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Lord Graham of Edmonton: My Lords, steady on there. That is a bit thick!

Lord McNally: My Lords, if that does not do for the Minister, nothing will. But from other Members of the Back Benches on both sides of the House we get the most ludicrous idea that somehow there is a world outside Europe in which we can prosper. The figures do not add up. The average German spends three times as much on British goods as the average American. France spends as much on British goods as almost the entire Commonwealth. Holland, with only 15 million people, takes up exports greater in total than exports to the six Asian tigers, China, Indonesia and the Philippines together. We sell more to Sweden than to the whole of Latin America, from Mexico to Cape Horn. I could go on. I point these facts out not in a claim for a Fortress Europe, but simply to say that the idea of "Out of Europe to the open sea" is really "Stop the world, I want to get off". We have got to make Europe work; that is where the prospects lie for the British economy.

The Minister was quite right. We have a vested national interest in making Europe work efficiently. Quite frankly, unless the Government begin to take notice of the voices that are beginning to assemble elsewhere in our society and take some leadership action, then they are going to do extreme damage. The encouraging factor about what is happening now is that, perhaps belatedly, the City and industry, and those who control inward investment, are beginning to raise their voices about the need for leadership on these matters. For example, the assessment of the respected law firm Wilde Sapte is:

"What has become very clear is that the single currency will become a reality and that it will start on 1st January 1999. Fog in the Channel really does seem to have cut the Continent off from Britain. On this side of the Channel we seem to have been under the mistaken impression that the whole idea of the single currency would come apart at the seams before it ever saw the light of day, with the result that neither Major nor Blair would ever have to decide whether to take Britain in or exercise the Maastricht opt-out and stay out. What has only recently dawned on us is that most European governments and peoples are, enthusiastically or not, committed to the single currency".

Are we never going to learn the lessons of Europe? Wilde Sapte goes on to say,

"It is likely that those countries not in at the start will try to get in soon after. Even Denmark is not going to stay out if the only 'out' is the UK".

Does that sound familiar? Even I am old enough to remember, after we stayed out of the Messina Conference, the attempts to form EFTA. We are not going to be able to form some EFTA currency as a rival to the euro. Our fate will be beggar-my-neighbour devaluations, constantly high interest rates and a status which will not long be tolerated as an off-shore

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sweatshop. That is why we are now getting warnings from the captains of British industry such as Unilever, BP and the rest. That is why some of the much-vaunted inward investors Ministers are so proud of are sending up distress signals.

Perhaps I may now give a quote from the City. Michael Cassidy, writing in the Financial Times says,

"There is a much bigger prize to be won from being at the heart of Europe under a unified currency. As the financial centre of a market of almost 400 million people, London could overtake New York and Tokyo to become the world's number one international financial centre, an asset to Europe and an asset to Britain".

The message is clear. The country has no further time for drift. It is time that our political leaders faced up to the realities and the responsibilities. The decision on EMU and the single currency is a political decision with political implications. My party has never flinched from that. The truth is that British industry, British inward investors, our financial institutions and our trade unions all see the value of an early decision on the single currency. But what do we find? What is the reality? What is the background to tonight's debate? One only has to read tonight's headline in the Evening Standard which states:

"Rifkind v Ken: now it's war".

That is what is said about our Foreign Secretary and our Chancellor of the Exchequer and what is probably the single most important decision that this country has to take.

The reality behind that headline and so much obfuscation at the Dispatch Box both here and in another place is that this Government are riven from top to bottom on Europe. They are incapable of taking the decisions that this country needs on EMU and the single currency. It is inevitable now that the key decisions will have to be taken by a new Parliament. The strength of my party, with its clear commitment to Britain, is that every vote for a Liberal Democrat and every Liberal Democrat returned to Parliament will argue for that strong leadership which is now so lacking. We shall support a British Government who are willing to provide that leadership. That is why I await with interest, and shall listen with great care, to the clarion call that I now expect from the noble Lord, Lord Eatwell.

8.12 p.m.

Lord Graham of Edmonton: Follow that!

