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9 Apr 2003 : Column 300—continued
Malcolm Bruce (Gordon): I agree very much with the hon. Gentleman's approach, but does he accept that, even in an economic sense, common sense tells us that, with 10 new members about to join the EU, all of which are committed to joining the euro, both British and foreign investors are likely to consider the idea of investing in low-cost areas inside the eurozone more attractive than risking investing in the UK, given that there is no clear idea of whether we will be in or out?
Mr. McFall: Inward investment and the window of opportunity are very important issues, and our Committee has heard witnesses from the UK and elsewhere in Europe comment on them. Our debates and inquiries to date show that Europe is a complex issue, not a simple one, and that the economic case cannot be clear and unambiguous. The Government could put their best judgment, in economic terms, on the line; then, the decision will be a political one. Hopefully, our report will indicate the complexity of the argument and point out to people that there are dangers if we go in and dangers if we stay out; there are arguments on both sides. We want to establish the core issues, and inward investment is one of them for people such as the hon. Member for Gordon (Malcolm Bruce), who is on the pro-side. However, there are other core issues, such as interest rates and the one-size-fits-all approach, for those on the anti-side.
Mr. Andrew Love (Edmonton): Does my hon. Friend agree that if the previous Conservative Government had set five economic tests before joining the exchange rate mechanism, they might have made a better job of it?
Mr. McFall: That comment stands for itself and I have no need to add to it. We can pay a heavy price for the absence of proper economic analysis.
The tests and the core issues are important. If I were to read out all the tests, it would bore us all, but they point to the importance of certain issues—for example, on convergence, whether the business cycles and economic structures are compatible so that we can live comfortably with euro interest rates. Is our economy similar to the economies in economic and monetary union? Does it have the same underlying behaviour, and does it move in harmony with them?
One of the issues that the Chancellor tackled was the housing market. We are told that the UK housing market is vastly different from that in the rest of Europe, particularly in respect of the variable-interest mortgages in this country. The Chancellor will assess whether fixed-interest mortgage rates would help to bring about greater stability in this country and also whether that would be beneficial if we decided to join the euro at a later date.
The second test is flexibility: how rapidly prices and wages adjust to changes in demand, particularly in view of our one-size-fits-all interest rates. I accept that there could be dangers in that, and that our current macro-economic model—with the Bank of England and the Monetary Policy Committee—is good. Opponents of the euro will be asking the serious question of whether we should trade in the superior model of the Monetary Policy Committee for the inferior model of the European Central Bank. That is a big issue.
The third test is whether euro membership will improve conditions for long-term investment. That is hotly debated. As an observer, I believe that business does not like risks and joining might mean fewer risks.
The fourth aspect is the competitive position of the UK financial services industry. I believe that, irrespective of where it is based, it will prosper because it is twice the size of anything else in Europe—Frankfurt is the next largest. Some people ask why the test involves the state of our financial services industry, rather than manufacturing or other industries. It is not the most important test, but I am sure that it will be passed.
Lastly, there is a catch-all question that summarises the others: will our membership promote higher growth, stability and jobs? Will UK investment dry up if we are not in the euro? With the candidate countries joining the eurozone over the next couple of years, what about the window of opportunity to influence the governance of the European Central Bank? What about changing the stability and growth pact? On our visits to Frankfurt, Paris and elsewhere, some people have suggested that it is almost all about stability, and only a little about growth. What we need in the eurozone and elsewhere is growth. The Chancellor's fiscal loosening is important, but it does not apply to the same extent in the rest of Europe due to the stability and growth pact. If we do not join, will we sacrifice our leadership role in Europe?
Lembit Öpik: I am sorry to intervene twice, but does the hon. Gentleman agree that we have a great opportunity to be proactive partners in business with potential new members? Obviously, I know Estonia particularly well. If we take the strategic approach along
the lines that he describes, by being in at the start, we could help our own economy by investing in those developing economies.
Mr. McFall: I would like to relate the hon. Gentleman's point to my account of the Treasury Committee's inquiry. We visited the Republic of Ireland, Poland and Hungary, the latter two being among the candidate countries. They see Britain as one of the large countries with a leadership role, they like how we do things and they want to increase business links with us. It is an important issue to go into the main pot for discussion. There is no doubt that the smaller countries look to Britain as a leader.
One issue that the Chancellor did not much touch on is pensions. The hon. Member for Roxburgh and Berwickshire (Sir A. Kirkwood) and myself are considering the issue, which is a long-term problem that should be examined on a cross-party basis. When interest rates are low and equity markets are tumbling, an enormous gap develops—currently estimated at £85 billion—between the value of UK pension fund assets and liabilities. In some cases, the deficits are almost as large as the company itself. For example, Rolls-Royce has a deficit of £1.12 billion, whereas its market capitalisation is £1.24 billion. That presents a real danger to the firm and to its employees.
