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9.37 pm

Dr. Vincent Cable (Twickenham): 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

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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 areaof 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

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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, buton the fundamental principles--whether one is a

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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.

9.47 pm

The Economic Secretary to the Treasury (Mrs. Helen Liddell): 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

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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

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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


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.

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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.


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