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Lord Hamilton of Dalzell: My Lords, is not the point from whom they get their instructions; to who they are attached logically? If they are euro Ministers it does not matter if they are over here or over there--if they are getting all their instructions from European Commissioners.
Lord Newby: My Lords, if it were the case that they were getting their instructions from the European Commission, it would not matter if they were here or there. If they were not getting their instructions from European Commissioners, equally that point does not bear carrying any further.
As to the business sector, the Government have got their phraseology and substance the wrong way around. It is not realistic to expect business to prepare in advance of a decision, except in the case of very large businesses and banks. It is unrealistic to expect many
businesses to incur substantial expenditure without a clearer lead from government as to their intentions and the timetable. One sees that in the way that business has responded to the introduction of the euro. Big businesses were spending money, time and effort in advance of the euro's introduction but many--including those that do a lot of business in the eurozone--only started invoicing in euros and taking the currency seriously after its introduction. It is wishful thinking to expect too much planning by too many businesses at this stage--although I am reassured that many of the larger banks are already devoting significant resources to the matter.The noble Lord, Lord Cockfield, spoke about retailers and price conversion. It seems to me that that will be a major issue. It was a major issue in decimalisation and will be more significant with the introduction of the euro. Although I understand why the Government are reticent about considering legislation, pointing out that only in Austria has dual-pricing legislation been introduced, that aspect needs further consideration, if only to give political reassurance that customers will not literally be short changed when the euro is introduced.
It is only too easy to be critical of the national changeover plan because it lacks the two things into which it needs to breathe life--a clear rather than ambiguous commitment on whether the Government really believe that we should join EMU at some point, and an indication of the timing. We on these Benches believe that it is in Britain's long-term economic and political interest to join. The sooner that is clearly enunciated by the Government, the better it will be for the UK economy and our political influence and the sooner we can begin planning properly for the changeover.
7.34 p.m.
Viscount Bridgeman: My Lords, there has been a distinguished list of speakers and we have not been disappointed by the contributions made. On the basis that the word "never" is not part of the vocabulary of those of us on this side of the House in this context, our objection to the plan is not so much its content. Any prudent preparation for entry into EMU, if and when it occurs, would require such preparation. Our objection is to its timing.
The noble Lord, Lord Grenfell, rather wrote off the costs to various businesses. If the vote goes in the no direction Sir Stanley Kalms of Dixons has said that the cost to his company would be £40 million, which will largely be wasted if we do not go ahead.
The other notable omission from the document is the point at which the pound would be locked into the exchange rate. If the pound is locked into the euro shortly after a referendum, the pound would have to start shadowing the euro, as required by the Amsterdam Treaty, before the next general election. That is in direct contravention of a reply by the Prime Minister to my right honourable friend the Leader of the Opposition on 24th February. The noble Lord, Lord Grenfell, indicated that a rather more flexible approach to shadowing will be taken. We shall be interested to hear the Minister's comments. I do not believe that the timetable of my noble friend Lord Cockfield will solve that problem.
Lying at the heart of our objections is the lack of economic convergence. The noble Lord, Lord Peston, said that the points had already been rehearsed. They have but they will not go away. An omission from the plan is that no view is expressed by the Government as to whether or not the British economy is becoming more convergent with those of the eurozone. We reiterate, that is a vital condition before Britain even considers joining the single currency. It is worth repeating these facts. The domestic mortgage debt is a totally different shape. The pensions regime is totally different, in that ours is practically totally funded whereas those of members of the euro zone are largely unfunded. There is also the point about our trade outside the EU which was made by my noble friend Lord Skidelsky.
Lastly, and most importantly, the UK is the only member state that is a net exporter of oil. The Treasury confirmed in October 1997 that that is likely to remain the case for the forseeable future, with reserves possibly in excess of UK production to date. Changes in oil prices will surely have a mirror effect on our economy and those of the eurozone, affecting the rates at which we go in. Again, that point was emphasised by my noble friend Lord Cockfield. Given the Minister's particular background, I should much welcome his explanation on that point.
Despite the damage done by Labour's policies, the UK has far more flexible rates and lower unemployment than the rest of Europe. Our labour costs are lower than in Italy, France and Germany. Our concern is that, denied the option of exchange rates, interest rates and fiscal transfers, we would be left with the danger of imported unemployment.
Finally, I refer to the referendum. The Government are committed to a referendum. In view of the Neill report, perhaps I may sound a warning note to the Government that that referendum must be fair. Are we to have a recommendation to yes, to no or to neutral? I shall very much welcome the Government's response on that point.
Therefore, it is not the principle of entry which we on this side of the House dispute; it is the timing. In our view, the Government are forcing the pace and we urge them to reconsider their timetable.
7.40 p.m.
