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Mr. Quentin Davies (Stamford and Spalding) : One of the most intriguing and potentially momentous developments in the European Community at the present time is the consideration currently being given to making progress towards European monetary integration. Last year the Government together with our Community partners set up the Delors committee. When that committee's report has been published and digested, one of three possible situations will arise. First, it may be concluded that a

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common currency is not technically feasible or is undesirable and the notion will be laid aside for the time being, or indefinitely. Secondly, it may be decided collectively that we should proceed towards the creation and introduction of a common currency in the Community. Thirdly, a majority of our partners may decide to move in that direction and we shall have the choice of joining them or remaining on the sidelines. However, in that event, so long as the Community remains our major trading partner, in practice we would need to align sterling increasingly with that new common European currency.

In the light of the important decisions that must be made, it might be useful to take this opportunity to air some of the arguments on either side. I thought I might do that most conveniently by examining the position in turn from the viewpoint of each of the fundamental categories of economic agent : the Government ; the personal or household sector ; and the corporate sector.

From the point of view of the Government, the creation of a common currency would remove at the same time both the opportunity and the necessity for the Government to combine monetary with fiscal and other forms of economic management. Whether that would be good or bad would presumably depend on one's judgment of whether the opportunity was more valuable or the necessity more burdensome in our present situation.

Let me set out briefly some of the benefits and costs associated with that opportunity and that necessity. The freedom that we have to manage our monetary affairs has been regarded differently depending on which side of the House one sits. Conservative Members have always regarded the prime task of monetary policy as being to ensure that we maintain the value of the currency and all the confidence for our economic system and industrial activity that go with it.

The Labour party, on the other hand, has traditionally set a great deal of store by its ability to manage the currency because that has enabled it to devalue it and thereby to pursue a policy throughout the 1960s and 1970s when it was in power which has the effect of nurturing the relative decline of our competitiveness and productivity. Under the slogan of monetary adjustment we were insulating ourselves from the competitive pressures of the wider world. Moreover, inflation flowing from lax monetary management was the only means by which the then Labour Government could see some ultimate way of amortising over time the enormous national debt that was being accumulated by their irresponsible fiscal management. But I take it for granted that Conservative Members would not accept any new successor form of monetary policy, or a common currency on a community basis, unless we could be assured of at least the same degree of monetary rigour being adopted as we have at the present time, and at least the same confidence that we would preserve the value of that new common currency in the future.

What about the costs on Governments of the present system of separate currencies? We know those costs all too well from our experience of the currency difficulties and the crises over the past 40 years. Although we have not had crises in the past few years, we continually have uncertainties and difficulties on the foreign exchange markets.

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Those costs are of two kinds. They are of the longer term and of the shorter term kind. The longer term costs arise when it is considered that, for example, sterling is appreciating too much and so it is necessary to adopt a laxer monetary policy and to run the economy at a higher level of demand, although that carries with it the terrible danger of inflation increasing in the medium term. Alternatively, when we consider that our currency is depreciating unduly, the Government may feel obliged to run the economy at a lower level of demand than we would otherwise choose, and a cruel cost is paid in jobs and output forgone.

The short-term costs are palpable and well known to every Treasury Minister, and they will be well known to my hon. Friend the Economic Secretary. When it is considered that sterling is appreciating unduly, the authorities may decide that they need to intervene to sell sterling on the foreign exchanges. That sterling has to be borrowed, either from the banking system, which would be appallingly inflationary, or, as is the general practice here, thank heaven, by borrowing from the non-banking private sector by the issue of gilts and other instruments. That pushes up interest rates. It also adds to the national debt, and it has the perverse consequence that it attracts capital into this country, thereby exacerbating the appreciating tendency that we are trying to combat.

The reverse situation arises if sterling is depreciating. The authorities, in intervening, will need to purchase sterling on the foreign exchanges, and so to borrow foreign currencies, adding to our foreign currency debt, or reducing our net foreign assets, and exposing us further to any subsequent fall in sterling. So if we could remove this incubus of invidious and highly expensive constraints which operate on us, while not losing any of the monetary stability to which we aspire, that would obviously be a very attractive and desirable package for the Government to achieve. Let me take the second category, the household or personal sector- -in other words, ordinary people. I think the case here was best illustrated by the journalist on a national newspaper who recently went on a tour of the 12 member states of the Community. He took with him £100 and did not spend any of it, but changed it at each airport on his way into the local currency. When he came back to Heathrow he had £51 in his pocket.

