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I shall conclude my remarks soon so that the Economic Secretary has the longest possible time in which to respond and give us as much information as possible. I welcome the Government's suggestion last week that the growth and stability pact is in need of reform. The greatest hurdle against Britain's joining the euro is people's anxiety about some of the constitutional and political issues rather than the economic issues. That is almost directly opposed to the Government's view: they say that there are economic tests to be met, but no constitutional objections.
If we can deal with issues such as the growth and stability pact, the lack of accountability of the ECB and the dangers of unnecessary tax harmonisation rather than tax competition, we shall be more successful in persuading people that they need seriously to consider the prospect of joining the euro. I hope that the Economic Secretary will respond by saying more about the important preliminary technical preparations, by explaining how the Government are going to meet the five economic tests and by telling us how they will pursue their reform agenda in Europe to persuade the British people of the economic advantages of the euro.
The Economic Secretary to the Treasury (Ruth Kelly): I should like to take the opportunity provided by this important and useful debate to address some of the issues raised by the hon. Member for Yeovil (Mr. Laws) and, of course, to restate the Government's policy on United Kingdom membership of the single currency.
The hon. Gentleman has raised a considerable number of issues. I shall attempt to deal with as many as I can during the short time available. The question that he seemed to put most often related to the number of tests and I hope to make that clear during my response.
Europe is fundamental to the UK economy. About 3 million jobs are directly affected by our economic ties with Europe. More than 50 per cent. of our total trade is with the European Union. The EU is our largest trade and investment partner.
The determining factor underpinning any Government decision on membership of the single currency is the national economic interest and whether the economic case for joining is clear and unambiguous. We have consistently said that if that is the case, there is no constitutional bar to joining.
As the Chancellor said in his October 1997 statement, the five economic tests will define whether a clear and unambiguous case can be made. In the same statement, the Chancellor set out the five tests. These are, first: are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? Secondly, if problems emerge, is there sufficient flexibility to deal with them? Thirdly, would joining EMU create better conditions for firms making long-term decisions to invest in Britain? Fourthly, what impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets? Fifthly, in summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?
Once the Treasury has completed the five tests assessment, a recommendation will be made to Cabinet. The Government will then make a decision on UK membership of EMU. If the Government recommend UK entry, it will be put to a vote in Parliament and then to a referendum of the British people.
The hon. Gentleman called this debate because he is interested in the preliminary and technical work. The Government have been nothing but open about the nature of this preliminary and technical work. I am happy to respond to the hon. Gentleman by once again setting out the nature and content of the that work.
Mr. Laws: The Minister and her abilities are renowned in this place. May we take as read much of the Government's standard position on the euro, so that we have time to address some of the substantive issues raised this evening, in particular the Chancellor's comments last week about the economic growth and stability pact? Can the Economic Secretary say whether the Government would be willing to recommend that we join the euro without reform of the growth and stability pact?
Ruth Kelly: I will come on to the growth and stability pact, but I believe that the hon. Gentleman welcomed the full answer that the Chancellor gave to his question at Treasury questions last week. As he knows, the Chancellor is committed to a prudent interpretation of the growth and stability pact which recognises the full role that public investment should play, as well as sustainability of the debt. He has argued strongly for that at ECOFIN and will continue to do so.
The Treasury released a paper in November last year entitled "Preliminary and technical work to prepare for the assessment of the five tests for UK membership of the single currency". Hon. Members can find a copy of that in the Library of the House. It sets out some of the key parts of the preliminary and technical work, although it is
Ruth Kelly: The Chancellor said that the preliminary and technical work is necessary to inform the assessment of the economic tests. We have committed ourselves to completing the assessment within the first two years of this Parliament, as the hon. Gentleman is aware. I have just stated that the nature of the preliminary and technical work is evolving to take account of the latest research and analysis. It would not be meaningful or right for us to give a running commentary on what stage that work is at, and I am not about to do so.
However, it is worth setting out what the work attempts to achieve. It updates the analysis on the cyclical behaviour of the UK economy relative to the euro area and the relative responses to economic shocks; on the mechanisms by which product, labour and capital markets adjust, and how well and how quickly they work; on the impact of the single currency on the cost and availability of capital; on the effect of the single currency on financial services; and on the impact of the single currency on trade, competition, productivity and employment. As I noted in the Westminster Hall debate on the five tests in January, the Government have no intention of entering into a running commentary on the preliminary and technical work. However, we are committed to finishing the assessment within the first two years of this Parliament.
The hon. Gentleman raised several questions about the nature of the preliminary and technical work. For instance, he asked who is involved in it. The Treasury is in regular contact with outside economists, the Bank of England and other Departments on a range of issues, including aspects of the work. However, it is clear that the assessment will be a Government assessment and that the work will be undertaken by the Treasury. There is no intention to contract out any part of the assessment.