Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 1 March 2001.

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Photo of Alan Simpson Alan Simpson Labour, Nottingham South 12:00, 1 March 2001

What rate of conversion between the pound and the euro is compatible with the UK's long-term economic interests. [150140]

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The best contribution that the Government can make to delivering a stable and competitive pound over the medium term is to adhere to stability-oriented policies based on delivering low inflation and sound public finances.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I am grateful to my right hon. Friend for a non-committal statement on the exchange rate—it is exactly what prudence would have expected—but can he confirm that even the most gung-ho and enthusiastic of his current or former Cabinet colleagues has not urged him to join the single currency at either yesterday's or today's rates of exchange? If there is a case to be made for devaluing the pound, which is implicit in the representations that they make, will he use his powers of persuasion to urge them to recognise that macroeconomic consequences will follow in respect of precisely the issues that he has set out—inflation, interest rates and the implications for personal and company taxation?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

It is precisely because there are major issues to be addressed in any decision about the euro that, in 1997, we said that although we supported the euro in principle, in practice five economic tests have to be met. We said that we would review the matter and make those assessments early in the next Parliament—indeed, within the first two years. That is precisely what we shall do. We support the euro in principle because of the benefits. We believe that there are constitutional issues, but if the economic benefits to Britain are clear and unambiguous there is a case for joining—but the decision would be based on the five economic tests. If we were to recommend yes, there would be a referendum.

Photo of Peter Tapsell Peter Tapsell Conservative, Louth and Horncastle

Does the Chancellor agree that the highly relevant question asked by the hon. Member for Nottingham, South (Mr. Simpson) is unanswerable? Does the right hon. Gentleman accept that our national experience with the pre-war gold standard, the Bretton Woods dollar standard and the exchange rate mechanism has surely proved that any fixed rate exchange arrangement must, inevitably, become incompatible with our long-term economic interests? Will he use his great influence in such matters to ensure that this country does not re-enter any form of monetary straitjacket imposed on us from overseas?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

It is precisely because of the major issues involved in dealing with the relationship between the euro and the pound that we have set the five tests. We shall assess those matters early in the next Parliament and report accordingly—but I take it that the hon. Gentleman is criticising the policy of the previous Government.

Photo of Ben Bradshaw Ben Bradshaw Labour, Exeter

Is not it the case, despite the recent exchange rate, that, to quote the International Monetary Fund report again, our economy has enjoyed the longest period of sustained non-inflationary output growth in more than 30 years"? Is not it a counsel of despair to suggest that the best or, indeed, the only way to maintain competitiveness is through a weak sterling policy?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The IMF report does mention the euro and says that our proposals to make assessments based on economic tests are the right way forward. The report, as my hon. Friend said, commends the authorities for the continued strong performance of the U.K. economy. It continues: Sound fiscal and monetary policies have contributed to the achievements and says that, looking ahead, directors expected that output growth would remain robust, with a substantial increase in public spending from measures announced in last year's budget offsetting slower private consumption growth … prospects for inflation remain benign". If the previous Government had achieved a good report from the IMF in any one year, as we have received in every year of our government, they might have some cause to ask us questions about the economy, but they never did.

Photo of Richard Ottaway Richard Ottaway Shadow Spokesperson (Treasury)

Following his embarrassing interview on the "Today" programme, when he refused to discuss his so-called tests, will the Chancellor at least give Parliament some straight answers? Does he agree that his five tests on the euro are nothing more than a sham, that they are completely subjective, and that they add up to four fudges and a fiddle? The best way to protect Britain's long-term economic interest is to keep the pound by voting Conservative at the next election.

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The IMF report quoted by Conservative Members overnight suggests that the five economic tests are the best way forward. They are not arbitrary tests; they are tests concerning the issues that are relevant to the United Kingdom economy—[Interruption.] If the right hon. Member for Kensington and Chelsea (Mr. Portillo) and his friends now think that it is not relevant to assess first, investment; secondly, employment; thirdly, manufacturing industry and financial services; fourthly, flexibility; and fifthly, the degree of sustainable convergence, it is clear that their policy is built purely on dogma.