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Euro
Question
2.56 pm
To ask Her Majesty’s Government what assessment they have made of how conditions for United Kingdom membership of the euro may alter in coming months.
The Financial Services Secretary to the Treasury (Lord Myners):My Lords, the Chancellor announced in the 2008 Budget that,
The Treasury will again review the situation at Budget time next year, as required by the Chancellor’s June 2003 Statement.
Lord Dykes: My Lords, is that not a disappointing reply? Does the Minister not agree that our excessive non-sterling debt liability is only one of many factors pointing in this eventual direction? If successful economies, such as those of Germany, France, Italy and Spain, can benefit so much from euro membership, why cannot Britain?
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Lord Myners: My Lords, I do not regard it as a disappointing Answer. It is rooted in a very clearly stated policy from October 1997 that in principle this Government believe that it is appropriate for us to join the single currency but only on satisfaction of critical conditions, as set out in the five tests and three supporting principles. That continues to be our view, and the Chancellor of the Exchequer will no doubt advise the other place should that change.
Lord Pearson of Rannoch: My Lords, further to the supplementary question of the noble Lord, Lord Dykes, have Her Majesty’s Government studied the recent analysis from the Conseil d’Analyse Economique—perhaps the leading French economic think tank, which reports direct to the French Prime Minister—which concluded that neither the euro nor the single currency has had any positive effect on the French or any other European economy since inception?
Lord Myners: My Lords, I am afraid that I have not read the report but I am sure that the people in the Treasury have. I remind noble Lords that in terms of drawing on academic and independent research this Government’s response in 2003 was probably the most thorough, complete and independently supported conclusion that we have seen on euro membership. We concluded that that was not the appropriate time to join the single currency, particularly because there was clearly not economic convergence or sufficient flexibility within the European and British economies. We are seeing that convergence and flexibility continue to move forward within Europe but they are still not being fully achieved. We will watch those developments with interest.
Baroness Noakes: My Lords, last week the EU President offered the view, gratuitously, that the UK would have been better off in the current turmoil if it had already been part of the euro. Does the Minister agree that, had we been foolish enough to join, our economic position would have been very much worse?
Lord Myners: My Lords, I was not privy to the conversations that Mr Barroso had. He said that he was speaking to people in the know who were responsible and respected. I was not one of those, but I believe that the views he expressed were his. I do not think that the conversations he had were linked to anybody in particular. Accordingly I have nothing further to say in response to the noble Baroness, Lady Noakes, on that matter.
Lord Hamilton of Epsom: My Lords, does the Minister feel that we are nearing the moment when one of the countries involved could drop out of the eurozone? The difference in the interest rate being paid in Greece and in Germany, for instance, has now reached 123 points. Is it not only a matter of time before one of the countries gives up the euro entirely and returns to its own currency?
Lord Myners: My Lords, one reason why the Government have been so cautious is our recognition that the decision to join the euro is irrevocable and
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Lord Jones of Birmingham: My Lords, are we not, with respect, dancing on a pinhead here? The point is not whether the conditions are right but, as the Minister just said, that adopting the euro is an irrevocable act and the success or failure of the nation’s economy for years ahead will be defined by the rate at which we join. I have in mind particularly the rate at which Germany came in and the rate at which France came in. Is any work being done on the tolerance in negotiation regarding the rate of entry, should certain Members of your Lordships’ House ever have their way?
Lord Myners: My Lords, the rate is the absolutely critical issue at the point of entry. However, a fixed rate that does not take account of the fact that different economies are at fundamentally different points in their cycles will rapidly prove to be the incorrect rate. The tests around convergence, flexibility, capacity to attract investment, support for the large financial services sector which we have in our economy and the overall contribution to stability, growth and employment are therefore critical. Those are all partly pulled together in the rate but it would be overly simplistic to see the rate as the starting point for the decision; rather it is the point at which we get alignment. At that point we crystallise and at that point entry would be a viable option. Until we are at that point it would be wrong to speculate on the rate. However, within the Treasury there are people constantly reviewing the progress of the European economies vis-Ã -vis our economy and those elsewhere in the world.