Lord Simon of Highbury: My Lords, immediately, I thank all noble Lords who have taken part in the debate. I agree with the noble Viscount that it has been an extremely interesting debate with many high quality contributions which the Government will read with care.
I enjoyed the clarification from noble Lords on the Opposition Front Bench that the real problem with the plan is the timing rather than the content. We can argue about that--and they would probably do so for at least another decade. Our intention is to do something about entering the euro. The first practical step that we can take, as we have said, is to prepare thoroughly so that the nation has the opportunity to take a decision which can then be carried out without delay in the interests of the nation, if that is its choice. Therefore, I am sorry that the noble Lord, Lord Skidelsky, regrets that we have put the plan on the table.
The noble Lords, Lord Williamson and Lord Kingsdown, and my noble friend Lord Grenfell put forward arguments as to why we need to prepare to give ourselves clear options--and they did that much more succinctly and with much more weight than I could. I was glad to hear those arguments because it seems to me to be pertinent that the plan should make real the options for the country. Therefore, I make no apology whatever for the nature of the plan, its contents or, indeed, its timing. The decision cannot be delayed beyond--we have made this very clear--early in the next Parliament.
My noble friends on this side of the House made extremely coherent contributions; in particular, my noble friend Lord Barnett. They have asked me whether I can clarify the position between "if" and "when". The noble Lord, Lord Cockfield, asked me quite the most complex questions that I have ever received at this Dispatch Box about whether the election will be in 2001 or 2002. They have taken me into territory for which the Prime Minister did not hire me. My psephological skills have always been known to be far less developed than my commercial skills and I shall let the matter rest there.
However, I was asked whether "if" is becoming "when" and whether the eye of the beholder is becoming more fixed upon his future target. Couched in those terms, I would say "yes". Our Prime Minister said that it is our intention to join the single currency, but we maintain the proviso that it must be in the economic interests of the country. We shall not take that away because we need time to adjust our economy so that we can put clearly to the people that it is in their interests that we join the third stage of monetary union and enter the euro.
Lord Skidelsky: My Lords, I thank the Minister for giving way. Will he explain the difference between saying, "It is our intention to join if the conditions are right", and saying, "We do not know whether we are going to join"?
Lord Simon of Highbury: My Lords, certainly there is a difference; that is what one does about attempting to make sure that the conditions are in place. The point of the five tests is precisely so that we can direct a route which will make our likely entry even more likely. The point of the five tests is that they demonstrate how the Government are setting out their progress towards changing the way this economy behaves and enabling the decision to be taken against a background of greater economic stability and predictability than we have had in the past.
Again, I am rather in the camp of my noble friend Lord Grenfell because I consider those five economic tests to be important, perhaps more important than some of my noble friends behind me have suggested in this debate. The key issues for our economy are convergence and stability with the economies on the Continent. I do not want to become involved with the noble Lord, Lord Skidelsky, in too many discussions about trade figures, but the fact is that 54 per cent of our trade goes
to our continental partners and 13 per cent goes to the USA. Therefore, whichever way one tries to turn the figures, the balance and the bias is towards a stable and competitive relationship with our European partners.I agree with the noble Lord, Lord Cockfield, that the absolute cornerstone of the single market, the free movement of goods, people and services for which we have been striving within the European Union, is the single currency because that demonstrates the competitiveness and relative productivity of the member states which are in the Union together. That is the advantage to consumers and that is why the five tests are so crucial to us.
The noble Lords, Lord Skidelsky and Lord Newby, asked me how we are doing in convergence terms and whether those tests are important. Yes, they are extremely important. It is important that we gain convergence with our inflation rate and our cost of money. It has been a major advantage to continental rivals to have a low cost of money and a sustainable investment environment which is brought about by low inflation. That is the cornerstone of our policy and is one of the five pillars on which we shall build our judgments. We are doing better. As was pointed out in the debate a year ago, there was a 400 basis points premium for short-term money which our businesses were having to pay in this country. That has been reduced to 275 basis points, broadly, in the current circumstances, and the five to 10-year money rate is also converging. It is now 60 basis points premium on the continent, or thereabouts. But we must bring ourselves into a state in which our front-end inflation expectations and cost of money are on par with those of our colleagues on the continent. They do not have to be exactly the same. Sustainability is not about single-point forecasting.
That takes me to the issue of the exchange rate, which has been raised. We do not believe that there will necessarily be a precondition of membership of the exchange rate mechanism. We do not intend to enter an exchange rate mechanism because we do not believe in a single-point forecast. We believe in following policies of sustainability, low inflation and encouragement of investment which will have outcomes in an exchange rate which the market will set, and the market will set the range of rates at which we make a judgment about the future sustainability of our position relative to our colleagues on the continent. That is how we intend to approach the negotiations with our partners which must take place in parallel with our own preparations which we have set out in outline in this plan.
