do not believe that going into the European central bank and pooling monetary policy would automatically lead to handing over tax or handing over control of public spending. I would support a continued veto of that. I do not believe that it would lead to the kind of political union that my Euro-sceptic right hon. and hon. Friends believe would follow. Political union has always been one of the aims of the European Union, but not the centralised state that they think will inevitably follow.

I would hold a referendum early. Thereafter, it is for the House to decide when the economic conditions are right, and for the Government to face up to the fact that they must start constructing their policy to produce conditions in which that economic issue can be resolved. My own view is that we cannot join at present. The conditions are wrong, and it would be wrong to take our interest rates down to European levels now.

It will soon become apparent whether the single currency will succeed. If it succeeds, it will, in my opinion, soon be clear that the balance between the risks of going in and the risks of staying outside is heavily in favour of going in. The decision will never be clear cut. It will never be obvious when we should join. There will always be a judgment to be made.

In the next year or two, it will be perfectly obvious whether we are gaining economic benefits or advantages from staying out. Of course, I understand why people are worried about the risks of going in. The risks of staying out too long are seriously understated. We all talk about the single currency succeeding, but no one ever defines what we mean by that. Success means low inflation, fiscal stability and the attraction of inward investment. If we have a volatile exchange rate, the risks of staying outside are that it will drive away inward investment. We will also discover that we have lost a great deal of influence on economic policy making on the continent.

I am sure, Mr. Deputy Speaker, that you did not believe that I could complete a speech in five minutes. I scarcely believed it myself, but I have almost made it.

My final point is that it is all very well to attack my party for choosing a timetable that is plainly not pragmatic—it is plainly based on putting the decision to the Greek calends and hoping that it will go away—but the Government are equally guilty. The courageous words out in the Rocky mountains are just a repetition of a position that is not strong enough. The reason for waiting until the next election is all a calculation of media influence, the likelihood of winning and other factors. If the Government are serious in their intention, they should start pitching policy and preparing now, so that, if the public can be satisfied that the political implications are in this country's interests, the economic conditions are more likely to be achieved

Photo of Mr George Stevenson Mr George Stevenson Labour, Stoke-on-Trent South 9:17 pm, 21st July 1998

In the time available to me, I shall make three brief points. I support the Government amendment and profoundly disagree with the motion tabled by the Liberal Democrats. I thought that the Government's stated policy conveyed through the Chancellor's statement a few months ago was that we are in favour of the principle. Therefore, an early referendum, without some hard facts to put before the British people, would be a cynical and wasted exercise.

People have been talking about sovereignty for many years. The subject makes for an interesting debate, but when one asks people what they mean by sovereignty, they start to scratch their heads. Suppose we remind them of the day that sterling crashed out of the exchange rate mechanism, and start to construct an argument about sovereignty around that issue: it is as if the previous Government, exercising their sovereignty, planned that we would crash out of the ERM, and planned interest rates of 15 per cent. The argument about sovereignty is hollow in the modern world in which we live, with global economies and financial movements across the world at the flick of an eye. I agree with some of the comments made by Opposition Members about sovereignty, but we must be careful about those arguments.

There seems to be an assumption—it is inherent in the Liberal Democrat motion—that the single currency will be a roaring success. I am prepared to wait and see whether it is, which is why I support the Government's position. However, it is by no means certain that it will be the success that some would have us believe. I hope that it will be, because the agenda has moved on from the days when we talked about a referendum in 1975 and nobody mentioned a single currency. Even when the Single European Act was passed in 1985, a single currency was not mentioned. It was not until the late 1980s that people began to discuss a single currency, so the debate has moved on. I believe that the single currency will happen, but I am not convinced that it will be a success, which is why the Government's policy is right.

The Government have said that there is no question of putting taxation on the agenda, and I support that position. Although we will have to wait and see whether the single currency is successful, there will undoubtedly be pressures to put taxation on the agenda within the single currency area, however large it is, and those pressures will be felt soon after the single currency is established. Although taxation is not on the present Government's agenda—to be fair, it was not on the previous Government's agenda either—we all know that some in the European Union want it on the agenda. The European Union is not an event: it is an evolving process. We have already had six VAT directives; our indirect taxation is heavily influenced and controlled by the EU.

The argument that we cannot have a single currency unless we have some form of direct federal taxation can be backed up. The hon. Member for Gordon (Mr. Bruce) shakes his head, but we would be foolish not to recognise that the argument exists. That is why this Government and the previous Government were right to say that they would oppose any movement in that direction.