If we want to, we can get involved in the blame game: we can blame the actuaries for an optimistic forecast and for keeping us in equities for too long; we can blame FRS 17, the new accounting practice standard; and we can blame the Government for removing tax reliefs on dividends and for imposing legislation. However, we must sort the problem out on a consensual, cross-party basis. Only this week, I met the chief executive of a major United Kingdom company, who said that the private sector must get more involved in the problem. We see little coming from the private sector, but we really need some initiatives from that direction. As I said, the hon. Member for Roxburgh and Berwickshire and I will work on the problem during the recess.
One example from the private sector is Sainsbury's, which has a final salary scheme and has increased the contributions of its employees from 4.25 per cent. to 7 per cent.—that amounts to a pay cut. The employees have a choice: they can pay the extra, or stay at the 4.25 per cent. rate and end up with a career average salary pension. Employees and employers have a choice. One of the biggest problems with pensions is that young people up to the age of 35 or 40 simply do not think about them, believing that there is no tomorrow. We have to educate younger people to start saving money at an earlier age.
I shall say this sotto voce: perhaps the problems will become so considerable that we will have to think about introducing a form of compulsion. I know that the Government do not want to know about that, but it must be on the medium and long-term agenda for the pensions industry. I certainly do not want companies to follow the Boots' route. I have nothing against Boots, but it had a 100 per cent. flight from equities into bonds. When the stock market is fragile, we do not want a further flight from equities, which would make things even more problematic.
I put the call out today, on a cross-party basis, that we must all—not just the Government, who have not taken it as seriously as they should have—do something about the problem. We all have responsibilities in that respect.
Lynne Jones : Is it not vital for the Government to examine more carefully the interaction between state benefits and personal and private pensions? My hon. Friend commends Sainsbury's, but it effectively charged its workers more for a less generous pension. That may not necessarily be wrong, but it is difficult for low-income workers who, if they make contributions only to be penalised by their state benefits, will be little better off. The interaction between the two is vital.
Mr. McFall: I do not commend Sainsbury's; I simply highlight it as an example because the company is trying to deal with the problem. The public-private divide has not been adequately debated and we need more clarity on the issue. The Government are attempting to deal with the problem partly through pension credit. My hon. Friend may disagree, but Sainsbury's is making an effort. We have a long way to go on the issue.
I shall finish by referring to something that the Chancellor mentioned at the beginning of his speech: international development, which he cited as one of the three long-term challenges. I commend the Government for tabling, this Saturday in Washington, a $50 billion international financial facility initiative to deal with the 115 million young people around the developing world who do not have primary education, and also the health needs of people in Africa and elsewhere who are suffering from AIDS, tuberculosis and malaria. Against that background, the real disgrace is the continued protection of farmers by almost the entire developed world. The EU, Japan, and the United States are in the dock.
On 31 March, the Doha trade agreement on agricultural subsidies collapsed. That followed the collapse of the agreement on pharmaceuticals, which followed the collapse of the trade terms of developing countries. From a multilateral point of view, that is extremely worrying. It is important that we get the WTO on track at the September ministerial meeting in Cancun.
We must also request early agriculture reforms in the EU. It is vital for the EU to initiate a process of eliminating its export subsidies. The world economy is facing the first synchronised downturn since the 1970s, and we will not achieve the worthy aims of debt relief if that is not resolved. Rich countries are subsidising their agriculture to the tune of £365 billion a year, putting farmers in developing countries out of business and creating a dependence on imports to survive.In the next month, along with one of the development charities, I shall be visiting Zambia to look at development issues. Two million people are going hungry in that country and some 300,000 Africans live on less than 65p a day. We all make a great fuss, rightly, about Comic Relief, which raised £40 million for Africa through its last initiative, yet every day Africa pays more than £26 million in debt repayments. There is something grotesquely wrong in that relationship and I suggest to the Government that debt must be cancelled without preconditions such as trade liberalisation measures. Debt cancellation would release funds to tackle mass
poverty and meet the millennium development goals. We must look at what the rich countries are doing because, daily, we are punishing the poorer countries.For years I have suggested that the Government work towards the 0.7 per cent. target for international development. I commend the Chancellor and the Secretary of State for International Development for their work in this area, but meeting the target would be hugely symbolic around the world. An additional £50 billion a year could be given to the international community if we met that target, because others would follow. This country contributes and we have all-party support for doing so, but it is against a background of impoverishment of the developing nations.
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