Lord Eatwell: My Lords, annual rituals are often fun. The annual Budget debate, for example, is always exciting, even if, as was the case this year, nothing happens. We look forward to it every year in the hope and belief that revisiting familiar territory will bring something old and something new.

Last weekend when I was contemplating this evening's debate, I thought rather sadly that this particular annual ritual would bring nothing new. Incidentally, I am delighted to see the Government's two leading participants in this annual ritual present on the Government Front Bench. Once again, despite

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the protests which have been made for the past four years from all sides of the House, the Government have shown their contempt for Parliament and for Section 5 of the European Communities Act by regurgitating the Red Book for debate rather than providing a report in the form required by the Act. Once again, despite annual criticism, the Government have stated in paragraph 2.09 of the Red Book:

"The Government's fiscal objective is to bring the PSBR back towards balance"--

that is, to borrow nothing--while at the same time ensuring,

"that when the economy is on trend the public sector borrows no more than is required to finance its ... capital spending"--

that is, to borrow something. The Government say that they will borrow nothing and borrow something in the same sentence.

Last year the noble Lord, Lord Mackay, sought to answer my criticism of an identical statement by simply repeating it, but no amount of repetition will make a false statement true. No amount of repetition will remove the fact that that fundamental statement of the Government's fiscal objectives is internally contradictory.

Anyone who has concern for Britain's reputation abroad must be worried by the fact that a document that fails to contain a clear, logically consistent statement of the Government's economic policy should be forwarded as a report to the European Commission. There are many inconsistencies in the document. First, it is not a piece of sober, technical economic analysis but an overtly political and partisan document. As well as the customary fudging of the figures, there are paragraphs of self-congratulatory puffs of selective quotations from distinguished international bodies. It is all rather like the selective quotations on posters for second-rate theatrical shows.

Secondly, there is a distressing number of economic errors--technical errors and inconsistencies--which it would be advisable to remove from the document if it is to be subject to scrutiny in Brussels. Central to that scrutiny is the level of the government deficit, yet it is extraordinary that on that vital issue there is serious confusion in the document in the discussion of the decline in the PSBR. In paragraph 2.11 of the Red Book we are told:

"The projected improvement in the PSBR is largely driven by the Government's tax and spending policies".

However, if we turn to paragraph 3.48 we are told that,

"the continuing fall in the public sector deficit is mirrored by a decline in the private sector ... financial surplus from 5 per cent. of GDP in 1995 to ... 2 per cent. in the first half of 1998".

Moreover, paragraph 3.26 tells us that the behaviour of that private sector financial balance is driven primarily by the decline in the personal sector savings ratio. Which is it? Is the public sector balance the outcome of changed spending patterns in the personal sector or the outcome of changed tax and spending policies? The Government do not seem to know. The answer to that question is vital in assessing the true health of the Government's finances and the true health of the British

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economy. Are we repeating the errors of the Lawson "boom and bust" when consumer spending created an illusory financial health and an illusory government surplus? The Government do not seem to know. They just face both ways.

However, the report contains one very clear statement with respect to the Maastricht criteria. It is the statement that the UK will in 1997 satisfy the Maastricht criteria on public deficits and debt required for entry into economic and monetary union. It is a positive statement. It is made several times in the report. It is a statement about the ability of the UK to enter the single currency.

At last we have something real to celebrate, for today there has been a significant restatement of government policy on the single currency. Indeed, there have been several restatements--all contradicting each other. This evening the Minister has a unique opportunity to clarify government policy. He is the only Minister in the entire Government who will be standing at the Dispatch Box today answering questions on government policy towards the Maastricht criteria and the single currency. Some are born great, some grow to greatness, some have greatness thrust upon them--the Minister has had this moment thrust upon him, so will he tell us clearly and simply this evening, when the Foreign Secretary said on the radio this morning,

"On balance we are hostile to the single currency",

was he stating government policy--yes or no? When the Chancellor of the Exchequer said today that the Foreign Secretary's statement was a "slip of the tongue", was he stating government policy--yes or no? Both cannot be right. Are the Government "on balance ... hostile" or was the use of the word "hostile" a "slip of the tongue"? Given the importance of this matter, I give way to the Minister so that he can answer those questions.

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