My final point concerns fiscal transfers and the pressures that will begin to build up in the single currency area in Europe. The labour flexibility in Europe which the Government support will not happen overnight, so there will be pressures on employment, resulting in pockets of high unemployment in the single currency area. I believe that the Maastricht criteria and the stability pact make that inevitable. If Europe is to deal with that, considerable fiscal transfers are required. Are we prepared to contemplate that and to allow the European Union budget to increase significantly to allow it to happen? I do not have the answer to those questions. If I had, I would probably write a book. However, I am convinced that those pressures will exist.

We must have a clear debate on all the issues surrounding the single currency and ensure that we go to the British people on a recommendation that is in Britain's economic interests. Many areas need to be clarified with greater certainty before we take that enormous and historic step.

Photo of Michael Moore Michael Moore Shadow Spokesperson (Scotland) 9:24 pm, 21st July 1998

I welcome the opportunity to contribute to the debate and, in the spirit of your observations, Mr. Deputy Speaker, I shall be brief.

This issue is vital to my constituents and to the many businesses across the Borders and in Penicuik. Hon. Members have eloquently put the case for membership of the single currency—I shall not repeat all the arguments—and passionate views on both sides of the argument have been expressed. I believe that most people recognise that there is a need to resolve the issue one way or the other. With the arguments being expressed properly and being debated not only in the Chamber but much more widely, we are confident that the argument can be won and that, in a referendum, we would get the ringing endorsement for the single currency that this country undoubtedly requires.

The issue was mentioned regularly on the doorsteps during the election campaign, as the hon. Member for Hornchurch (Mr. Cryer) said. I, like him, found that a lot of people were hostile to the concept of a single currency, but, time and again as I debated on the doorsteps and at specially arranged meetings, I found people beginning to understand the different levels of the argument. Many people were persuadable that the single currency is not the bad idea that it is portrayed to be in many nationalist arguments. I use that word in the narrow nationalist English sense, rather than in the Scottish sense, so that the hon. Member for North Tayside (Mr. Swinney) does not get too upset.

The debate has moved on since the election, but those discussions highlighted the fact that people need the chance for reasoned debate. The problem is that, for all the Government's words and assertions, the uncertainty that is created by their position is proving highly damaging—people do not know which way we will go, which is bad news for those in my constituency who depend heavily on exporting industries. Many of them are concerned because they have no idea where the Government are going. That is fundamental: 60 per cent. of Scotland's manufacturing exports go to European Union countries, and that pattern is repeated in my constituency where Curtis Fine Papers exports all sorts of paper, Ballantyne's Cashmere exports the highest-quality cashmere goods and Viasystems is involved in the printed circuit board market. Almost all their exports go into the EU.

For those companies, there is a strong pragmatic argument on the single currency—economic and monetary union will happen. The single currency is happening in the rest of Europe, and the United Kingdom is being left behind. Yet again, we seem to be determined to miss another vital European development—perhaps the most vital this century. Scottish companies will have to account for the single currency, regardless of whether the United Kingdom is part of it, and the benefits of being in the single currency will mostly pass them by.

Those points were reinforced this week during the Scottish Affairs Committee's visit to the Borders as part of its inquiries into inward investment and tourism. The visit highlighted beyond doubt the difficulties for areas such as the Borders in attracting and keeping businesses—infrastructure is poor, there is no assisted area status and people think that there is not a level playing field.

Crucially, one of the liveliest debates at a breakfast meeting between members of the Committee and representatives of local business, economic development officials, trade unionists and others was about the single currency. It was generally agreed that the postponement of a decision on the euro was costly to them as individual businesses, was highly risky for their future, and was damaging for their workers and employees. The highly pragmatic view was expressed around the table that it was neither in the interest of the Borders nor in the national interest to be left behind.

The rest of Europe has made its decision, but, yet again, Britain is in a quandary on a major issue. The waiting and uncertainty are creating huge problems for businesses in my constituency and across the country. We should widen the debate and move it beyond the House and the boardrooms to engage people across the United Kingdom. We have nothing to fear from that. Many people already realise that we must not be left behind, and it is time that the Government realised that, too.

Photo of Mr Alan Clark Mr Alan Clark Conservative, Kensington and Chelsea 9:30 pm, 21st July 1998

I approach this subject without any emotional hang-ups. I do not address it principally from the constitutional aspect: an approach which my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) attributed to many of those who contribute a note of dissent to the thrust of what the Government are trying to do. I speak on behalf of humble and thrifty capitalists—of whom I am one—who, be they charities, pension funds, unit trusts, or small businesses with money on deposit, search for a store of value.

