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Mr. Laws: Will the Chancellor give way?
Mr. Brown: The hon. Gentleman is the only representative of the Liberals here today. Every year they have called for us to join the single currency. His leader has said that it was a total mistake that we did not join in 1999: a decision that would have put the British economy into recession, as evidenced by the detailed assessment that we published. Given that he is the only Liberal who has bothered to turn up; he is not even the Treasury spokesman—[Interruption.] By popular request, I will allow him to intervene.
Mr. Laws: I am grateful to the Chancellor for that introduction. Perhaps my colleagues realise that as he has been politically successful in kicking the issue into the next Parliament, some of these economic issues are not substantive.
As regards flexibility, would any changes in the stability and growth pact that he seeks constitute preconditions before we could join the euro?
Mr. Brown: I am coming to that in a minute. There is no sixth test. The stability and growth pact is under
discussion, as are the rules governing the monetary policy of the European Central Bank. We have been very clear since 1997 that we believe that the stability and growth pact will work better if it takes account of the whole economic cycle, if it recognises the importance of investment as well as consumption—of course, we have a major investment programme under way—and if it takes account of sustainable levels of debt. In the United Kingdom we have achieved debt levels of the order of 30 to 35 per cent., but other countries in the eurozone have debt levels of 110 per cent., 105 per cent. or 100 per cent. of GDP. Clearly, therefore, their capacity to borrow is far more limited than that of a country that has relatively low levels of debt and a sustainable fiscal position on that basis.We have been discussing three changes in relation to the stability and growth pact, and the intellectual argument has moved firmly in our favour on this: first, taking more account of investment, not just consumption; secondly, looking over the cycle; and thirdly, investment. I hope that there will be general support in the House for that.
Angus Robertson (Moray): On the possibility of a sixth test, does the Chancellor concede that it might be advantageous to assess the risks and costs of staying out of the single currency area? Does he appreciate that for economies that depend in large part on exports—such as Scotland, or my constituency, with its whisky and food manufacturing sector—the time is right to assess the risks and costs of staying out of the eurozone?
Mr. Brown: I do not know whether the hon. Gentleman has bothered to read the 18 studies, which examine all those issues. As part of the five tests, we consider the advantages and disadvantages in relation to investment, financial services, convergence and all the other points that I mentioned earlier. The importance that certain industries attach to being part of the euro and the disadvantages that they have raised with us in relation to staying out are dealt with in the assessment, and we have come to a rounded conclusion.
The problem for the Scottish National party is that for the first 50 years of its history it wanted to break up the single currency area of the United Kingdom and retreat into a Scottish pound, but the nationalists seem to have abandoned that policy in favour of going straight into the euro. However, they cannot tell us how, in the independent Scotland that they propose, their monetary or fiscal policy would work. They cannot tell us whether they would still want the Bank of England to set interest rates in the interim or no.
Angus Robertson indicated dissent.
Mr. Brown: They do not want the Bank of England to set interest rates in the interim. What would happen if the hon. Gentleman had an independent Scotland and we were still not part of the euro? Who would set the interest rates?
Angus Robertson: Perhaps the Chancellor will announce that we can have a referendum so that we can move as quickly as possible into the single currency.
Mr. Brown: The hon. Gentleman cannot answer the question as to what would happen if there was an
independent Scotland and we were still not part of the euro. Would the interest rate be set by the Bank of England, would there be a separate monetary policy committee in Scotland, would there be a separate Scottish pound or would he work within the British pound? The SNP really needs to go back to the drawing board and think again.
Mr. Chris Bryant (Rhondda): I wonder whether my right hon. Friend has analysed the Welsh nationalists' position, which is even more complex. Their economic spokesman wants to make sure that we stay out of the euro for ever, but also wants to separate Wales from the rest of the United Kingdom: they advocate precisely what the Chancellor criticises.
Mr. Brown: My hon. Friend is right: there is no convergence among the nationalist parties of the United Kingdom. The Welsh nationalist party wants to stay out of the single currency and the Scottish National party wants to join, while the Liberal party wants to join tomorrow, or as quickly as possible. [Interruption.] For the Liberal party, every time we have a debate is the right time to join, irrespective of the exchange rate or the interest rate. I am sorry that the hon. Member for Yeovil (Mr. Laws) has to speak for both the leader of the Liberal party and the Treasury spokesman, because the Liberals' position is that they would have joined in 1999 at the first stage, and everybody now knows that that would have caused real problems for the British economy.
Mr. Brown: I give way to the hon. Gentleman once more, in recognition of the fact that he is a lone voice in the Chamber.
Mr. Laws: The Chancellor must not continue to misrepresent the position of the Liberal Democrats. He might do well instead to pay far more heed to some of the documents that we produce, including one from 2000, which showed that the exchange rate was then overvalued and signalled a target range of precisely the figure that he came up with in the five tests analysis.
Mr. Brown: The leader of the Liberal party said that he very much regretted that we had not joined on the first day that the single currency was formed. [Interruption.] Well, I have the quote. Perhaps it would educate the hon. Member for Yeovil and he can take it to use in his missionary work among Liberal MPs who cannot find their way into the Chamber. The Liberal leader said that
- "Britain would have been a great deal better off as a founder member of the euro."
Although Britain is a more flexible economy than it was in 1999, when the single currency was formed, flexibility means being able, in the absence of exchange rate or interest rate flexibility, to adjust our economy quickly. What measures do we propose to take to deal with that? First, to improve functional flexibility—that is, the flexibility of our wage and labour markets—we need to equip people with the skills that they need to meet new and different challenges; the Secretary of State for Education and Skills set out measures on skills yesterday.
Secondly, to achieve full employment we must do more to improve the regional and local labour market flexibility of our economy to get more of the long-term unemployed and inactive back to work, more successfully to match vacancies to jobs, and to increase the new deal's ability to respond in the event of a local or regional shock. Over the next few months, we will announce new measures that will help the unemployed get to work, help to deal with the large numbers of unfilled vacancies in many regions and localities, and help to deal with some of the problems that have arisen in relation to incapacity benefit and housing benefit. In return for greater local discretion for Employment Service managers, a new performance regime will accord higher rewards to jobcentre managers, with provision to change the management of the worst performing jobcentres.
Thirdly, we propose to strike the right balance between fairness and flexibility in the pursuit of full employment. We have already introduced a minimum wage, which now has all-party support in the House of Commons and a new tax credit system that will soon, I hope, have all-party support in the House of Commons—[Interruption.] After all, the tax credit system that we introduced is based on an original idea by Ronald Reagan in the United States of America. If it was good enough for the American Republicans, it ought to be good enough for the British Conservatives.
Mr. Stephen O'Brien (Eddisbury): The Chancellor did not tell Labour Back Benchers that.
Mr. Brown: I am proud to acknowledge the role of American labour market policy in helping us to develop the tax credit—
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