The fragmentation of currencies within the European Community constitutes a tax on travel and mobility. It also represents a gratuitous transfer of resources from individuals to the commercial banks which sell foreign currency to individuals and for which, it must be admitted, this must be a very attractive business. I come now to the corporate sector and will illustrate that by taking an example from my own constituency. I have a constituent, a small business man, in the north of my constituency, in Lincolnshire, who trades with Germany. His typical order is for about £2,000, which, for reasons with which I will not bore the House, is generally delivered in two tranches. The only problem is that his margin is only about 10 per cent. and, in order to avoid the costs of documentary credits, he trades in the cheapest way possible. He trusts his German customer, who sends him a cheque in the mail. Can you guess, Madam Deputy Speaker, what that costs him? Every time he clears a deutshmark cheque it costs him £35 and on top of that his bank takes a margin of 1.5 per cent. or 2 per cent. on the currency transaction. So out of his £200 anticipated profit

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he loses £100. Once again, the fragmentation of currencies is a tax on trade and again in this instance involves a gratuitous transfer of resources from the general corporate to the commercial banking sector.

In this case, however, the costs must be considered in an even wider context ; they would need to be calculated in terms of the trade that would take place if we had a common currency but which is now inhibited, and therefore in terms of the output forgone, and the competition in the Community as a whole that is thereby diminished. I anticipate that someone will say, although no one has yet, that the larger corporate sector, the ICIs and BPs unlike my poor constituent--do not pay 1.5 per cent. or 2 per cent. margin every time they do a foreign exchange deal. Anybody who knows those companies knows that they have a whole apparatus of departments and even subsidiaries involved in nothing other than the management of their foreign exchange exposure. Those highly paid specialists spend all day doing spot and forward currency transactions, hedging their purchases and receivables, buying and writing options and organising swaps.

If we could remove the necessity for all this activity, which has as its counterpart in a transfer of resources the payment of a tax which is paid directly, again, to the banking sector--if we could remove in respect of the 50 per cent. or more of our trade that we do with the Community, this particular cost--that could only give a further boost to trade and output.

In conclusion, I wish to make two points. It is often said that we cannot have a common currency unless and until we have a unitary state to administer it. I am not among those hon. Members who would like to see the European Community transform itself into a highly centralised unitary state. But there are many precedents for monetary control being exercised by a monetary authority which is not associated at all with any political authority. I would go further and say that, with the sole exception of this country, in the last few years since my right hon. and learned Friend the Foreign Secretary, my right hon. Friend the Chancellor of the Exchequer and, above all, my right hon. Friend the Prime Minister came to power, quite the most outstanding examples of successful monetary management in the western world were in countries in which the monetary authority was quite separate from the political power. I refer of course to the Swiss national bank, to the Federal Reserve system in the United States and to the Bundesbank in the Federal Republic of Germany. If we believe that a balance of advantage lies in pursuing the idea of a common currency, we should not be inhibited by the stage that any discussions elsewhere in relation to the future of political integration may have reached, or by the difficulties which those discussions may have encountered.

I have a final plea and I believe that I will carry all hon. Members with me in this. If it is decided that there should be a common European currency with a European central bank or monetary authority--and I repeat that I do not wish to prejudice that decision tonight--we should decide now, in advance, that it is vital that that institution should be located in London. If it is, we shall secure all the advantages in terms of the prospects of real monetary

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stability, the avoidance of currency crises and their costs, an increase in trade and the removal of artificial costs which currently weigh down our trade. At the same time, we shall reinforce this country's position as the financial centre of Europe.

9.16 pm

Mr. John Redwood (Wokingham) : My hon. Friend the Member for Stamford and Spalding (Mr. Davies) seems to have made the case that the pound in one's pocket will no longer be devalued, but might be swapped for an ecu instead.

I do not have time now to praise all the measures in the White Paper which represent signal progress towards the creation of a genuinely unified Common Market. In the time that remains to me, I will raise a few quick questions with the Minister.