We are told that there will be uniform interest rates across the region. Plainly, that has to happen, because if there were not uniform interest rates, people could borrow in one financial centre and lend at a higher rate in another. Does the House really think that it is feasible to borrow from the Dresdner bank in Frankfurt and also from the banca di mafiosi benevolenti in Palermo at the same rate, use the money for the same purposes and move it around the whole of the region? There must be some flaw. When we view this in practical terms, we realise straight away that something is not quite right.

Huge drawings may be made on the banca di mafiosi benevolenti in Palermo, which are then distributed in the most profligate manner by the local authority and by others benefiting from the situation in Sicily. If that completely throws out of kilter all the convergence criteria to which the Italian Government professed themselves to be committed at the time when they entered the single currency, penalties will be visited on Italy. It will be fined. Fined? What if it does not pay?

We have seen that happen many times with arrangements for fining and punishing non-compliance with the economic and single market provisions of the European Union. I saw it happen when I was Minister for Trade. The French were fined for subsidising their carpet manufacturers. When did they pay? They ran it for two, three, five, seven years, and they never really paid. If countries do not pay, what happens? Are any sanctions imposed on members who do not pay their fines? If they pay the fines, or even part of them, where do they go? The closer one looks at this proposal, the more ludicrous it becomes. It is one of the many aspects of an idealised concept which will clearly not work.

If we pursue this matter a little more closely, we will see that all the ingredients are present for rapidly developing chaos in the single currency area. Very quickly, it will be open season for those very currency speculators against whom the hon. Member for Harlow (Mr. Rammell) told us we would be defended. The hon. Gentleman said that, once we had a single currency, the currency speculators would not be able to operate and we would be safe from them. He completely overlooked the experience of the ERM. We were told to go into the ERM to protect sterling from the currency speculators, and what happened? The currency speculators moved in very quickly and drove us out. Immediately, we had to resort—briefly and temporarily—to putting up interest rates to defend the currency, and then we got out. Everything settled down and we proceeded in smooth waters.

I tell the House absolutely candidly that the basic ingredients of a soft currency are present in all the factors that will come together in the single currency. The Liberal Democrats are keen to lower the value of the pound. If they want a soft currency, this is the way to get it. The trouble with a soft currency is that it is susceptible to predatory risk.

The first thing that will happen when the euro runs into a bad patch is that it will be attacked by currency speculators all around the globe, and a crisis will develop—an ERM crisis to the cube root. What happens when the intrinsic value of the euro is seen to fall in relation to the dollar and the yen by, say, the Germans? The Germans have contributed the hardest and strongest element in the single currency portfolio.

The Italians do not mind—they are delighted to be signed up to something that will greatly increase the strength of their savings and the value of their currency. They see it as magnificent. However, the Germans will ask, "What is going on? We entered with our currency at a certain rate to the yen and the dollar, and we could buy that number of yen and dollars. We cannot any longer, and we want to get out."

The same thing will happen, if we go in, to the Chancellor of Exchequer—whom I am delighted and honoured to see in his place—who will find that sterling will be under greater pressure and will suffer from more acute difficulties than when it stood alone under his careful and prudent chancellorship. The euro will be in a mess. Why? Because it has been diluted by drachmas, pesetas, escudos and lira, and because it—together with the deutschmark—is being used to fund corrupt and profligate public expenditure projects right across the region.

The euro will be weakened. It will be subject to raids, and all the currency speculators and futures buyers across the globe will concentrate on it and will bring it down. If we are part of it, we can at least be grateful that with it will go the whole pretentious and fraudulent structure of European federalism.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City) 9:37 pm, 21st July 1998

I begin by thanking all hon. Members who have contributed to a debate which, as the right hon. and learned Member for Rushcliffe (Mr. Clarke) and the hon. Member for Harlow (Mr. Rammell) both stressed, concerns the most important strategic economic issue with which we must deal.

The speech of the hon. Member for Wycombe (Sir R. Whitney) was also important. He recognised that, since most of us came to this House a year ago, the situation has radically changed. We are no longer dealing with an academic debate about monetary union in Europe. Just over a year ago, one could have reasonably believed that monetary union might not happen; that it might be seriously delayed; that it might fail on take-off; or, at the very least, that it would start with a limited number of members. We are now dealing with an imminent reality of a project that is taking off on time, with most members of the European Union. The markets clearly believe, from the trends and spreads in the bond market, that it has achieved a high degree of convergence.

British businesses will have to deal with monetary union as a matter of practical reality within a short period of time. Whether companies like it or not, they will be invoiced in euros. Government policy increasingly will be set in new institutions such as the euro 11. In other words, we are dealing with a rapidly moving situation. It is in that context that we need to judge the rather leisurely time horizons that the Government have set for their own policy.

