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Mr. Kelvin Hopkins (Luton, North): The hon. Gentleman talks about potential gains, but my right hon. Friend the Chancellor of the Exchequer has managed the economy extremely well. The contrast with the eurozone is obvious.
Mr. Laws: The hon. Gentleman makes my point for me—that the Treasury, the Labour party and the Government have not decided whether they want to trade in their UK macro-economic model for the euro model. The hon. Gentleman exposes the uncertainties in the Government's economic policy, and the pretence that the Government have made up their mind about the issue.
Mr. Bacon: Why would the Chancellor want to trade in the framework, when it is plainly doing better than the eurozone framework, as the hon. Member for Luton, North (Mr. Hopkins) noted?
Mr. Laws: I am grateful to the hon. Gentleman for that intervention. He and his party seem to have changed their minds about having an independent central bank in this country. It operates monetary policy much more effectively than was the case in the days of the right hon. and learned Member for Rushcliffe and his predecessors. They used to change interest rates every day, week or month, often to suit the needs of short-term party political management. [Interruption.] The right hon. Member for Wokingham (Mr. Redwood) is making comments from a sedentary position. If he does not believe that that is what happened, he ought to take time to read the memoirs of Lord Lawson. If the right hon. Gentleman has not read them before, I can tell him that Lord Lawson describes in several places the pressure that he faced as
Chancellor, when the then Prime Minister wanted interest rates to be cut to get her out of short-term political difficulties.
Mr. Laws: I see that I have stimulated a debate. I cannot resist giving way to the hon. Member for Buckingham (Mr. Bercow).
Mr. Bercow: It is a cardinal principle of the British political system that no Parliament should be allowed to bind its successor. Why then does the hon. Gentleman, on behalf of the Liberal Democrats, think that it is not merely acceptable but desirable to hand over responsibility for the UK's monetary policy to people whom we do not elect and cannot remove and whom, under article 108 of the treaty of Amsterdam, it is illegal to seek to persuade of the British Parliament's point of view?
Mr. Laws: The latter part of that point was used by Conservative Members to keep UK monetary policy under the control of elected politicians—
Mr. Bacon: That is ancient history.
Mr. Laws: It is not ancient history as far as the hon. Member for Buckingham is concerned. I turn now to the first part of the hon. Gentleman's point. Is he arguing that, if we in this House believed that significant economic benefits could be realised for this country by joining the euro, we should take a decision that is completely different from the one taken by other countries in Europe just because we would not want to bind future Parliaments? Even if the benefits were extraordinary—to the extent of 10, 20 or even 50 per cent. of gross domestic product—
Mr. Laws: Let us say that GDP may be increased by 50 per cent. as a consequence of euro entry—
Mr. Laws: Would the hon. Member for Buckingham say that even then, he would reject joining the euro simply because it would bind future Parliaments? That is a bizarre suggestion.
Mr. Bercow: I would certainly reject any idea that one could be assured that euro entry would be of such permanent economic advantage to the UK that it would outweigh the potential disadvantages of a sacrifice of national control. The hon. Gentleman asks a fair question, but the difference is simple. The Bank of
England has operational independence, but Parliament can always change its remit. The same does not apply to the European Central Bank.
Mr. Laws: The hon. Gentleman's last comment is a fair point, but his position—and that of his party—has changed greatly on the matter.
Mr. Laws: I was not aware that the hon. Gentleman was previously an ardent advocate of operational independence for the UK central bank.
Mr. Laws: I shall give way once more, to the right hon. Member for Wokingham. Then I shall make progress, as many others want to contribute to the debate.
Mr. Redwood: I am grateful to the hon. Gentleman. I was the chief policy adviser to the Prime Minister in the period that he mentioned, and I gave her advice on economics and interest rates among other matters. I assure the hon. Gentleman that the only consideration in the advice that I gave was improving the prosperity and employment prospects of the British people. I hope that he will withdraw his slur from the record book. The only time that Government's monetary policy went wrong was when we were slaves to Europe in the exchange rate mechanism—something that I opposed.
Mr. Laws: It is not I who wrote that record book, but Lord Lawson. His autobiography is an excellent work, and I recommend that the right hon. Gentleman go back and reread it. If he does, he will see why Lord Lawson recommended that there should be an operationally independent central bank—it was because he was subjected to bullying from the then Prime Minister. The book also shows that Lord Lawson also recommended a constitutional settlement for the EU. I shall deal with that matter in a moment, and try to provoke the right hon. Gentleman further.
Mr. Laws: I must make some progress.
The second major area that we must consider is the overall economic analysis—the judgment made within the five economic tests document and the preliminary studies. There, the Government are on better ground. The assessment that they have made and, in particular, their quantification of the potential gains from joining the euro are credible and significant. Some people have suggested that the Government's estimate of an increase in the trend rate of growth of the economy of about a quarter of a per cent. per year, which they claim is possible if we join the euro, is in some ways a trivial amount. People who suggest that do not understand the powers of compound interest and the huge impact that that sort of increase in the trend rate of growth could have on the economy and economic growth over time, or the fact that it could provide the resources that we need to improve our public services and tackle poverty.
I also find it more credible that the Government should come up with an estimate of that nature than with some of the inflated figures that are often produced by advocates of the euro, who like to pretend that it would be a universal panacea for every type of economic problem. We are more likely to convince people of the value of the euro and its economic benefits if our claims are modest, sensible and well informed rather than over-hyped. The Government have made a sensible judgment by coming up with that calculation. It shows how much wealthier the country could be over the years if we decide to go into the euro and achieve the gains so clearly spelled out in the Government's documents.
Until now, the greatest economic impediment to joining the euro has been not some of the issues that the Chancellor of the Exchequer has mentioned recently—one suspects as a smokescreen to give him time to delay the decision and kick it into the next Parliament—such as the changes in the housing market, but the overvaluation of the pound against the euro. Although the Chancellor insists on implying that the Liberal Democrats have been urging the Government to join the euro at all times in the past few years, he should be fair and admit that we have always acknowledged during that time that the pound has been seriously overvalued and that we could not contemplate going in at that level.
Indeed, the Chief Secretary will no doubt have read the excellent Liberal Democrat commission document to which a number of respected economists including Martin Weale contributed two or three years ago. In 2000, that committee assessed the long-term sustainable rate of the pound against the euro and came up with a range of 1.25 to 1.45, which turns out to be almost identical to the 1.37 mid-point that the Government have come up with in their economic assessment. As we are now much closer to that figure as a result of the appreciation of the euro in recent months, that removes one of the greatest impediments to joining the euro. It should be a reason for the Chancellor to stop finding bogus economic excuses among the five-tests document for delaying the decision as long as he wants for political reasons, and to begin to grapple with the serious economic issues.
Mr. Wilkinson: The hon. Gentleman's comments have been largely confined to the domestic situation. If joining economic and monetary union and participating in the eurozone is going to open up a land of milk and honey and bring prosperity to the British people, why do the core economies of the eurozone have a much higher unemployment rate than ours? They have been in EMU since it started and their work forces do not seem to have done very well out of it.
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