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Mr. Deputy Speaker: Order. So that the House is aware of how we will conduct this debate, I should tell the hon. Gentleman that it is strictly on the economy, not on constitutional matters that could have been debated earlier.
Mr. Bruce: Thank you, Mr. Deputy Speaker; I thought that the debate was on the Queen's Speech, but entirely accept that stricture from the Chair.
The economic relationships between the House and the new Parliament and Assembly will be crucial. I simply urge a recognition that, initially, there will be tensions that will have to be resolved.
Mr. Bercow:
Will the hon. Gentleman be standing for the Scottish Parliament?
Mr. Bruce:
That is irrelevant.
Perhaps you will help me on this, Mr. Deputy Speaker. There was a suggestion that, by next June, Scottish Members will have nothing to do in the House, which is why the Queen's Speech proposed no Scottish legislation. The fact is that 90 per cent. of the Bills in the Queen's Speech will apply to Scotland, and Scottish Members, who have been elected to the House, have a real interest in their progress. The House and the public should understand that point.
The Government have introduced reforms, not all of which they themselves fully understand. It will require some understanding, flexibility and tolerance if those reforms are to succeed. In that spirit of understanding and tolerance, I believe that what has been set in train will create a much stronger United Kingdom.
Mr. Robert Sheldon (Ashton-under-Lyne):
The hon. Member for Gordon (Mr. Bruce) concentrated much of his speech on the single currency. I am sure that he shares my belief that our main economic task in this Parliament is to prepare for entry into the single currency. However, preparation appears to be missing.
I have always thought that the move towards a single currency was too hurried and that a longer timetable would have been much more sensible; however, a decision has been made. We are fortunate to have my right hon. Friend the Chancellor of the Exchequer and his predecessor, two of the most able Chancellors in recent times, who have had a close identity of view on some of the most essential aspects of our future. Nevertheless, we have paid a high price for not joining the single currency at the outset. Only yesterday the merger between the Deutsche bank and the Bankers Trust resulted in the reduction of their involvement in the City of London. That was in part a consequence of our not having joined the single currency.
There has been a terrible catalogue of missed opportunities year after year and decade after decade. The Government's first economic decisions, which devolved some of their powers, should have made closer integration into Europe far more acceptable. Control over exchange rates went to the markets and control over interest rates to the Bank of England. Income tax--that great engine of Government finance--was circumscribed by Government promises before the election. All those changes should have been a precursor to our entry into economic and monetary union and the single currency. We may still be paying the price.
In the Financial Times yesterday, Sirkka Hamalainen, one of the six executive board members of the European central bank, said:
In the 1950s, we missed taking the leadership of Europe, although it was offered to us on a plate. Then we missed taking our place as one of the three leading players and then we missed being the headquarters of the European central bank, instead of Frankfurt. Now, as my right hon. Friend the Chief Secretary to the Treasury said, we are even risking London's position as the overwhelmingly dominant financial centre of Europe. Only recently, we have lost the Bankers Trust, through a merger, and the entire German Government bond market to Frankfurt. That would never have happened had we joined European monetary union and the single currency at the outset.
Mr. St. Aubyn:
Perhaps the right hon. Gentleman should clarify the issue. It was surprising that the German
Mr. Sheldon:
The German bond market did go back to Frankfurt, however--that is the top and bottom of it. Had we been closer to the European central bank, that might not have happened.
The most important issue relates to decisions that will be taken early next year. The most crucial decisions of any institution are taken at its commencement. Despite the high standing of our Chancellor, those decisions will be taken by the single currency adherents. The decisions will be theirs, although they may affect us.
What should we do? I believe that, without making the final decision of setting a date, we should state our firm intention of joining the single currency. That would have an enormous effect immediately. It would reduce interest rates and exchange rates would become more realistic. It would improve inward investment. It would also strengthen the position of the Chancellor. It would not be as good as being a member of the club, but it would represent a delayed but certain application and put us in a better position to argue our case. We do not seem to understand that there is a big battle ahead. Entry on our terms is not a foregone conclusion. We seem to lose sight of the work that is needed to meet not just our requirements for entry into the single currency, but our partners' requirements from us.