Let me start by referring to the Conservative contributions. It would be easy to mock the diversity of views, but I shall not do that because Conservative Members have treated the House seriously and have honestly set out their different views. That does them credit. Rather less creditable was the performance of the Opposition Front-Bench spokesmen. It is difficult to define precisely their current position. They have alighted on a 10-year transition period, but it is far from clear where that figure comes from. If we take the view that some people want to join now and some never want to join, 10 is a rough average between zero and infinity. It is an extremely obscure process of deduction.

Another question that was left open by the Opposition is what they think the British exchange rate policy should be in the next decade. It would be interesting to hear that clarified. Do they envisage 10 years of a floating rate for sterling or do they forecast a period of pegging of the exchange rate or of a move from one to the other towards the end of the 10-year period? Those are important questions in terms of economic management and business, and they should be clarified.

The Chief Secretary acknowledged a substantial area of common ground with my colleagues. That was a reasonable assumption. He sketched out some of the differences in his approach and gave what, on first sight, seems to be a sensible view. He said that we should set a series of economic tests, see how they work out over a period and make a judgment. He forgot to mention that there has already been a series of economic tests. They were called the Maastricht criteria and they were considered adequate for the other members of the European Union.

The Government have their own improvised set of tests. What does that mean for British business, for what the right hon. Member for Kensington and Chelsea (Mr. Clark) called the humble and thrifty entrepreneurs who will have to compete within the common monetary union? At the moment, they are getting some general encouragement. Glossy pamphlets encourage them to prepare for monetary union, but what should those entrepreneurs do? Should they commit shareholders' resources to getting ready? If I were in business, because of the enormous uncertainty, I should be cautious about committing any of my shareholders' money to preparations.

Some of the uncertainty is inherent, but some has been generated by the way in which the Government have approached the issue. Let us consider the five tests. My hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) described the uncertainty in some of his companies. How do we know when the five tests have been passed? Unlike the Maastricht criteria, they are not quantified. If we pass three or four of the five do we wait another two years to see the outcome? We are almost certain that one of the tests, that on unemployment, will fail because unemployment will probably rise. How does a business man judge whether the economic qualifications have been realised?

There is also the uncertainty of the next general election. I am sure that the Government are confident, but politics is a strange business and none of us can realistically predict the outcome of that election. Beyond that, there will be a referendum. We have argued for a referendum, but the democratic process could produce any outcome, and that is an additional uncertainty.

Last but not least is the rarely mentioned uncertainty of how the rest of the European Union will react to our late application for admission. There is a rather arrogant assumption about that and, in his otherwise estimable contribution, the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) captured some of it by assuming that the rest of the EU would be delighted to accept British membership in five years' time on any conditions that we choose to set. That may be excessively sanguine. The other EU member states may point to the awkward loose end of two years of exchange rate stability and say that we must demonstrate that. Will the two years be tacked on to the five years?

I repeat that there is enormous uncertainty and that some of it has been created by the way in which the Government have approached the question. I share the Government's technical dilemma over the problem of convergence. Although it is real, it is easily overstated. The fact is that large parts of the British economy are not convergent. The interest rate that should apply for Scottish manufacturing is not the same interest rate that should apply for services in south-east England, but we live with a common rate.

We have an environment within Europe where a degree of convergence is happening now; we can see the indicators. The European Union in the core countries—Germany and France—is accelerating. Interest rates will have to rise. The British economy is patently slowing down and interest rates will have to fall over this Parliament.

Convergence of interest rates matters above all if we regard monetary policy as the sole determinant of how economies should be managed. One of our central criticisms of the Government is that they have not been willing to use taxation—up or down—as a way of managing economic demand. If we accept that there is a role for taxation in economic management, monetary convergence is much less important.

We can argue about those economic technical issues, but the fundamental disagreement between us and the Government has nothing to do with economic tests or economic convergence. It is about political judgment. We believe that we could win a referendum, even if it were held now and even given public opinion. The Government's priorities are elsewhere. That was eloquently revealed when the Chancellor chose a few days ago to pitch his strongest and perhaps most courageous political appeal to a bonding session of News International executives. Clearly, that is the Government's political problem.

Perhaps I may conclude, and give the Government an opportunity to reply at some length, by reiterating the key points that my colleagues, particularly my hon. Friend the Member for Gordon (Mr. Bruce), have made on the way in which we think that the Government should proceed. We believe, and this view is shared by many Euro-sceptics, that there should be a referendum not just on the evaluation of where we are economically, but on the fundamental principles—whether one is a Euro-sceptic or a supporter of EMU, there are fundamental principles of sovereignty and long-term political commitment. We believe that that should be tested out in a referendum. That should be held to establish the framework within which economic judgments are then made. I think that the right hon. and learned Member for Rushcliffe (Mr. Clarke) also saw that sequence as the logical one.

