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Mr. Michael Howard (Folkestone and Hythe): I draw attention to my declaration in the Register of Members'

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Interests, and acknowledge that the 1,738 pages of background papers—not the Chancellor's statement or assessment—were made available at 9 am this morning. The Chancellor generously gave us six and a half hours to read them, in sharp contrast to the 480 hours that he gave his Cabinet colleagues. I am not sure whether that reflects the Chancellor's contempt for the intelligence of his Cabinet colleagues or his admiration for the intellectual abilities of the rest of the House.

The

"time of indecision is over."—[Official Report, 27 October 1997; Vol. 299, c. 588.]

The Chancellor said that about the euro six years ago. He said that it was time to "establish clear national purpose", to show "economic leadership" and to "make . . . hard choices". He said that divisions led to "indecision" and "inconsistent and unclear" policy. How refreshing it must be for the British people, after hearing those words, to see the Chancellor and his colleagues producing such decisiveness, clarity and leadership.

To be fair, Ministers are speaking with one voice today. They are united in common purpose, with only one objective: to paper over the cracks that have riven them in the past few weeks. Is it not clear from any objective reading of the evidence, including the 18 volumes that we have been given today, that joining the euro would damage our prosperity, destroy jobs and lead to an irreversible—the Chancellor's word—loss of control over our economic policy? That is certainly our view; it is also the view of the clear majority of the people of this country.

Today's statement is not the result of any real assessment of Britain's national economic interest. It is a result of the frantic efforts by the Chancellor and the Prime Minister to cover up their differences. After all, that is why the five tests were thought up in the first place. We all know that they were written on the back of an envelope in the back of a taxi to fix the damage done by the Chancellor's spin doctor in the back of the Red Lion pub. It was a four-pint briefing, which led to a five-point plan that has just given us a six-year runaround. And what a runaround it has been.

Ministers could not even agree on what question they had to answer. The Leader of the House—that rogue element in the Cabinet—said that the five tests were to determine when we should join the euro; three days later, the Foreign Secretary said that they were to determine whether Britain should join. The Secretary of State for Scotland has said that there should be a sixth test. The Chancellor said that the economic assessment would be decisive. The Prime Minister's spokesman said that an assessment was not a decision. Indeed, the Prime Minister was so determined that the Treasury view would not prevail that he thought the unthinkable: he suddenly saw the merits of Cabinet decision making. There is a first time for everything.

The Prime Minister will pay any price to do down his Chancellor. There they sit, united in rivalry, each determined to frustrate the other, to scheme against the other and to do the other down. So there is no clarity in policy and no consistency of purpose, and each of them is the loser. The Chancellor is losing, the Prime Minister is losing and, much more importantly, the British people are losing. The Government's ability to deliver has

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broken down on health, on education and now on the euro. Blair goes one way, Brown goes the other way, and bang goes the third way, lost in conflict, compromise and confusion. No wonder so little ever gets done under this Government. That is the price that we are paying for the fault line at the heart of this Government.

What a humiliation today's announcement is for the Chancellor of the Exchequer. Was it not he who said that there was no reason to keep the question open or to look at it again in this Parliament, that there was no need for another assessment and that we certainly should not have a referendum in this Parliament? He told us again today, as he did in 1997, that the results of the tests would have to be clear and unambiguous before we could join, but the permanent secretary to the Treasury has told us that the economics can never be clear and unambiguous, and the incoming Governor of the Bank of England has said that we would need 200 or 300 years of data to find out whether business cycles have converged.

What would have happened if the 18 volumes of data that we have been given today had shown that the tests had indeed been passed? How on earth are we to know whether a similar assessment next year, or in five or 10 years' time, would reach a similar conclusion? If the data change in one direction, how can anyone know that they will not change back again? If, at any particular moment in time, our growth rate, inflation rate or interest rates are at similar levels to those in the eurozone, how do we know whether that convergence is permanent? Might it not be because our economies were like ships that pass in the night, coming together for a moment before moving off in different directions?

The Chancellor predicted that trade with the European Union could grow by as much as 50 per cent. over 30 years. Will he confirm that his own Department's reports conclude that improved levels of trade are totally dependent on sustained convergence, which has not been achieved? Will he confirm that other economists have challenged his conclusion in the academic studies published today by the Treasury? Will he confirm that the author of one report that supports his assertion points out:

"any extrapolation of my results to EMU may be inappropriate since most currency union observations are for countries unlike those inside euroland"?

Will he confirm that that expert's assumptions, on which the Chancellor relies, are based on studies of currency unions involving Angola and Mozambique, Burkina Faso and Chad, Vatican City and San Marino, and Tuvalu and Tonga? The Prime Minister is obviously surprised by that. It is one of the reports that he had not got around to reading.

In 1997, the Chancellor said that the most critical test was convergence, and today he was forced to admit that it had been failed. One of the Chancellor's documents is succinctly entitled "Analysis of European and UK business cycles and shocks". Its conclusion in paragraph 9.2 is clear: the UK cycle is more strongly correlated with that in the United States than with those in Europe. Indeed, not a single UK region is strongly associated with the European cycle. Astonishingly, there was no mention of that in the Chancellor's statement.