Does the Minister believe that the British Government will have adequate contingency plans if the controls on budget outgoings prove to be inadequate? In the past there have been miscarriages in European Community budgeting where new resources were used up rapidly. The Government should have good contingency plans prepared in advance to deal with that eventuality.

I hope that the Government are serious about using the powers which remain to retain control of domestic taxation levels. I hope that the Government will also consider using the Luxembourg compromise, if necessary, if the Commission proceeds with plans to impose VAT on children's shoes, food and other items. The Government made an important pledge to the British people at elections, and they should use every means in their power to ensure that their pledge is duly honoured.

It appears that, in the first half of 1988, the period that is reviewed in the White Paper, the Government tried to keep the pound stable against the deutschmark for several months. The graph shows that around the DM3 level there was a concerted effort to keep the pound within a narrow band of the deutschmark. For a time we were surrogate and surreptitious members of the EMS.

Interest rates had to be cut dramatically to keep the pound down. Many new pounds had to be created and sold across the exchanges to keep the pound down. A credit explosion caused a massive increase in credit and inflationary pressures in the economy with the results that are evident today.

I hope that we will not be in any hurry to repeat that experiment. It appears that all the European countries which are members of the EMS are experiencing problems at the moment. A recent analysis by a neutral firm of City stockbrokers has shown that 10 of the 11 member states--apart from Germany--are running, and have been running for some time, substantial deficits with Germany. The stockbrokers sum up the position by saying that EMS is a device to keep the deutschmark at a relatively low level in comparison with satellite currencies in Europe to ensure that German industry prospers at the expense of everyone else.

There are periodic revaluations of the deutschmark but they are always too little and too late, so the surpluses for Germany continue to mount at alarming rates. Britain currently has a large deficit with Germany because it was a surrogate member of the EMS and is now having to

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undergo the penance of a very high interest rate to correct the monetary excesses caused by that currency intervention.

I hope that the Minister will respond to those three points. I am only sad that time did not permit me to praise the dozens of measures in the White Paper and elsewhere which represent genuine progress towards a free, unified, liberalised European market, which is what I thought was what we entered originally.

9.20 pm

Mr. George Foulkes (Carrick, Cumnock and Doon Valley) : The increasingly irregular debate on the six-monthly progress report of the European Community tends to induce a sense of deja vu. I may have said that about the last debate. The debates tend to be ritual, sterile and repetitive. To be fair, today's debate has been rather more positive. However, as the hon. Member for Hertford and Stortford (Mr. Wells) rightly said, it would be better if the valuable time debating these issues on the Floor of the House were spent debating the real issues at the right time to influence, as far as possible, what Ministers are doing within the Community.

The Minister of State, Foreign and Commonwealth Office said that no one would be happier than she if scrutiny were better organised. With respect, the right hon. Lady said that last year and the year before and her right hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Rifkind), now the Secretary of State for Scotland, said it previously. As the hon. Member for Esher (Mr. Taylor) said, we do not want more words, we want action. We want suggestions such as those made by the hon. Member for Hertford and Stortford--I do not agree with them all and I would add some more--and my hon. Friend the Member for Hamilton (Mr. Robertson), who suggested a European Grand Committee. Those suggestions were positive and constructive and it is about time that the Government found some mechanism by which to consider them, as my hon. Friend the Member for Hamilton said today and on previous occasions, but that is only one major problem with the organisation and logistics of the Community.

I had some sympathy for the Minister of Agriculture, Fisheries and Food when he was taken ill. The Minister of State, Foreign and Commonwealth Office also spends a great deal of time flying backwards and forwards between long, tedious meetings. We sympathise with them, but that should not prevent them from producing reports, making statements and increasing their accountability to the House. That was a clear message from both sides of the House today.

I was disappointed that the right hon. Lady did not mention a number of important issues involving the Community. It is astonishing that, in a debate on the European Community at this time, the Minister made no mention of enlargement. There have been signs of requests from several countries and I had hoped that the Minister would mention the subject, at least in passing.

Although the right hon. Lady mentioned political co-operation, as usual her approach and the examples she cited were somewhat selective. We agree with what she said about Iran. I wish that the same positive action and collective involvement were applied to central America, where the European Community would have a significant

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and positive counter-influence to that of the United States. We certainly support European co-operation in that sphere.