Therefore, we support an early referendum. We believe that the Government would add credibility to their commitment to monetary policy if they had a clear declaration of intent. They make supportive noises—we recognise that—but a clear declaration of intent would be more valuable.

We believe that the Government should give a much clearer lead in some of what we call the docking manoeuvres: some of the preparatory measures that the Government will have to make. The Government tell business to get ready for monetary union, but they have much preparation to do themselves. The adjustment process for the Bank of England will be difficult. Switching to fixed interest rates for the housing market will not be easy to achieve. Achieving a fixed exchange rate from where we are now will not be easy. The docking manoeuvres—the transition—need to be properly explained and set out, as we have tried to do constructively from these Benches.

Photo of Mrs Helen Liddell Mrs Helen Liddell Economic Secretary, HM Treasury, The Economic Secretary to the Treasury 9:47 pm, 21st July 1998

We have had a very interesting and mature debate—suffice it to say that it has been so mature that the bovver boys have disappeared. [Interruption.] I do not honestly class the hon. Member for New Forest, East (Dr. Lewis) as a bovver boy. We can discuss that later.

I commend the Liberal Democrats for having this debate because it has exposed some interesting issues. The hon. Member for Twickenham (Dr. Cable) exposed the difference between us. I accept that there is much that unites us on this issue, but he argues for a referendum on the principle, while acknowledging that many of the pre-conditions are not yet right, whereas we say that we must get the pre-conditions right in terms of economic convergence and then put the economic case for the single currency to the British people.

That is a substantive difference. It comes back to the issue of preparation. When we went into the Treasury on 2 May last year, the one thing that was glaringly obvious was that the single currency was the subject that dare not speak its name. The previous Government had been so riven by divisions on it that the necessary and practical preparations for a significant and major change—not necessarily for us, but for our European partners, which would therefore impact on us—had not even been thought about.

During tonight's debate, that schism has become more and more apparent. The right hon. and learned Member for Rushcliffe (Mr. Clarke), in a brief but succinct speech, showed a significant change in his position. When he was Chancellor of the Exchequer, his position was that we should keep our options open. Tonight, he argued for an early referendum.

Many hon. Members believe that the stance of the Conservative party is no single currency for at least 10 years. However, in response to a question from my right hon. Friend the Chief Secretary, the shadow Chancellor, the right hon. Member for Horsham (Mr. Maude), said that he could not see a time when Britain would join a single currency. That is a significant change on which commentators and we will reflect for some time.

Tonight, the debate has concentrated on an issue that should have been concentrated on by the previous Government. The last time we debated it was on 31 April, on the eve of my right hon. Friend the Chancellor and me going to Brussels for that significant weekend—[Laughter.] I am afraid that the juvenile tendency has crept back in again. On that weekend, 11 countries decided to join the single currency. Eleven countries are to join the euro zone. The European central bank is now up and running—[Interruption.] I am sorry that hon. Members seem to be having difficulty following this quite substantive issue.

This morning, I visited the Royal Mint at Llantrisant, which is preparing euro coins for France, Germany and Finland. With five months to go to the beginning of the single currency, other countries are preparing, while Britain is having to run fast to catch up because the previous Government could not bear to address the issues involved in preparing for a single currency. There are major issues. They are not just about information technology and changing accountancy; they are strategic issues for British business to ensure our competitiveness. That point was missed by the shadow Chancellor when he spoke. Significant strategic decisions must be taken.

The hon. Member for Gordon (Mr. Bruce) said that if we made the decision to join the single currency, that would alter the position of sterling. He has fallen into the trap that the previous Government fell into—seeking short-term solutions rather than long-term solutions for long-term gain. One of the key elements in our decision on a single currency—and, indeed, in our relationship with our partners on the issue of a single currency—must be that we have established economic stability in our country and also created the necessary convergence and flexibility to withstand external shocks. That is exactly what my right hon. Friend the Chancellor has been trying to do.

The hon. Gentleman said that he would be more convinced of our position if it were clear that we had put in place a programme that fulfilled the five tests to which my right hon. Friend the Chancellor referred in his statement on 27 October. In fact, we have begun that process because it is sound economics. The hon. Gentleman, in a courageous speech, made the point that stability in growth is good housekeeping. It is, and it is also good and sensible economics.

The Government are achieving macro-economic stability by our sound fiscal and monetary policies. We are creating the right framework for low inflation by our reforms of the Bank of England and our commitment to monitoring the inflation target in the light of the European central bank's practices. We are ensuring that our fiscal rules and deficit reduction plan continue to be consistent with the terms of the stability and growth pact, thereby underlining our commitment to avoid an excessive deficit. We are promoting greater flexibility in the United Kingdom economy by our welfare to work programme and our investment in long-term skills. In essence, we are attempting to prepare, so that the British people are able to decide on the matter based on the Chancellor's sensible economic tests.

