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10.22 pm
Mr. Paul Burstow (Sutton and Cheam): On a point of order, Mr. Speaker. Have you had a request from the Secretary of State for Health to allow him to come to the House and apologise for letting 1,000 written questions go unanswered by his Department since the start of the Session? Written questions are one of the few ways in which hon. Members can hold the Government to
account. How can we have confidence that Ministers who can preside over such a fiasco will deliver relevant and helpful answers on time?
Mr. Speaker: Often, on behalf of the House, I have complained to Ministers from the Chair that they should always come to the House when any difficulty arises to do with their Departments. The Secretary of State for Health, to whom the hon. Gentleman referred, has come to the House and answered a parliamentary question. Therefore, I have absolutely no complaint about him.
DELEGATED LEGISLATION
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),
Local Government
- That the draft Local Authorities (Conduct of Referendums) (England) (Amendment) Regulations 2002, which were laid before this House on 7th February, be approved.—[Mr. McNulty.]
Euro
Motion made, and Question proposed, That this House do now adjourn.—[Mr. McNulty.]
10.23 pm
Mr. David Laws (Yeovil): I am glad to be able to raise an issue of great importance to the Government's economic policy, and I am pleased that the Economic Secretary is in her place this evening. I am sure that she is eager to engage in the matters that we are to debate, which have to do with the five preliminary economic tests for joining the euro. Those tests are famous in this Parliament, but little debated.
That there have been so few opportunities to debate a matter so important to the country's economic and political future is unfortunate, not least because Conservative Members seem to have lost some of the enthusiasm for discussing the matter that they showed at the end of the previous Parliament. However, I am delighted that one representative of the Conservative party at least is with us this evening. The presence of the hon. Member for Mid–Worcestershire (Mr. Luff) is most welcome.
It is a great surprise that the Government should be so reticent about discussing some of the issues to do with the five economic tests for joining the euro, given their importance for the Government and the future of the country's economy. In particular, I draw the House's attention to a series of written questions that have been tabled over the past few months. The Economic Secretary replied to many of them, but many of the answers—no doubt through the fault of the civil servants involved rather than the Minister—have not been as full as one might have hoped. I therefore hope that she will use this debate to clarify the Government's position on a number of issues and shed more light on an extremely important issue.
To make it easier for the Economic Secretary to respond to some of the major issues, I thought that I would put to her five simple questions about the five tests and the work that has been done to evaluate them. I hope that it will be possible for her to respond to those questions in her reply. I look forward to that.
First, when did the Government start the preliminary work that is now under way on the economic tests for the euro? It does not appear to have started at the end of the last Parliament. We were told earlier in this Parliament that the work had suddenly begun. It would be useful to know when it began and, in particular, when it is due to be completed. We know that the evaluation of the five economic tests will not be completed until June of next year, but at the moment—I am sure that the position will change later this evening—we are at a loss as to where we are on the evaluation of the preliminary work on the tests.
My second question relates to an issue about which it has been difficult to flush out information from the Treasury. Who precisely is involved in evaluating the five economic tests? That appears to be relatively straightforward, yet it has proved to be astonishingly difficult to get answers out of the Government about which Minister is responsible for the preliminary work, which units within the Treasury are involved in it and how many officials are engaged on it. I hope that the Economic Secretary can shed some light on those issues.
My third question relates to the fact that it is obvious that any evaluation of the five tests must embrace the Bank of England because of its responsibility for monetary policy. We are aware from the Governor of the Bank of England that at least one bank official has been seconded to the Treasury to help with this work. Unfortunately, the Governor's correspondence with me on this point suggests that he is not sure of what the official is doing at the Treasury and what contribution he or she is making to the work. It would be most welcome to me and, no doubt, to the Governor, to know what the official is doing in relation to the five tests and the preliminary evaluation.
Fourthly, perhaps the Economic Secretary can also tell us what parts of the preliminary work have been evaluated to date. Which bits of the work are complete and which still need a significant amount of work?
My final question is about the work that the Government may or may not have done in judging what the sustainable long-term exchange rate for the pound is in relation to the euro. We have to resort largely to the newspapers to find out what the Government are doing on this important issue, and we understand from the Financial Times that they are using a variety of economic models from the private sector and some advisers and economists from the private sector to allow them to evaluate the tests and, in particular, make a judgment about the long-term sustainable exchange rate. That is vital in determining whether we have met the five tests. Perhaps the Economic Secretary will also reflect on that point in her speech.
