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Mr. Richard Bacon (South Norfolk): I am reminded of 1991 when the Maastricht treaty was under consideration and the Deutschmark was effectively signed away. It was said, "What?—you cannot be serious." There was no understanding. Is it not the case that this country's scepticism is not the result of any lack of understanding, but of people's genuine understanding of the intimate connection between losing one's currency and losing control of the political future?

Mr. McFall: I do not believe that 1991 is a very good example. People make up their minds before finding out the true position, and many people in the country do not understand it. The politicians—all of us—have not been good enough at communicating to people in the country. When we talk, people often do not understand our language. We use a Westminster-type language, whereas we should aim for greater clarity in the debate.

I believe that the Government missed an opportunity in the last reshuffle to appoint a Minister for Europe to the Cabinet.

Mr. Laws: Is that an application for the job?

Mr. McFall: Absolutely not. I am delighted to have the opportunity to elucidate and to criticise from my

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present vantage point, but a Minister for Europe would have an opportunity to put the case in the Cabinet. I welcome the new European strategy committee that has been set up by the Prime Minister, but I hope that its members will bear in mind the window of opportunity that we have for joining Europe. Professor Francesco Giavazzi, a former employee of the Bank of England and now at Milan university, has said that if we wish to influence the European financial architecture in the European Central Bank and the stability and growth pact, we have only a period of two or three years to do so. We should remember that the 10 accession countries will also join, so the ECB could have 30 members in just over a year's time. It is obvious that UK political influence will lessen the longer we stay out.

I want the euro roadshow to go on the road. Before the next Budget, the Government need to demonstrate that progress has been made. It was clear to the Committee that the debate on Europe is confusing, complicated and irrelevant to people's everyday lives. It needs to be more intelligible and less arcane. We have a duty to achieve that, and I hope that the Government will undertake the task as soon as possible.

3.1 pm

Mr. David Laws (Yeovil): I am delighted to follow my former colleague and boss on the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), in the debate, and I congratulate him on the report on the euro. I also congratulate him on managing to bind together a coalition of that Committee's members, from all political parties represented on it, to produce a high quality report that has helped to inform the debate in this area.

This is an important debate, but it is not very timely. It is important because, as the Chancellor said to the Treasury Committee, when he gave evidence on the issue, joining the euro is

"perhaps the biggest peace time economic decision we as a nation have to make".

It is not very timely because we know that the decision has already been made, largely for political reasons, and—however much the Chancellor pretends that we are undertaking a serious analysis of the five economic tests, that we will revisit the issue next year, and that we may then have another assessment—we know that the truth is that he has won his battle with the Prime Minister and has succeeded in kicking this issue into the next Parliament at least. Perhaps that is why the Chancellor has failed to attract more Liberal Democrats to the debate today.

Mr. Fallon: What is Liberal Democrat policy on this issue? Does the hon. Gentleman still think that it would have been right to join the euro on 1 January 1999?

Mr. Laws: If the hon. Gentleman—a former colleague on the Treasury Committee—had listened to my earlier comments, he would know that the Liberal Democrats said clearly in 1999, 2000 and 2001 that the pound was overvalued. In fact, we published documents to that effect.

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It is tempting to go through the 18 documents of economic analysis published recently by the Treasury, but that would be to miss some of the serious points that surround what is not only an economic decision but a political issue. The hon. Member for Dumbarton and other colleagues from the Committee will remember the evidence given in a memorandum, as part of their inquiry, by Peter Riddell, the respected economic and political correspondent on The Times. He said:

"The Government's assessment of euro entry is flawed, both in structure and in implementation. The exercise elevates the Chancellor's five economic tests to an exaggerated status and seeks to separate constitutional, political and economic issues, which are, in practice, inter-linked. Therefore, basic structural issues of whether Britain should join the euro are confused with cyclical ones of when the time is right."

I agree with that analysis and we must recognise—it is obvious to those outside the House—that people make their judgments not only on an economic analysis, but on the constitutional and political implications of the decision. I shall therefore concentrate on three issues.

First, I shall probe the rather divisive decision-making process of the Government, to try to explore the real motivations and positions of Ministers, not least on the key issue of whether we will trade in the macroeconomic framework that we have in this country for that of the eurozone. Secondly, I shall consider some of the analysis in summary of the five economic tests; and thirdly, I shall consider some of the political and constitutional issues that the Chancellor alluded to in his speech when he unveiled the decision on the five tests, but which he seems shy of addressing otherwise.

Mr. Redwood: Does the hon. Gentleman agree with the Chancellor that higher stamp duty and capital gains tax on the prime residence are a price worth paying to converge with euroland? If he does not agree, what other higher taxes would the Liberal Democrats suggest, because they would need to raise taxes to converge?