The hon. Member for Gordon asked—it is in his motion—why the Government do not publish six monthly reports by the Treasury and the Bank of England". We have no plans to publish such reports on interest rate convergence. As we said, it could take a period of time—which cannot be finite—to demonstrate sustainable convergence. As the hon. Member for Twickenham (Dr. Cable) well knows, economics is not an exact science. We shall have to establish a period of stability. The important issue, which the Government are addressing, is one of ensuring that that stability is delivered.

Many of the points raised by hon. Members in this debate were essentially about our economy's ability to operate successfully within a single currency. There will be significant issues in dealing with the changeover to a single currency, should we decide that it is in Britain's best economic interests to join it. As the issues are so significant, the Chancellor has already established a standing committee to examine the critical preparations for 1 January 1999. It is in the interests of every single hon. Member to stress to businesses in their constituency how important it is to make those preparations for 1 January 1999.

The Government are also addressing the larger issue—about the preparedness of British industry to become part of a single currency. Before the end of this year, the Government intend to publish a draft national changeover plan. We shall have to address the issues. The British Bankers Association has already pointed out to us the critical issues that the banking community will have to consider in preparing for the single currency. Although the financial sector is better prepared than any of the other sectors of our economy for the changeover, the other sectors must address the critical issues that will have to be considered in preparing for the transition.

The people of the United Kingdom have still to engage in the debate on the single currency—which is another argument against precipitately holding a referendum. So far, the debate has been one of yah-boo—primarily among the Euro-sceptics of the Conservative party, although I accept that there are Euro-sceptics also in the Labour ranks—rather than about the substantive issues.

How will people feel when they go to the costas in Spain and the German in the next sunbed is paying for his beer in euros, has not had to pay any commission to a travel agent before his holiday and will not have to pay whenever he comes—[Interruption.] Those are the issues that ordinary people will address. When they return to the United Kingdom from their holiday and can use euros over the counter in Marks and Spencer, they will turn round to us as politicians and ask, "What preparations have you been making?" That is when the Government will be seen to have been making the necessary preparations.

I tell the hon. Member for Gordon that I accept the Liberal Democrats' anxiety to be part of a single currency. For the first time ever, we have a British Government who are not opposed to the single currency in principle. The key issue must be whether it is in our long-term interests as an economy. That is what we are seeking to judge.

Our central Government objective of seeking to achieve high and stable levels of growth and employment underlines the extent to which Britain's interest must be taken into account before we make the decision. Yes, there will be a debate in this country. I hope that it will be a reasoned one and not descend into the myopia that we have witnessed on occasions among those on the Opposition Benches.

We have had an interesting debate. I commend to the House the amendment in the name of my right hon. Friend the Prime Minister.

Question put, That the original words stand part of the Question: —

The House divided: Ayes 46, Noes 292.