One of the biggest issues is the level of the pound at entry. It has to be negotiated and the negotiations will not be easy. The longer we delay, the longer the other countries will have settled down to their new arrangements making it more difficult for us to obtain the conditions that we want. The longer we delay, the more conditions we shall be expected to fulfil and the more difficult it will be to find an easy passage into the euro. How will we get the exchange rate that we really need? In what used to be considered normal times, the recent decline in our balance of payments would have resulted in an automatic decline in the level of the pound, but capital movements and other factors have helped to offset that.
With my interest in the manufacturing industry, I would wish a rate nearer the lower end of what is being suggested. The prospects for manufacturing industry have been deteriorating. The pre-Budget report predicts an increase of 0.25 per cent. this year. Next year, it should be in the range of minus 0.25 per cent. to plus 0.25 per cent. More recent estimates are even more pessimistic. One important component is the level of the pound. Considerable time lags are involved. Profits can be squeezed in the short term and customers may remain loyal for a while, but sooner or later time runs out and manufacturers have to raise their prices to stay in business and their customers look elsewhere. The pound has been too high for too long. On entry into the single currency, we shall need to fix a more realistic rate.
We all have our views on the right level for the pound. The desirable level seems to be somewhere between DM2.30 and DM2.70. As I said, I would want a level
towards the lower end of that. Whatever is the right rate for us, how will we be in a position to negotiate the rate we want when we are seen as Johnny-come-lately--only wanting to join when the success of the union is assured? The others have taken a risk. We are waiting to see whether it is successful and only then shall we say, "Yes, it is a good club. You have done all the hard work and made it work well. Now we are going to give you the privilege of having us join you." That does not appear to be a good negotiating stance. We should not be surprised if the others resent our attitude. The danger for us is that that resentment could lead to economic disadvantages for us. In particular, it could limit the range of the value of the pound at which we may wish to enter.
We keep saying that, once we are members of the new club, we will be able to use our veto more effectively. Threatening to use the veto even before we enter is unlikely to make the rest of the EU anxious to have us in. We need to consider much more closely the costs of delay in joining the single currency and the need to take decisions that will improve our prospects on entry.
I should like to say a little about the Monetary Policy Committee. It has only one goal--controlling the level of inflation. Only after that goal has been met can it consider the other factors of economic management, such as growth and investment. It would be better if we learned the lesson of the United States Federal Reserve. Alan Greenspan considers the level of inflation in determining his monetary policy stance, but he also takes the economy into account. His remarkable success might have given us second thoughts on how the more limiting criteria that the Monetary Policy Committee has to observe might be broadened, at least up to the level of those of the United States Federal Reserve.
An amendment was tabled to the Bank of England Bill in another place that would have required the Monetary Policy Committee to take wider issues into account. Perhaps we should return to that. In the meantime, we can consider broadening the committee. My right hon. Friend the Chancellor cannot be expected to pack the committee with representatives of every interest group. However, he can get a better mix. Now that we have some experience, perhaps those wider considerations might be taken into account when a vacancy arises.
My final point is on the cost of earning a living. There was a time when everybody lived near to his place of work, be it the mill, the engineering factory or the pit. People's clothes were working clothes and everybody knew what working clothes were. They all took a jam butty, or whatever, and had no travel expenses because they walked to work.
Now, the cost of earning a living is very large and growing. In almost all walks of life, people have to spend a bit of money on their clothes. They certainly have to have something better for their meals. Most importantly, they have to travel. We do not have the London weighting allowance in the north-west--we have to pay for our transport. It is expensive and the distances coveredare becoming greater. I know people from Ashton-under-Lyne who work in Bradford or Eccles. It is quite common for people in all parts of the country to travel 20 or 30 miles to work--distances that used to be the prerogative of London. That has to be paid for out of taxed income. Those costs are wholly, exclusively and
necessarily incurred, whatever the Inland Revenue may say, because people cannot earn a living otherwise. However, the costs are not deductible.
I sympathise with the difficulty that the Inland Revenue would have in trying to control such enormous expenditure. It would have to ask questions of every taxpayer. However, it is a manifest injustice that people spend so much of their after-tax income on the essential task of getting to work.
"Exactly where the eurozone's monetary system will concentrate, however, is impossible to forecast . . . It can concentrate on certain national central banks near large financial centres, or it could be centralised in the ECB."
That is a danger to us. I am quoting her not as authoritative, but as having some understanding of the matter.
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