Mr. Laws: That intervention characterises the unbalanced contributions—

Mr. Bacon: Answer the question.

Mr. Laws: I am doing so. The intervention characterises the often unbalanced contributions from the Conservatives on this topic. The right hon. Member for Wokingham (Mr. Redwood) asked which taxes we would increase. He is too intelligent for it to have escaped him that if one were trying to use fiscal policy to cushion an economy, taxes could go down, as well as up. The right hon. Gentleman is scaremongering, and that is one reason why this debate is so ill informed.

If we consider the way in which the Government approach the decision, we can see a division between the various players. The Prime Minister rises above the economic debate, seeing mostly the political issues that arise. Every now and again, he implies that at some stage in the future it will be possible for the Government to make a positive decision. He also urges the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is not in his place today, unfortunately, and my right hon. Friend the Member for Ross, Skye and Inverness, West (Mr. Kennedy) and various business men, to do his work for him, but he is unwilling to lead on the issue. In

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July 2000, the Prime Minister said on "Question Time" that if we carried on running the economy well, the Government would be able to make a recommendation—presumably to join—early in the next Parliament. However, when the next Parliament came along we discovered that we had had no leadership on the issue from the Prime Minister and the Chancellor, and that the issue had been kicked just over the horizon, yet again.

The late Lord Jenkins summarised the Government's approach to this issue, and to many other difficult issues, when he said:

"It is no good just waiting for the weather of public opinion to improve. It is no good just going down in the morning, looking at the rain, gloomily tapping the barometer and saying we cannot do anything today. The great Prime Ministers, those who leave a mark on history, are those who make the political weather and not those who skilfully avoid its storms and shelter from its downpours."

The Prime Minister's view on the euro is that it is a decision that he wants to make, but not yet—in a couple of years or after the next election.

At the other end of the spectrum is the Treasury view. It is far more sceptical and perhaps owes something to Mr. Balls, the very influential chief economic adviser in the Treasury. He has had extraordinary influence over economic policy in this Parliament and the previous one. He was taken on by the Chancellor in 1994, just after he had written a pamphlet for the Fabian society in which he was especially critical of monetary union. He wrote:

"In short, monetary union in the manner and timetable envisaged in the treaty is an economically and politically misconceived project."

He went on to criticise trading in the macroeconomic model that we have in this country. Elsewhere in the Treasury is the distinctive figure of Mr. Gus O'Donnell. He is now the permanent secretary and was also an important figure in the Conservative years in government. He gave a remarkable speech to undergraduate students a year or so ago, in which he included a series of extraordinary cartoons that I understand he drew himself. I wish that we could put them in Hansard so that we could use them to show his scepticism about the co-ordination of monetary and fiscal policy in the eurozone, compared with the UK.

I accept that I am talking about distant documents and cartoons, but the undertone of scepticism about the willingness to trade in the macroeconomic structures that the Government have set up in this country runs through the chief economic adviser's recent Cairncross lecture, and some of the less noticed documents published when the Chancellor unveiled the decision on the five economic tests. One of those documents was called "Policy Frameworks in the UK and the EMU". The fingerprints of the chief economic adviser are all over it. He goes through the UK macroeconomic infrastructure, which he characterises as a "system of constrained discretion". He contrasts that, in many different areas, with the economic structures in the European Central Bank and in terms of the stability and growth pact.

The Government are raising some legitimate points about the way in which the stability and growth pact has been set up, and the Chancellor did so again today. Those matters include the constraints that the pact

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creates in terms of macroeconomic flexibility, and the ability to borrow money for investment purposes. We agree with the Chancellor that those matters deserve serious attention and that they need to be tackled to help Britain to operate flexibly and in a serious way in the eurozone. However, it is odd that the Chancellor should be keen to draw attention to these very important matters but then move away from saying that they will be fundamental to his decision to join the euro.

That is the first big issue that we must consider—the extent to which the Chancellor and the Treasury are serious about taking the decision to go into the euro. We do not know whether they have yet made the necessary mental leap, or are doing what the previous Prime Minister did. He adopted a wait-and-see policy that kept his options open, and that seems very similar to the position taken today by the Chancellor.

I asked the Chancellor earlier whether he would be disappointed if we were not members of the euro in five years time. As ever, he ducked the question and said that it was a matter of meeting the five economic tests. What does that tell us about the Government's economic strategy and commitment to the euro? There is no real commitment to decide and prepare. The strategy is to put off the decision. There is an unwillingness to acknowledge the potential gains that could arise from joining the euro.

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