Lord Sheldon: My Lords, is it not clear that France, Germany, Italy and Spain have, since they joined, done extremely well out of the resulting combination? Given the way in which the pound has fallen over the past few months, is it not clear that we need to look again at whether we should be joining?
Lord Myners: My Lords, my noble friend Lord Sheldon is perhaps missing the point that, in six of the past seven years, the UK has been the second fastest-growing economy in the G7. Our not being in the euro seems to have been no impediment to our achieving high rates of growth, low rates of inflation and low rates of unemployment.
Lord Newby: My Lords, as the Minister will be aware, Europe is increasingly co-ordinating its economic policy through meetings of the eurozone Finance Ministers, of which we are not a member. How do the Government intend to make sure that their influence is fully felt across EU decision-making in economic policy when they are not sitting at the table?
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Lord Myners: My Lords, there is no reason to believe that the views of the Prime Minster and the Chancellor of the Exchequer are not well heard in Europe.
Lord Soley: My Lords, does my noble friend agree—third time lucky—that it would be a serious mistake to rule out entry into the euro for all time, as the shadow Chancellor of the Exchequer in the House of Commons appears to have done? Does he also recognise that the British situation is rather different from that of a number of other European countries, not least because our economic cycle tends to track that of the United States rather than that of Europe? That makes his point about the level at which we enter a particularly important and sensitive one for the UK economy.
Lord Myners: My Lords, the Government’s position remains that in principle we are in favour of joining the single currency. I am glad that I do not have to defend the views of Mr George Osborne, as I think that I would find myself spinning to the point of complete dizziness.
Lord Barnett: My Lords, does my noble friend accept that even though the five tests never made any sense in 1997 and do not now, the chance of the Government going for a referendum on the issue is so remote that it would be as well for him to say that we have no intention of joining?
Lord Myners: My Lords, my noble friend may well be right in his comments about the tests in 1997, because they were not actually published until 2003. They were published in June 2003 for the benefit of the noble Baroness, Lady Noakes—who looks somewhat perplexed—in terms of our assessment of our progress against them. That is what gave the tests body and form. Our position continues to be that in principle we are in favour of joining the single currency.
Lord Roberts of Conwy: My Lords, we have slipped from being the fourth richest economy in the world to being the sixth. Has that anything to do with our absence from the euro?
Lord Myners: None that I am aware of, my Lords.
Equal Pay and Flexible Working Bill [HL]
First Reading
3.06 pm
A Bill to amend the Equal Pay Act 1970; and to make provision about flexible working.
The Bill was introduced by Baroness Morris of Bolton, read a first time and ordered to be printed.
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Arrangement of Business
Announcement
3.07 pm
Lord Bassam of Brighton: My Lords, there being 45 Members on the speakers list for the debate on the humble Address today, if Back-Bench contributions are kept to seven minutes we should be able to rise tonight at around the target rising time of 10 pm.
Queen's Speech
Debate (3rd Day)
3.08 pm
Moved on Wednesday 3 December by Lord Falconer of Thoroton
“Most Gracious Sovereign, We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament.”
The Secretary of State for Business, Enterprise and Regulatory Reform (Lord Mandelson): My Lords, it gives me great pleasure to open this debate on business and the economy. I confess to feeling somewhat in awe of the wealth of expertise and experience that surrounds me in this House today. It is enough to make me feel again like a tender PPE student facing my first economics tutorial.
There are unprecedented economic challenges now facing us in Britain and throughout the global economy. As I suspect many will observe today, this is not some ordinary recession. It is the hard-to-resolve crisis in our banking system that transforms what our business sector is experiencing. The unprecedented economic turbulence is testing Governments around the world. I do not say this to dodge responsibility or play down the scale of the domestic challenge but, for those of us brought up on the adage that when the US economy sneezes the rest of the world catches a cold, last week’s news that US unemployment has risen by more than half a million in a single month is another challenging statistic.
