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6.28 pm

Mr. Mark Prisk (Hertford and Stortford): I draw the House's attention to my entry in the Register of Members' Interests.

This has been a timely debate, although perhaps not if one is a Liberal Democrat. I was not sure whether the hon. Member for Yeovil (Mr. Laws) was acting as spokesman for the Liberal Democrats or acting as a literary agent. His endless references to biographies and so on seemed something of a distraction.

This has been an informed debate and we have heard some excellent contributions from both sides of the House. Indeed, I commend the contributions of the hon. Members for Warwick and Leamington (Mr. Plaskitt) and for Hackney, South and Shoreditch (Mr. Sedgemore). As we came to end of the debate, we heard the contribution of the hon. Member for Luton, North (Mr. Hopkins). Perhaps more than any other speaker in the debate, he showed that one does not have to be in the euro to be a good European.

We heard tremendous speeches from Conservative Members. My right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) gave an eloquent exposition of the reason why the economics and politics of the euro are inextricably interwoven. My right hon. Friend the Member for Wokingham (Mr. Redwood) made a typically robust speech in which he drew out the central question of volatility. I was sorry that I missed the speech made by my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), although I am told that it was both humorous and honest. It is interesting that he and my hon. Friends the Members for Sevenoaks (Mr. Fallon) and for Chichester (Mr. Tyrie) were able to encapsulate all the key issues that we are considering in their short yet strong contributions. I enjoyed not only the rigour of the speech made by the hon. Friend the Member for Chichester, but his comparison involving stoats, and I shall remember his speech in that context.

Conservative Members welcome the debate on the Government's policy on the euro because it relates to perhaps the single most important decision to face this country for a generation. It is important because of economic and constitutional implications and because such a decision, once taken, is irreversible. Although we have largely focused today on the broad monetary and fiscal aspects, the real significance of the euro is that it affects each and every Member of the House and all those whom we represent.

With a single currency, of course, would come a single interest rate, which would set the cost of borrowing for home owners and business and the value of savings. It would affect the cost of the goods and services that we buy and the worth of our assets. Thus no one in the House or beyond it is immune from the decision. That was why everyone was hoping that after months of Cabinet wrangling, the announcement on 9 June would provide clarity and certainty. Indeed, as the director general of the British Chambers of Commerce, David Frost, said a week before the announcement, on 1 June:

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"Any euro verdict that can be reopened and reviewed, within 12 to 18 months, will be potentially destabilising and will lack credibility."

Sadly, the Government were not listening. Instead of a clear and unambiguous decision, we got a political fix. The Chancellor announced that four of the five tests had failed, but then said that the Government would go out and promote the case for the euro anyway. Worse still, he announced that the whole process would be rerun in a year's time, thus creating maximum uncertainty. As the highly respected chief executive of Next plc, Simon Wolfson, pointed out:

"Business wants certainty, so that it can plan ahead with confidence. What it does not want is continued speculation over whether the Government intends to take risks with the British economy in order to pursue its political ambitions."

What of the famous five tests? As several hon. Members said, the first and most important is the need for sustainable convergence—the stability test, as the Chancellor put it. The former Governor of the Bank of England, Sir Edward George, said that there was a risk if countries' economies were not convergent:

"The risk is that a single interest rate, which has to go with the single currency, is not going to be appropriate for all the member countries at the same time."

Indeed, the problem is ideally illustrated by the current combination of a boom in Ireland and the record unemployment in Spain and Germany to which hon. Members in all parts of the House referred.

According to the Treasury's analysis, convergence of the UK economy and eurozone economies is likely to be especially difficult. As the shadow Chancellor told us, the document "Analysis of European and UK business cycles and shocks" says:

"It is generally recognised that fluctuations in UK GDP are . . . idiosyncratic in certain respects, when compared to behaviour in the euro area countries."

However, most tellingly of all, the study concludes:

"It remains true that the UK's cycle is strongly correlated with that in the US, somewhat more so than with those in Europe."

There is, however, a second aspect to convergence that is equally important: sustainability. Even if, at a particular moment in time, this country's inflation rate, interest rate, growth rate, unemployment rate and so on were similar to those in other European economies, it would be wrong to assume that that was sustainable. Given the Treasury's view that the UK economy is idiosyncratic, it is far more likely that our economies would be like ships passing in the night, coming together momentarily before moving off in different directions. The chief economic adviser to the Treasury, with whom I assume the Chancellor is familiar, Mr. Ed Balls, stated:

"If interest rates and the exchange rate come down sharply, you haven't got a settled and durable convergence."

It is clear why the Government thought that the test had failed.