I should also like to welcome the Economic Secretary, who is a ministerial newcomer to these regular and somewhat repetitive debates. It is nice to have him here instead of the Paymaster General, who I understand is vainly assisting the Conservative party to retain Richmond. I am afraid that the vibes that we are receiving from that part of the world seem to indicate that he faces an increasingly difficult task.

Mrs. Chalker : Would the hon. Gentleman like to take a bet?

Mr. Foulkes : I shall take bets with the right hon. Lady later.

Madam Deputy Speaker : And I shall hold the bets.

Mr. Foulkes : I can think of no one better to look after our money, Madam Deputy Speaker.

The Economic Secretary has an opportunity tonight to make a name for himself by making some dramatic announcement--he does not look too keen to do that. I hope that, as a Treasury Minister, he will be aware of the concern felt in this House that the British Government should use their veto to maintain zero-rate VAT on food, children's clothes, domestic gas and electricity, and books, periodicals and newspapers.

I hope that the Economic Secretary will assure us that the Government will continue to use the veto to ensure that zero rating stays. I hope that the hon. Gentleman will ignore the encouragement from his hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) for tax rates to be harmonised. In the United States, which is a federation with a common currency, there are different tax rates. There is no reason why that should not obtain in the much looser federation of the European Community.

My main theme this evening is to continue what my hon. Friend the Member for Hamilton did in his excellent introduction--to point out the double- talk and contradictions of the Government. The hon. Member for Clwyd, North -West illustrated that, and I shall underline the contradictions between the utterances of one Minister and another. The hon. Member for Clwyd, North-West quoted from the Prime Minister's Bruges speech as though it were a pro-Community speech, thereby showing that there are major internal contradictions even within that one speech. It has been pointed out that, if one reads alternate sentences of the speech, one obtains a totally different view of what it meant--no doubt that might have been the right hon. Lady's intention.

There has been double-talk on the environment. For example, the Minister of State said :

"We favour, too, concerted, sensible action to deal with the problems of the environment."--[ Official Report, 26 May 1988 ; Vol. 134, c. 539.]

Yet we receive reports that tap water in some areas of the United Kingdom fails to meet European standards.

The former Commissioner, Mr. Stanley Clinton Davis, who was an excellent contributor to the work of the European Community, pointed out that, again and again, the British Government attempted to avoid the implementation of positive EC directives on water and other aspects of the environment such as beaches.

The Financial Times of 8 February reported :

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"Britain is seeking permission to delay implementing tough EC standards on the grounds that early compliance will require a multi-billion pound' investment programme."

We have heard words from the right hon. Lady but have seen no real action. In fact, the Government's action has been to stop any real progress on the environment.

I think that the right hon. Lady will recall that, even more recently, the British Government vetoed the decision to take real action on sulphur dioxide control. [Interruption.] The right hon. Lady seems to be losing her temper and is throwing books around.

Mrs. Chalker : I dropped it.

Mr. Foulkes : Fortunately, there is no VAT on it yet.

How can the right hon. Lady reconcile her words of 28 May with the Government's actions?

Then there is the double-talk. A number of hon. Members, particularly the hon. Member for Southend, East (Mr. Taylor), who is a frequent contributor to the debate, although he has not yet joined us--

Mr. Boswell : It is his wife's birthday.

Mr. Foulkes : It is his wife's birthday. I am very pleased. The whole House will offer her our deepest congratulations. I offered her our deepest sympathy on another occasion, soon after the wedding. The hon. Member for Southend, East rightly raised the question of fraud. On 19 February The Independent said :

"The British Agriculture Minister, John MacGregor, called yesterday for urgent action in the European Community to combat fraud". The same report says :

"Mr. MacGregor also implied that reports from the Court of Auditors, especially those devoted to particular problems such as intervention, had hitherto not been given proper attention by ministers." Those were strong words. Let us look at the action.

In the other place last Tuesday, a former Commissioner, a great servant of the country, and previously of the Government, Lord Cockfield, challenged the Secretary of State for Trade and Industry. I must not quote him, but he said that it was the British Government which had vetoed more effective fraud investigation in 1986. Mrs. Chalker indicated dissent.