Division No. 342][9.59 pm
Allan, RichardKennedy, Charles (Ross Skye)
Baker, NormanKirkwood, Archy
Beith, Rt Hon A JMaclennan, Rt Hon Robert
Brake, TomMichie, Mrs Ray (Argyll & Bute)
Brand, Dr PeterMoore, Michael
Breed, ColinMorgan, Alasdair (Galloway)
Bruce, Malcolm (Gordon)Oaten, Mark
Burstow, PaulÖpik, Lembit
Cable, Dr VincentRendel, David
Campbell, Menzies (NE Fife)Russell, Bob (Colchester)
Chidgey, DavidSalmond, Alex
Cotter, BrianSanders, Adrian
Cunningham, Ms Roseanna (Perth)Smith, Sir Robert (W Ab'd'ns)
Stunell, Andrew
Ewing, Mrs MargaretSwinney, John
Fearn, RonnieTaylor, Matthew (Truro)
Foster, Don (Bath)Tonge, Dr Jenny
George, Andrew (St Ives)Tyler, Paul
Gorrie, DonaldWallace, James
Hancock, MikeWebb, Steve
Harris, Dr EvanWelsh, Andrew
Heath, David (Somerton & Frome)Wigley, Rt Hon Dafydd
Hughes, Simon (Southwark N)
Jones, Nigel (Cheltenham)Tellers for the Ayes:
Keetch, PaulMr. Edward Davey and
Mr. Phil Willis.
Adams, Mrs Irene (Paisley N)Boateng, Paul
Ainger, NickBradley, Peter (The Wrekin)
Ainsworth, Robert (Cov'try NE)Bradshaw, Ben
Anderson, Janet (Rossendale)Brinton, Mrs Helen
Armstrong, Ms HilaryBrown, Rt Hon Gordon (Dunfermline E)
Ashton, Joe
Atherton, Ms CandyBrown, Rt Hon Nick (Newcastle E)
Atkins, CharlotteBrowne, Desmond
Austin, JohnBuck, Ms Karen
Banks, TonyButler, Mrs Christine
Battle, JohnCaborn, Richard
Beard, NigelCampbell, Alan (Tynemouth)
Beckett, Rt Hon Mrs MargaretCampbell-Savours, Dale
Begg, Miss AnneCann, Jamie
Beggs, RoyCaplin, Ivor
Bell, Martin (Tatton)Caton, Martin
Bennett, Andrew FChapman, Ben (Wirral S)
Benton, JoeClapham, Michael
Bermingham, GeraldClark, Rt Hon Dr David (S Shields)
Berry, RogerClark, Dr Lynda (Edinburgh Pentlands)
Betts, Clive
Blackman, LizClarke, Rt Hon Tom (Coatbridge)
Blears, Ms HazelClarke, Tony (Northampton S)
Blizzard, BobClelland, David
Coaker, VernonHoey, Kate
Coffey, Ms AnnHome Robertson, John
Cohen, HarryHood, Jimmy
Colman, TonyHoon, Geoffrey
Connarty, MichaelHopkins, Kelvin
Cook, Frank (Stockton N)Howarth, Alan (Newport E)
Cook, Rt Hon Robin (Livingston)Howarth, George (Knowsley N)
Corbett, RobinHoyle, Lindsay
Corbyn, JeremyHughes, Ms Beverley (Stretford)
Cox, TomHughes, Kevin (Doncaster N)
Cranston, RossHurst, Alan
Crausby, DavidHutton, John
Cryer, John (Hornchurch)Iddon, Dr Brian
Cummings, JohnJackson, Ms Glenda (Hampstead)
Cunliffe, LawrenceJackson, Helen (Hillsborough)
Cunningham, Rt Hon Dr John (Copeland)Jenkins, Brian
Johnson, Alan (Hull W & Hessle)
Dalyell, TamJohnson, Miss Melanie (Welwyn Hatfield)
Darling, Rt Hon Alistair
Darvill, KeithJones, Barry (Alyn amp; Deeside)
Davey, Valerie (Bristol W)Jones, Helen (Warrington N)
Davidson, IanJones, Dr Lynne (Selly Oak)
Davies, Rt Hon Denzil (Llanelli)Jowell, Ms Tessa
Davies, Rt Hon Ron (Caerphilly)Kaufman, Rt Hon Gerald
Davis, Terry (B'ham Hodge H)Keeble, Ms Sally
Dawson, HiltonKeen, Alan (Feltham & Heston)
Denham, JohnKeen, Ann (Brentford & Isleworth)
Dewar, Rt Hon DonaldKemp, Fraser
Dobbin, JimKhabra, Piara S
Dobson, Rt Hon FrankKidney, David
Doran, FrankKilfoyle, Peter
Dowd, JimKingham, Ms Tess
Eagle, Angela (Wallasey)Kumar, Dr Ashok
Eagle, Maria (L'pool Garston)Laxton, Bob
Edwards, HuwLepper, David
Efford, CliveLevitt, Tom
Ellman, Mrs LouiseLewis, Ivan (Bury S)
Ennis, JeffLewis, Terry (Worsley)
Field, Rt Hon FrankLiddell, Mrs Helen
Fisher, MarkLivingstone, Ken
Fitzpatrick, JimLloyd, Tony (Manchester C)
Fitzsimons, LornaLock, David
Flint, CarolineLove, Andrew
Follett, BarbaraMcAvoy, Thomas
Foster, Rt Hon DerekMcCabe, Steve
Foster, Michael Jabez (Hastings)McCafferty, Ms Chris
Foulkes, GeorgeMcCartney, Ian (Makerfield)
Fyfe, MariaMcDonagh, Siobhain
Gapes, MikeMacdonald, Calum
Gardiner, BarryMcFall, John
George, Bruce (Walsall S)McGuire, Mrs Anne
Gerrard, NeilMcIsaac, Shona
Gibson, Dr IanMcKenna, Mrs Rosemary
Gilroy, Mrs LindaMackinlay, Andrew