Therefore, those are two key issues which have been raised on which I have tried to shed some light. As I said, the timetable will be set by the political calculations but also by our economic preparations. Our target is, as early as possible in the next Parliament, to take the decision to put this proposal to the nation.
On the exchange rate, there is no intention of entering the mechanism again, but we shall have a set of policies that will allow sustainability to be judged by the market-place, ourselves and the nation at a point at which we take the decision.
Briefly, I should like to dwell on some individual points made about that market-place. The noble Lord, Lord Kingsdown, made an extremely valid point about the nature of the market we shall be entering and the nature of world-wide competition between three major blocs, the USA market-place, the European market-place and the Japanese market-place and its surrounds. It is absolutely important that we come to terms with the necessity to take a decision about the UK's place in relation to those future competitive structures. That will be absolutely vital to us. It is not about looking back at our history, but about looking forward to where competition and market-places will take us in the future.
I agree totally with the noble Lord, Lord Newby, that we are debating these issues currently. When I open my newspaper every day, I see those issues debated all the time. It is absolutely right that they should be, but I do not understand the statement that this plan about the alternatives is being put forward in an intellectual vacuum. The alternatives about the market-place are debated quite correctly by companies all the time. Companies take their decisions.
That brings me to the points about the cost of the exercise and the risk that companies take. It allows me to answer a question raised by the noble Viscount, Lord Bridgeman, on the issue of oil. I can speak for the oil industry as I still understand that industry even after two years away from it. Once outside such businesses one's lifetime as an expert is short. I should not want to estimate either the date of the UK joining the euro or the future oil price. All I know of current levels is that they present a small problem to us in terms of the management of our economy because we do not receive many revenues at such price levels. I do not think that it is a significant feature of the economic structure.
Perhaps I may refer to major industries and their preparation costs. Major industries have been preparing, as the noble Lord, Lord Newby, said, by and large because they understand risk, reward and opportunity costs. Preparation now means that the whole process will be much cheaper. Of course, a political judgment has to be taken, but that is what most business people are paid for. They do not view life as a certainty. They look at the risks and rewards and they make their judgments accordingly. I know, from my own company, that we took a judgment at least five years ago of how the market-place would develop and we placed our bets accordingly with, of course, the approval of our board.
That is the nature of the discussion about costs. It is about risk, reward, opportunity costs and who sees a competitive advantage and is prepared to take the risk. It may well be--that is why we have spent a lot of time on SMEs, the small business sector--that more understanding and preparation is needed of the risk and reward balance. When I started this work 18 months ago, I was shocked to find that most of our SME community assumed that an opt-out meant that we
would have nothing to do with the euro and that it would not impact on their businesses. We now know that nearly 50 per cent. of our small and medium-sized companies are either trading with Europe, competing with Europe or are supplied from Europe. For SMEs to assume the euro would not impact on them was very dangerous in terms of business. I believe that the awareness and understanding of the small business community will grow by the nature of this exercise of preparation. The point of the national changeover plan is to make business more aware of the risk and reward profile which is in front of them.I have tried briefly to cover some of the main points made by noble Lords on both sides of the House in what has been an interesting and helpful debate. To summarise, I believe that the Government's policy on UK membership of the single currency has been given much support in the House. It is the right policy. It is the policy that, ultimately, will give people a genuine choice. We must prepare and then decide. The decision will be made by Government, Parliament and the people. The task for Government and for business now is to continue to make the necessary preparations to ensure that British companies are fully equipped to do business in the euro while the UK is outside the euro and to make the practical preparations for the possibility of joining.
On 23rd February, when we published the changeover plan, we made it clear that we wished to have the option of joining the euro and that the British people must be presented with a genuine choice. Now we have made a change of gear in the preparations. The public sector is leading with IT investment and detailed planning. If the country decides that it wants to join the single currency, we estimate that the timetable for a positive referendum result from that date to the withdrawing of sterling could be completed within three years.
En passant, I would say to colleagues who raised the lateness of the time that the key issue in the timetable for most businesses is the joining date, the date when the currencies become fixed, which will be early in the cycle, as early as we can make it within the outline timetable plan. Of course, for the retail sector and the small business sector, notes and coins are also crucial. However, on the risk decisions that people have queried in the debate, we have outlined in the plan the joining of the currencies, which can happen quite early in the cycle.
I conclude by saying that we are grateful for the help that we have had from the business community to produce this plan. We look forward, using the ideas we have heard in the debate today and those that we shall receive in our further consultations, to making further real, practical preparations and to preparing the next document early next year. I beg to move.
On Question, Motion agreed to.
- House adjourned at three minutes before eight o'clock.
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