The second failed test related to economic flexibility. Following the Conservative Government's reforms of the 1980s and 1990s, this country's ability to respond to mobile and price-sensitive capital and labour movements was transformed. In spite of this Government's best efforts to weigh British business down with 15 new regulations every working day and additional annual taxes of £15 billion, this country is still managing to compete.

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What is of equal concern, however, is the lack of flexibility in the eurozone economies. Indeed, in April the Treasury Committee stated that

"insufficient progress has been made in the Eurozone in making labour markets more flexible."

Even the Prime Minister conceded, in a recent review of progress on the Lisbon objectives, that

"there remains a daunting amount to be done."

On the third test of investment, to which several hon. Members referred, the Chancellor stated:

"If sustainable and durable convergence is achieved, then we can be confident that the quantity and quality of investment would increase, ensuring that the investment test was met."

Note the all-important word "if". As we have learned in the debate, no such sustainable convergence has been achieved and nor is it likely to be achieved. One thing has become clear, however. Three years ago we were warned that if we did not join the euro we would lose inward investment. Yet, as Barry Bright, head of Ernst and Young's UK location advisory team, says:

"The issue of euro membership appears to be a bit of a damp squib, as far as inward investors into Europe are concerned."

Indeed, Ernst and Young's latest figures show that Britain's share of EU inward investment projects rose from 26.5 per cent. in 2001 to 28.4 per cent. in 2002. Conservative Members will be aware that that is still significantly down from the 40 per cent. achieved under the last Conservative Government.

Of course the one test that the Government reckon did succeed related to whether entry would have a positive impact on our financial services industry. Apparently, the Government's answer was yes, it would. Yet at the same time the Treasury's paper "The location of financial activity and the euro" conceded that

"the euro has not affected London's ability to compete in international wholesale markets."

That simply affirmed the earlier report by the Bank of England in 1999, when it stated:

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

That raises an awkward question, to which I hope the Chief Secretary will respond. If it makes little difference to financial services whether we are in or out of the euro, what function does the test serve?

The final test on employment, which the Government declared failed, seems similarly inconclusive. While some people like to claim that joining the eurozone would immediately and significantly boost jobs, a large part of the evidence seems to disagree. Even the Chancellor has admitted that

"macroeconomic stability would be harder to maintain inside EMU than outside, were the UK to join at the present time",

and of course stability is crucial to growth and jobs.

A number of hon. Members have rightly highlighted the findings of the 18 documents that accompanied the Chancellor's statement—and yes, I have read all 1,700 pages or so, which is a good comment from a professional point of view, although I am not sure whether it says much about my social life around 9 June. Nevertheless, I have read all the documents, and I should like to consider an issue that applies to a number of them.

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In their study of housing consumption and the euro, the Government recognise that housing has a vital influence on whether the UK meets the key test on convergence, not least, as hon. Members have pointed out, because of an historic preference by British homeowners for short-term variable mortgages. The Chancellor told us on 9 June that it was his intention to review the mortgage market. He has affirmed that today. He also told us that he would accelerate the rate of house building. Given this Government's record in that regard, that will not be very difficult.

In the accompanying document, the entertainingly entitled "Fiscal Stabilisation and EMU", we were treated to what I can describe only as a psychedelic trip back to the 1960s, with an agenda of active Keynesian-style fiscal regulators that would enable the Government to vary indirect taxes several times a year, and also in different parts of the country, in order to stabilise the economy. According to the Treasury,

"investment in housing is relatively lightly taxed by comparison to other investments".

Of course, that ignores the small fact that, for most of us, our house is our home. However, as my right hon. Friend the Member for Wokingham rightly highlighted, the document goes on to look at other issues about property taxes and how they could be used to dampen the housing market in raising stamp duty land tax or imposing capital gains tax on our homes. Naturally, many people following this debate will be deeply concerned by those statements—[Interruption.] If the Chief Secretary could stop listening to the Chancellor for a moment and listen to the debate, perhaps I could ask him to reassure the House on these questions. Does he believe that housing in the UK is lightly taxed? Does he support the statement that taxing housing has some immediate appeal; and which—stamp duty land tax, capital gains tax or even VAT—does he think would be preferable?

The decision whether to join the euro is vital to this country's future direction. It is an issue that affects us all, and as it is irreversible it is a decision that must be based on clear and unambiguous evidence. On 9 June, the Government had a wonderful opportunity to end the backstairs bickering and Cabinet squabbles and give us a clear direction. Instead, we were told that while four of the five tests had failed, the Government were going to go ahead anyway and promote the case for the euro. Instead of a firm decision helping investment and jobs, we got a threat of endless uncertainty undermining business confidence. Instead of a principled decision in the country's best interests, we got a political fudge in Labour's best interests.

As on so many issues, this Government are failing to provide either the direction or leadership that they promised. What a breach of faith, and what a wasted opportunity.

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