Mr. Foulkes : The right hon. Lady shakes her head, but that is what the noble Lord said. When the Secretary of State for Trade and Industry was challenged by Lord Elwyn-Jones, he was severely embarrassed. He could not answer the questions that were put to him. Parliament is rightly concerned about fraud, but we want action, not words. Again, the contradiction--I must not say hypocrisy--the double standards, the double dealing and the double-talk of the Government have been shown up.

Perhaps I should let the Government relax for a few moments. [Interruption.] I know that the Whip has been relaxing ; that is obvious from his demeanour. I want to deal for a moment with a point raised by my hon. Friend the Member for Hamilton in his introductory speech and by the hon. Member for Moray (Mrs. Ewing)--the false prospectus described by the Scottish National party as independence in Europe. Although the hon. Member for Glasgow, Govan (Mr. Sillars) is supposed to be the international, European, world, universal, inter-planetary

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spokesman of the SNP, I note that he has not managed, yet again, to get here this evening. After his victory at Govan he said that, unlike me and the hon. Member for Hamilton--inadequate as we are--he would make

"Mrs. Thatcher sit on the thistle."

I think she is still comfortable.

Recently, in The Scotsman, the hon. Member for Govan stated that an independent Scotland would remain a member of the European Community. That is manifest nonsense. The United Kingdom is presently the Community Member. If Scotland were somehow to gain independence, which I would greatly regret, it would be the remainder of the United Kingdom--England, Wales and Northern Ireland--that would inherit membership. There is no doubt about that. An independent Scotland could apply for membership, if it wished, but that would be fraught with problems and uncertainty.

Mr. Redwood : And a veto.

Mr. Foulkes : I will come to that.

Such an application would create tremendous difficulties for other member countries. Some, like Italy, are states that are far more recent than the United Kingdom, and others have independence movements that are as strong or even stronger than the movement in Scotland. It is by no means certain that even nationalists within a newly independent Scotland would wish to submerge its newly acquired sovereignty in the Community.

Indeed, the SNP chairman, Mr. Gordon Wilson, said on the BBC Radio Scotland programme "Corridors of Power" a few weeks ago that the SNP would only want to seek membership "all things being equal" and "if the terms were right". That is a very different matter. The concept of independence in Europe was dreamed up to try to allay the concerns about the undoubted economic and political problems which would arise if Scotland were to break away from the United Kingdom.

The Scottish people are beginning to see through that camouflage. The rupture would have to take place first. Only yesterday, the Greenland case mentioned by the hon. Member for Moray was dismissed as a precedent by a legal expert from the Europa institute at Edinburgh university, because Greenland remains part of Denmark. It moved to get out of the EEC, whereas my understanding of the SNP position is that they want entirely the opposite--Scotland separated from the rest of the United Kingdom while remaining within the EEC. For them to cite Greenland as a precedent is manifest nonsense.

Mrs. Ewing : First, I may tell the hon. Gentleman that my hon. Friend the Member for Glasgow, Govan (Mr. Sillars) offered his apologies for his absence because he is in Dundee this evening, undertaking an engagement to which he committed himself a considerable time ago.

On what does the hon. Gentleman base his arguments? I have yet to hear from the Labour Front Bench any clear statement indicating the legal principles on which they make their assertions. It seems clear to us that, under international law, Scotland would be an integral part of the European Community, unless it chose to negotiate its way out. As to other movements within other Community states, can the hon. Gentleman say which Governments have clearly defined any policy indicating that they will reject the democratic processes of the Scottish people taking a particular political option?

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Madam Deputy Speaker : Order. The hon. Lady makes an enormously lengthy intervention. I remind the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) that he was referring to developments between January and June 1988.

Mr. Foulkes : No one is saying that the wishes of the Scottish people in respect of independence would not be recognised. The argument is about whether or not, if Gordon Wilson's conditions were satisfied, Scotland would be accepted as a member of the European Community. I am grateful to the hon. Lady for reminding me that the hon. Member for Govan is making a television appearance tonight. We all know that he puts appearances on the media ahead of appearances in the House. The SNP's policy is increasingly being seen for what it is--a venture into the unknown, with guides who disagree on where they want to go, and who are uncertain how to get there.

