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7.35 pm

The Chief Secretary to the Treasury (Mr. Alan Milburn): I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:

I thank the hon. Member for Gordon (Mr. Bruce) for his warm welcome for my promotion to my new responsibilities. [Interruption.] I thank also Opposition Members for their support.

On 1 January, the single European currency became a reality. That being so, this is a timely debate. The launch in the dealing rooms and on trading floors across the world was almost flawless. The success of that launch reflects the extent of the planning and preparation carried out by firms and institutions throughout Europe. In London, over the Christmas and new year period, about 30,000 City staff were involved in preparing for the start of euro trading. Those efforts deserve considerable praise and I hope that all hon. Members will join me in paying tribute to all those involved for all of their efforts, and to the crucial role played by the Bank of England. It is thanks to them that London can now rightly claim to be the financial home of the euro, the principal international centre for euro trading.

The hon. Member for Gordon made in large part a serious speech. It deserves serious consideration. It is a shame, therefore, that his speech was so badly flawed by rather flippant and frivolous remarks about my right hon. Friend the Chancellor of the Exchequer. It is an absurd idea that somehow the Government absent themselves from the European debate and the European stage. The hon. Gentleman made rather unfortunate references, for example, to the fact that my right hon. Friend was not in

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attendance at the ECOFIN event at the launch of the euro. For information, the ECOFIN meeting was not a decision-making meeting; it was a publicity stunt.

Opposition parties usually spend their time accusing us of engaging rather too much in publicity stunts. I say to the hon. Member for Gordon, purely for information--he may read whatever he wishes into this--that it was not only the United Kingdom Finance Minister who was not present at the meeting; the German Finance Minister was not present either.

Overnight, from 1 January, the euro has become the world's second most important currency. It is now a reality, and not only for the 11 nations that joined the first wave. It is a reality also for the City of London and for the tens of thousands of businesses in our country that trade with Europe day in and day out. Its significance will increase, not diminish.

Europe is becoming more and not less important for Britain. Almost half our trade is with the euro zone, and that trade is increasing. Many companies are already pledged to use the euro regardless of whether Britain is in or out. It is in Britain's economic interest to influence the euro's development and to make it a success whether we are members or not. That is the Government's position. Indeed, the Government's policy on membership of the single currency is unchanged from the position set out by my right hon. Friend the Chancellor to the House in October 1997.

We believe that, if the single European currency is successful, and if the economic benefits to the United Kingdom from joining are clear and unambiguous, Britain should be part of it. We have set out five real economic tests against which Britain's economic interests in relation to the single currency can be judged. The tests define whether a clear and unambiguous case can be made for British entry, and they are: the level of convergence; the flexibility of our economy; the impact on investment; the impact on financial services, including in the City; and, of course, the impact on British jobs.

Mr. Andrew Tyrie (Chichester): Does the Minister think that the convergence criteria should be expressed entirely in nominal terms, or should they involve real economic criteria?

Mr. Milburn: We have set out clearly, as we did in October 1997, what is required before a British decision to join. A number of key economic tests have been set, and we require, in particular, a period of stability and sustained convergence. All hon. Members should note what is perhaps most crucial: as the Chancellor made clear in October 1997, our participation--or otherwise--depends not only on what the Government and Parliament decide, but on what the British people decide in a referendum.

We will recommend joining if, and only if, it is in the national economic interest to do so--a decision that will not be possible until early in the next Parliament. Unlike the Conservative party, we do not believe that there is a constitutional bar to membership, but we do believe that the magnitude of the decision to enter requires a referendum of the British people. The British economy is not currently convergent with the rest of Europe.

Mr. Douglas Hogg (Sleaford and North Hykeham): The House will be pleased to hear the Chief Secretary

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reassert the Government's commitment to a referendum. Does he accept, however, that a referendum would be all the more binding if, beforehand, a White Paper were published setting out clearly the constitutional implications and the price to be paid if we join the single currency?

Mr. Milburn: The right hon. Gentleman is an assiduous attender of the House, and I assume that he was present when my right hon. Friend the Chancellor spoke on 27 October 1997, setting out the constitutional issues. My right hon. Friend has said that the pooling of economic sovereignty is, of course, an issue, but it is not a sufficient bar to membership of the European single currency. All that has been covered. The current issue is that of our preparations to ensure that we have a real choice about whether to join. We must consider the requirements around convergence and stability. Since 1 January, the euro is no longer a matter of principle or debate, but a reality for tens of thousands of British businesses which will need help in informing their views about the potential gain from the single currency. Far from absenting ourselves on those issues, the Government are determined to help British business to prepare to trade in the euro.

Mr. Malcolm Bruce: Is that an active or a passive process? Will the Government set out specific measures to achieve convergence over a given time scale that allows a choice of yes or no to be made? Alternatively, will the Government simply sit back and wait to see what happens, and then give us their verdict on whether convergence has happened?

Mr. Milburn: The hon. Gentleman's charge is simply wrong. The Government have demonstrated three forms of leadership on this matter. First, we have provided leadership to ensure that we overcome the boom and bust cycle of the past, particularly during the previous Government's economic policy, and that is in the British interest for the long term. Secondly, we have helped British business to prepare for the reality of dealing with the euro. Thirdly, and in contradiction of what the hon. Gentleman and his party allege in the motion, we have given leadership in Europe on economic reform and other vital matters to do with our national economic interest.

Mr. Ben Bradshaw (Exeter): Is it not true that the longer we stay out, the more we shall lose political influence in Europe? Is there not a danger of repeating exactly the same mistake made by every British Government since 1945, Conservative and Labour--missing the boat? We shall pay a political and economic price for that.

Mr. Milburn: In all candour, I must tell my hon. Friend, for whom I have the greatest respect, that we must take decisions in the British economic interest. That is the yardstick against which we must judge our decisions. The British economy is not currently in convergence with the rest of Europe. In part, we are at a different stage of the economic cycle, as can be seen from the difference in our interest rates. In part, too, the United Kingdom's current divergence is a legacy of our past susceptibility to boom

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and bust, notably during the damaging boom of the late 1980s and the severe recession that followed in the early 1990s.

Mr. David Curry (Skipton and Ripon): Will the Minister give way?

Mr. Milburn: I shall in a moment, but I have given way several times already and want to make some progress.

Before Britain can be in a position to join, we need a period of preparation and a settled and sustained period of convergence. The Government inherited an economy with serious fundamental weaknesses. The familiar cycle of boom and bust was beginning to reappear. Inflation was rising because the previous Government had failed to take the necessary action. The national debt had been allowed to double, and the public finances were out of control. The Tories claim that all that amounts to a golden economic legacy. The truth is that, in the 18 years under their stewardship, Britain suffered the two worst recessions since the second world war. The UK had one of the highest average inflation rates and below average growth.

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