Queen's Speech — Debate (3rd Day)

Part of the debate – in the House of Lords at 7:47 pm on 8th December 2008.

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Photo of Lord Sheldon Lord Sheldon Labour 7:47 pm, 8th December 2008

My Lords, I shall refer briefly to the absence of a Civil Service Bill, which we have expected every time the Government have come into office. The Government have dominated the Civil Service. There have been 10 years of commitment to produce a Bill, but we have not seen it. In every Queen's Speech, I look for the legislation. Our Civil Service used to be assessed as the best in the world. It has become subject to the more powerful Governments, which is very sad.

I turn now to the European Union, which has grown to be a large part of the economic world. Of these large parts of the world, there is China with its 6 million graduates, which will obviously be even more powerful than we had anticipated, there is India, there is the United States and, of course, there is the European Union.

On 26 June 2003, Tony Blair referred to a referendum on euro membership before the next general election. This referendum is a problem that will need to be addressed in some way. My noble friend Lord Mandelson told the Labour Party conference that our goal should be to enter the single currency, before adding that the Government have no plans to move towards joining the euro.

In 1957, we were the richest major country in Europe, but we decided to go it alone. In the following years, France, Germany and the Benelux countries overtook us. We are still trying to close the productivity gap. If once again we fail to join the European leaders, we risk falling behind them. Recently we have seen a depreciating currency. On 1 August 2002, an important document by Richard Layard—now the noble Lord, Lord Layard—entitled Why Britain Should Join the Euro, was published. The main purpose of joining the euro is to retain a high standard of living. In France, Germany and Benelux, the hospitals, schools and transport systems have higher standards than ours. We can achieve such standards only if we improve our efficiency by becoming a member of the European market.

High unemployment in some European countries is not an argument against joining the euro. The argument that we should wait for unemployment rates to converge is like saying that the south-east of England should have its own currency. Nor does linking our currency to that of a high unemployment country such as France mean that we would risk higher unemployment here. The Netherlands has only one-third the unemployment of Belgium. Within the single currency area of Britain, the south-east has one-half the unemployment of the north-east. The link to the north has not increased unemployment in the south.

To join the euro the Government have to recommend entry and there has to be a vote in a referendum. In addition, we have to agree with our European partners the date of entry and the rate at which pounds will be converted into euros. This rate is therefore a political decision. Once markets know what the entry rate will be, the current market rate will move close to that level, depending, of course, on how likely a successful outcome to the referendum is. The exchange rate was too high earlier this year and made Britain less competitive than it needs to be.

In France, Germany, Benelux and northern Italy, productivity per hour worked is considerably higher than in Britain. This is true now and was true 20 years ago. Over that period Britain has failed to catch up with those other European countries despite all the talk about our superior economic system and the obvious scope for copying what others do better. Britain was Europe's only oil economy but the position there has declined substantially and the situation is rather different now.

Belonging to a large single market should raise living standards through larger economies of scale. Europe is by far our largest market, taking half our trade compared with only 16 per cent with the United States. A single market and a single currency increase trade and eliminate exchange rate fluctuations. Now that the single currency is so much more prominent in Europe, we are in a more exposed position.

Manufacturing activity has been shifting to the area of currency stability and there is some danger that the City's predominance in wholesale financial services will not be helped if Britain is outside the euro in the long term. Five years ago there were calls for a euro referendum. However, exchange rate fluctuations have increased as capital is moved around the world. For a medium-sized country such as Britain, such fluctuations are extremely damaging. We need to start considering our future relationship with the other European countries.