I return to the Government, and to one aspect of social Europe on which I should have liked to speak at much greater length, but which my hon. Friend the Member for Hamilton dealt with extremely well. I refer to health and safety. On 23 November 1988, at that famous Management Centre Europe conference, the right hon. Lady said : "We need progress on the agreed programme of action on health and safety at work."

My hon. Friend pointed out that her statement clashed with the comments of the Chancellor of the Exchequer. The right hon. Lady's wish for progress with health and safety at work is also entirely inconsistent with the actions of the junior Minister at the Department of Employment in the European Community. On 17 December 1988, The Guardian reported :

"Britain was dragging its feet yesterday over moves by the European Community to improve standards of health and safety at the workplace The junior Minister for Employment, Mr. John Cope, was isolated at a meeting of social affairs ministers".

That happens again and again. The right hon. Lady is the nice front for the Government. She presents a cosy image and says the right things at conferences of nice Europeans. However, the reality of what is being done by Ministers in the European Community is something else.

I want to touch on other areas of social Europe, but I must give the Minister as much time as possible to reply. However, I shall conclude by saying a few words about Labour party policy.

Sir Anthony Meyer : Which one?

Mr. Foulkes : We are concerned about the negative attitude of the Government towards a social Europe. We accept--I think that even the hon. Member for Southend, East, who is an ardent anti-marketeer, accepts--that withdrawal is no longer an option. We look towards the future in the European Community.

But Europe must be a real community as well as a market. It must be a community of co-operation and diversity. The two concepts of economic efficiency and social justice are complementary. The Government try to achieve economic efficiency, but they are not trying to introduce the complementary social justice that is necessary to balance that economic efficiency. We want a community in which the market works to the advantage of the people, not one in which the people serve the convenience of the market.

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The Labour party and our Socialist colleagues in Europe have a common manifesto for the European election-- unlike the miscellaneous people with whom the Tory party joins. We look forward to substantial victories in this country in the European elections in June. We look forward to a Labour Government in this country. We look forward to Labour giving the United Kingdom a fresh start in Europe.

9.42 pm

The Economic Secretary to the Treasury (Mr. Peter Lilley) : I thank the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) for his kind welcome to this debate, not the least enjoyable aspect of which was his own contribution. Having read through previous debates of this kind, I have to say that today's debate has shown both a wider and higher standard of contribution than we have seen for many a long year and shows the growing importance of the issues that we are discussing.

One of the central points raised by the hon. Member for Newham, South (Mr. Spearing), by my hon. Friend the Member for Hertford and Stortford (Mr. Wells) and by many other hon. Members is the issue of scrutiny--how this House considers European legislation. As my right hon. Friend the Minister of State said, my right hon. Friend the Lord President of the Council has established a review of this and I understand that a Committee of the House is also considering it. My right hon. Friend the Lord President has already urged Departments to ensure timely and speedy progress on scrutiny of measures from the Commission for which those Departments are responsible here. I personally attach great importance to this, not just because of the importance that I attach to the role of this House but because I have found our debates on European measures to be of great value, both for the opinions expressed by hon. Members and for the support that is so often forthcoming from both sides of the House for the British Government's position when negotiating in Europe.

My hon. Friend the Member for Hertford and Stortford made a detailed set of proposals on improving scrutiny in this House. Unfortunately, I heard only part of what he said, but I shall read with interest all of his remarks, and I know that my right hon. Friend the Lord President will find it a valuable contribution for the purposes of his review of these matters. The hon. Member for Newham, South also pursued this aspect. He said that we were often mistaken in believing that we might be in danger of being sucked into a federal institution when the real danger was that Europe was, if anything, an embryonic unitary state. In this respect the hon. Gentleman is, of course, constitutionally correct, but he is wrong to suggest that my right hon. Friend the Prime Minister did not recognise this. In her speech- -I have had it checked--she referred not to a federal Europe but to the dangers of a supranational Europe and the importance of retaining a Europe of co-operating sovereign states.