Godman, Dr Norman AMcNamara, Kevin
Godsiff, RogerMacShane, Denis
Goggins, PaulMahon, Mrs Alice
Golding, Mrs LlinMallaber, Judy
Griffiths, Jane (Reading E)Marek, Dr John
Griffiths, Nigel (Edinburgh S)Marsden, Gordon (Blackpool S)
Griffiths, Win (Bridgend)Marsden, Paul (Shrewsbury)
Grocott, BruceMarshall, Jim (Leicester S)
Gunnell, JohnMarshall-Andrews, Robert
Hain, PeterMartlew, Eric
Hall, Mike (Weaver Vale)Maxton, John
Hall, Patrick (Bedford)Meacher, Rt Hon Michael
Hanson, DavidMeale, Alan
Healey, JohnMerron, Gillian
Henderson, Doug (Newcastle N)Michael, Alun
Henderson, Ivan (Harwich)Michie, Bill (Shef'ld Heeley)
Hepburn, StephenMilburn, Alan
Hesford, StephenMiller, Andrew
Hewitt, Ms PatriciaMitchell, Austin
Hill, KeithMoonie, Dr Lewis
Hinchliffe, DavidMoran, Ms Margaret
Hodge, Ms MargaretMorgan, Ms Julie (Cardiff N)
Morgan, Rhodri (Cardiff W)Singh, Marsha
Morley, ElliotSkinner, Dennis
Mudie, GeorgeSmith, John (Glamorgan)
Mullin, ChrisSnape, Peter
Murphy, Denis (Wansbeck)Soley, Clive
Murphy, Jim (Eastwood)Southworth, Ms Helen
Murphy, Paul (Torfaen)Spellar, John
Naysmith, Dr DougStarkey, Dr Phyllis
Norris, DanSteinberg, Gerry
O'Brien, Mike (N Warks)Stevenson, George
O'Neill, MartinStinchcombe, Paul
Organ, Mrs DianaStoate, Dr Howard
Osborne, Ms SandraStrang, Rt Hon Dr Gavin
Palmer, Dr NickStringer, Graham
Pendry, TomStuart, Ms Gisela
Perham, Ms LindaSutcliffe, Gerry
Pickthall, ColinTaylor, Rt Hon Mrs Ann (Dewsbury)
Pike, Peter L
Plaskitt, JamesTemple-Morris, Peter
Pond, ChrisThomas, Gareth (Clwyd W)
Pope, GregThomas, Gareth R (Harrow W)
Pound, StephenTipping, Paddy
Powell, Sir RaymondTodd, Mark
Prentice, Ms Bridget (Lewisham E)Touhig, Don
Prentice, Gordon (Pendle)Trickett, Jon
Purchase, KenTurner, Dennis (Wolverh'ton SE)
Quin, Ms JoyceTurner, Dr Desmond (Kemptown)
Quinn, LawrieTurner, Dr George (NW Norfolk)
Radice, GilesTwigg, Derek (Halton)
Rammell, BillTwigg, Stephen (Enfield)
Rapson, SydVaz, Keith
Raynsford, NickVis, Dr Rudi
Reid, Dr John (Hamilton N)Ward, Ms Claire
Robertson, Rt Hon George (Hamilton S)Wareing, Robert N
Watts, David
Robinson, Geoffrey (Cov'try NW)Whitehead, Dr Alan
Roche, Mrs BarbaraWicks, Malcolm
Rogers, AllanWilliams, Rt Hon Alan (Swansea W)
Rooney, Terry
Ross, Ernie (Dundee W)Williams, Alan W (E Carmarthen)
Ross, William (E Lond'y)Wilson, Brian
Rowlands, TedWinnick, David
Roy, FrankWinterton, Ms Rosie (Doncaster C)
Ruane, ChrisWise, Audrey
Ruddock, Ms JoanWood, Mike
Russell, Ms Christine (Chester)Wray, James
Ryan, Ms JoanWright, Anthony D (Gt Yarmouth)
Savidge, MalcolmWright, Dr Tony (Cannock)
Sawford, Phil
Sedgemore, BrianTellers for the Noes:
Shaw, JonathanJane Kennedy and
Mr. Jon Owen Jones.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments) and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved,That this House welcomes the Government's conviction to pursue a prudent and balanced policy in respect of United Kingdom membership of the single currency; believes that, in principle, British membership of a successful single currency could bring economic benefits to Britain and to Europe; welcomes the Government's decision to make the national economic interest the key test for British entry; agrees with the Government that, barring some fundamental and unforeseen change in economic circumstances, making a decision to join during the current Parliament is not realistic; commends the actions of the Government to introduce a programme of economic reforms and practical assistance for British businesses which are both in the national economic interest and will help to create a real option of joining the single currency early in the next Parliament should Government, Parliament and the people so decide; and believes that the Government's policy will bring stability to business and reflects the long-term economic interests of the country.