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That is just one example of the gloss that the Chancellor has tried to put—the gloss that he has been obliged to put—on the studies that he has published today. He has given us his solutions, which are the solutions that we always get from this Government when the evidence does not suit their case: change the evidence, fiddle the evidence, distort the evidence. If the mortgage market in this country differs from that in the eurozone, change it, whether or not that is in the interests of British home buyers. If the inflation index in this country differs from that in the eurozone, change it, whether or not that is in the interests of British monetary policy. Perhaps the Chancellor will tell us what independent advice he has taken about the abandonment of the retail prices index. He has a Retail Prices Index Advisory Committee; perhaps he will tell us whether he took its advice before abandoning the RPI.

How would either of those changes affect the conclusions of the Treasury's assessment, "Housing, consumption and EMU"? Paragraph 8.10, on page 86, states:

"deviations in UK interest rates from their appropriate level could lead to particularly large swings in the housing market . . . and hence in the wider economy in the UK".

It is true that the document on fiscal stabilisation suggests, in paragraphs 6.89 and 6.92, that fluctuations in the housing market might be damped, and sets out how they might be damped by an increase in stamp duty or by charging capital gains tax on residential property. Perhaps the Chancellor will tell us whether that is what he had in mind. Is he suggesting that the choice for this country, in the euro, would be between even higher taxes and even more boom and bust? [Interruption.] Yes—more boom and bust.

The Chancellor has been forced to admit that the flexibility test has been failed as well. Indeed, according to his own assessment of the flexibility test, inflation volatility is very likely to increase inside the euro. Perhaps he will tell us whether that is why he is going to such lengths to make our economy less flexible. Perhaps he will also tell us what grounds he has for thinking that the test is more likely to be met by the time of next year's Budget, or in a year's time.

What of investment? Only last week Ernst and Young said that Britain's share of inward investment projects for the EU rose last year. It described euro membership as a

"bit of a damp squib as far as inward investors into Europe are concerned".

It is not surprising that the Chancellor has been forced to admit that that test too has been failed; but what grounds has he for supposing that it is likely to be passed by the time of the next Budget, or next year?

What of financial services in the City? Far from the City having been hit by Britain keeping the pound, the Bank of England says:

"The evidence indicates that, since the launch of the euro, the City has maintained its market share."

Why? As the Bank of England says:

"The City is a global financial centre, and not just a European centre."

That conclusion is reinforced by paragraph 7.8 of the Treasury study, "The location of financial activity and the euro." Why, in the face of all the evidence, does the

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Chancellor insist that this test has been passed? Will he reassess it this time next year, or are the test results allowed to change only in one direction?

It is no surprise that the final test on jobs has been failed. At the moment, we can choose to have the same interest rates as the eurozone when that suits our needs. Why on earth should we be forced to do so when it does not? Why on earth should we accept the straitjacket of a one-size-fits-all interest rate when it is not the right rate for our economy? Competitiveness would be lost, growth would be hampered, jobs would be put at risk, and that will be just as true at the time of the next Budget and in a year's time as it is today.

Other countries have discovered these truths the hard way. As a former director of the Bundesbank said yesterday:

"The present Eurozone structure is devastating for Germany. And I am convinced the UK would be crazy to join—you should stay out for as long as I can foresee."

Is that not what we found with membership of the exchange rate mechanism? The Conservative party has learned its lesson from the experience of fixed exchange rates, but the Government have not, despite the fact that the present Chancellor of the Exchequer was calling for early entry to the ERM almost a year before we joined.

Today, the national economic interest took a back seat. As the Government dither, uncertainty is maximised. What does the Chancellor say to business leaders, such as the director general of the CBI, who said:

"The last thing we want is an annual reassessment."

David Frost, the director general of the British Chambers of Commerce, said:

"once the Euro verdict is announced, business would expect a period of stability on this matter for at least three years."

Ruth Lea of the Institute of Directors said:

"We need to know where we stand."

This is the Government who in opposition promised not to be "de-railed by . . . internal bickering" on Europe. This is the Government whose election manifesto in 1997 pledged that Labour would make a hard-headed assessment of Britain's economic interests rather than be "riven by faction". This is the Government who promised to "prepare and decide", but now it is not prepare and decide, it is not wait and see, it is just hope and pray. Today, they have not put off a referendum because they are against joining the euro, or because they think it will damage the national economic interest. They have not put off a referendum out of conviction. The only reason we are not having a referendum now is that they know they cannot win it.

Today's statement comes from a divided Government—a Government on the run. This whole exercise has been an exercise in deceit: the deceit that they had the national economic interest at heart; the deceit that they wanted an objective assessment of what this country needs; the deceit that they were united. It is time for an end to the deceit. It is time for an end to the duplicity. This is not the end of the beginning for this Government. It is the beginning of the end. The sooner it ends the better it will be for the national economic interest and for the British people.

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