The hon. Gentleman was also right to recognise that Ministers within the Council of Ministers cannot themselves propose anything with any prospect of its being accepted unless it has first been proposed and adopted by the Commission. Of course, that does not prevent Ministers from putting up ideas. For instance, my right hon. Friend the Chancellor has made proposals for achieving a single market without approximating VAT

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rates. That has received considerable study and attention on the continent, and I think that it has influenced the course of the debate.

Mr. Spearing : It is of course true that the Chancellor issued a discussion document, which I believe was debated at Rhodes, but that makes him a petitioner, does it not? Has not the Prime Minister, or any Minister of the Crown, less ability to introduce legislation formally through the Council of Ministers than any Member of Parliament has to introduce legislation in the United Kingdom?

Mr. Lilley : That is true, although a Minister has in many respects far greater powers to prevent the adoption of legislation proposed by the Commission than has any ordinary Member of Parliament in respect of legislation proposed to the House. The very fact that, according to the right hon. Member for Chesterfield (Mr. Benn), deals are often struck between officials of the different Governments suggests that Governments have power based on their voting power. That the right hon. Gentleman in his previous role was unable to influence the deals into which his officials entered on his behalf reflects more on the Government concerned than on the practices of the European Community.

My hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) made an extremely balanced speech about the role of the European Community. I entirely agreed with him when he prayed in aid my right hon. Friend the Prime Minister's statement that Europe should work together on the things that we are best at doing together. My hon. Friend cast doubt on the need for the Community to disburse money. I agree that it is better disbursed at local level by Governments and institutions closer to the point at which the money is needed--if it is needed at all.

The debate has been largely dominated by the development of the single market, as that issue is central to the document that we are ostensibly discussing--although at times I had doubts about the role that that document played in the debate. The British Government's position is clear. We believe wholeheartedly in the philosophy underlyng the single market, and particularly in the White Paper that initiated it. It involves applying, at European level, principles and policies that we have applied successfully at national level and that have regenerated the British economy--the principles of deregulation, increased competition and, of course, strict control of public expenditure.

The record of progress on the single market during the six months that we are considering is extremely favourable. Some 56 measures--a record number- -were adopted, and they were significant as much for their quality as for their quantity. My hon. Friend the Member for Southend, East (Mr. Taylor) challenged me on whether any of the items in the document were of significant value in liberalising and overcoming protectionism, and I mentioned the road haulage directive under which road hauliers travelling across Europe will not be prevented from picking up loads en route. There was also the mutual recognition of professional qualifications. By any standard, that is a measure of liberalisation of great importance to individuals living and working in the Community.

I suspect, however, that the most significant measure

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--although it involves no change for us--is the capital liberalisation directive. Just as we benefited enormously from scrapping exchange controls, I believe that Europe will also benefit from their abolition. It is, of course, fundamental to the establishment of a free market in financial services and therefore of great importance to the United Kingdom.

Mr. Teddy Taylor : By protectionism I meant protectionism in Europe against the Third world. I asked whether there was any sign of measures having been taken during those six months to reduce such protectionism. I cited, for instance, the use of anti-dumping powers, which has created more protectionism.

Mr. Lilley : Capital liberalisation is one such

measure--incorporating, as it does, the principle of erga omnes which, as I need hardly explain to the classically literate, means "towards all". Such a measure removes not just the barriers on capital between ourselves, but those between the Community and the rest of the world. I do not doubt that the document contains many others.

My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) adopted a novel approach by actually considering the document before the House, item by item, and giving a cogent and concise response to it. He raised one especially important matter which arises from the directive on capital liberalisation. He mentioned the withholding tax which was proposed by the Commission in fulfilment of its obligation to consider whether such a tax was necessary. There is, of course, no obligation on member states to accept that proposal. The British Government disagree with the principle that taxing power should be taken away from the House. Incidentally, I do not think that there is any foundation for my hon. Friend's belief that the very proposal is ultra vires because it falls within article 100 of the treaty. We also believe that there are sound practical reasons for objecting to a withholding tax. It is unnecessary. We can understand that the French Government may feel apprehensive that the abolition of exchange controls will be followed by a flood of tax evasion money out of their country, but the British experience when we abolished exchange controls in 1979 provides no evidence that those fears have any basis. The experience of the German Government, who have imposed a withholding tax after having long had complete freedom from exchange controls, was that it was the imposition of the withholding tax that caused the outflow of money.

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