What are the Government doing not just to test whether we have met the five economic tests, but to achieve them? As we know that the Government want to join the euro and therefore presumably want to meet the five tests, we presume that they are doing something to achieve them. We know that, over recent years, our interest rates have been above those in the eurozone and that there is a convergence issue. We also know that the Governor of the Bank of England and the Chancellor consider the current rate of sterling against the euro too high and would seek a devaluation of the pound against the euro before we contemplate joining it.
It would be immensely interesting to know what the Government intend to do and how they are co-ordinating their fiscal and monetary policies to achieve a lower exchange rate and lower interest rates. When the Governor of the Bank of England came before the Select Committee on the Treasury last week and was questioned on this point, he said that there had been no discussions with the Treasury's representative on the Committee, Gus O'Donnell, about this issue and that he was unable to factor any decision about the euro into the Bank of England's forecasts for inflation and the economy because he had no idea of the Government's intentions in this regard. He suggested that the Committee had as much idea as he did about what the Government were intending to do.
Surely that is of great concern if the Government are seriously trying to converge in relation to the euro and meet the five economic tests. We expected at least some discussion between the Chancellor and the Bank of England about how to achieve the five economic tests and
the convergence. Surely there would be some discussion about the way in which monetary and fiscal policy can work together to allow the Government to achieve those tests. It seems astonishing that there appears to have been no discussion between the Governor of the Bank of England and the Treasury or even within the Monetary Policy Committee about this issue. I hope that the Economic Secretary can not only tell us what work has been done on the tests to date and answer my five questions but explain how the Government are seeking to ensure that we meet those tests.The final major issue relating to the euro, which was aired, to some extent, by the Chancellor last week in relation to the new Treasury White Paper involved structural and political reform within Europe and the way in which that may contribute to us meeting—or not meeting—the five economic tests. It has been no secret for some time that the Government are concerned about some of the structural aspects in Europe, such as how the European Central Bank operates, the lack of political accountability of its inflation target, and its unaccountability to politicians. Indeed, we understand that Mr. Gus O'Donnell has aired those concerns with undergraduates at various universities, although not in this place, unfortunately.
We know that the Government consider their own inflation target and the way in which the Monetary Policy Committee of the Bank of England is established to be a far superior model to the European Central Bank. However, we have no idea about what the Government intend to do to reform the ECB or whether that is a condition of joining the euro. We would be grateful for the Economic Secretary's insight.
Of particular importance to the Government's agenda for structural reform in Europe is the growth and stability pact. It was specifically aired in the White Paper "Realising Europe's Potential", which was released by the Government last week. For a long time, the Government have expressed concerns about the operation of the growth and stability pact and the fact that it is not consistent with their fiscal policies, which allow them to borrow money to invest in capital items in this country—sensibly, in our view. It is well known that the pact does not offer the Government that flexibility in economic policy and that that might therefore be a problem—a sixth test, as the Chancellor put it the other day—in getting this country into the euro. For a long time, the Government have seemed to think that they could get away with what they described in the pre-Budget report last year as a prudent interpretation of the growth and stability pact. That is an odd use of "prudent" as it is clear that the Chancellor's view of the word is that it means less rather than more prudent.
Until now, the Treasury's position appeared to be that there was sufficient flexibility in "prudent" to allow the Government to sign up to the existing growth and stability pact while retaining the flexibility to borrow money for capital purposes. We know that this is a vital issue for the Government because in the last pre-Budget report they said that they were planning to
- "borrow modestly to fund increased investment in the country's capital stock."
The paper issued by the Government last week was a movement away from their reliance on merely a prudent interpretation of the pact towards its reform. The Chancellor spelt out that change of policy last week at Treasury questions although he failed to recognise that it was a change. He said that the growth and stability pact needed improvement in three areas: the economic cycle, public investment and debt sustainability.
If the Government's position is now that the pact is in need of improvement and reform rather than merely a different interpretation, is their policy that there should be a sixth test before we contemplate joining the euro? Will the Government suggest to the country that we should sign up to the euro in the absence of reform of the pact? That extremely important point was highlighted by the Government's announcement last week, and I hope that the Economic Secretary can shed some light on it.
There are other considerations in Europe, such as drawing up a constitutional settlement for the European Union that would define and limit some of its powers. As Liberals, my party and I have no problem with that. We believe that Europe should be able to focus on issues such as trade, environment, foreign policy and even perhaps defence, but it should not meddle unnecessarily in matters such as tax, social and spending policies or borrowing.
Will the Economic Secretary tell us more about the Government's policy on the constitutional convention? Will there be input from the Treasury on matters such as tax policy and spending and social policies? Will there be a Treasury obligation to obtain agreement on flexibility in those matters before we consider signing up to the euro? Will any of them form part of additional tests that the Government might impose, or are they embedded in the famous five economic tests that few people outside the Treasury seem able to remember?
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