US economic output is falling. The eurozone economy has officially entered into recession. Growth in China and India has slowed sharply. The IMF forecasts that in the advanced economies, including the UK, output will contract in every quarter of 2009. To observe that this is a combination of events not seen since the Second World War is not a shocking revelation; it is the simple truth. The global financial system has been severely damaged, and we cannot yet be certain whether enough has been done to get it working again as it should and as we need it to do.
In these circumstances, people rightly look to the Government to act. To have a Government whose only response is “Let’s do nothing” would be alarming
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The Government have had another simple fact in mind. The further our economy falls and the further we go into this downturn, the higher will be the costs of climbing out again and the greater the long-term damage to our economy and to our society. Therefore, the Government have to do everything that they can to ensure that this recession is as short-lived and as painless as possible. I say this because my mind goes back to the recession of the early 1980s. I recognise that, in all sincerity at the time, many distinguished Members of this House—former Chancellors of great calibre such as the noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Lawson of Blaby—felt that there was no alternative to the policies that they then pursued. Although I agree with them that the loss of jobs in the old heavy industries was inevitable over time, economic conditions became so severe that many businesses that might otherwise have survived and prospered went to the wall. We are therefore right to do what we can to avoid this happening again on such a scale.
When I was first elected to the other place in 1992 for my constituency of Hartlepool, I saw at first hand the social scars that the huge unrestrained rise in unemployment had left behind as businesses failed, skills were put on to the scrapheap and talents were wasted. Those scars have still not fully healed despite all the efforts made since, including the first efforts at economic regeneration to which the noble Lord, Lord Heseltine, gave a lead.
Some people talk today of broken Britain. I do not believe that in any general sense Britain is a broken society, but the damage done by the recession of the early 1980s to social inclusion in our society has been lasting, and we are right to say “Never again” and to do what we can to stop history repeating itself. This is not a choice but a responsibility. The Government have already taken decisive action, and we stand ready to take more as this period of great uncertainty unfolds. The economic and business measures set out in the Queen’s Speech reaffirm our determination to support and protect businesses and families as best we can through this crisis and to prepare our economy for the global challenges that we will face as we emerge from the downturn.
This is a global crisis that demands a global response. This Government have led calls for co-ordinated international action to get the world’s financial system working again and to introduce much needed supervision in the regulation of the banks. It should go without saying that global institutions assuming fresh responsibilities need to reflect the new realities, and indeed the new balance of power, of economic globalisation. Last month in Washington, G20 leaders agreed to fundamental reforms in line with the principles that Britain has for some years been promoting—largely, it has to be said, in the person of the Prime Minister, who has applied both intellect and force of personality to these questions. We need transparency, integrity
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When the UK takes over the presidency of the G20 at the beginning of next year, we will lead on action to implement this reform agenda. The core, immediate challenge faced, not just in the UK but around the world, is to get liquidity back into our banking system and the global economy. We have taken comprehensive steps—including the special liquidity scheme delivered through the Bank of England, our recapitalisation programme and the credit guarantee scheme—to strengthen UK banks, improve liquidity and return confidence to the interbank lending market.
These measures are making a difference and the Government will, of course, consider with the banks what additional refinement of them may be desirable. The sterling LIBOR rate has fallen in recent weeks and we are now monitoring bank lending patterns with the Bank of England, the FSA and other regulators. This morning I chaired the second meeting of the Small Business Finance Forum that I convened the other month. I am pleased to say we reached agreement today with the banks and SME representatives on a revised statement of principles which will govern SME bank lending in future. The Prime Minister has stated that the current Banking Code will also be put on a statutory footing. The statement of principles that we agreed today will be folded and incorporated into that Banking Code. The FSA is already consulting on new rules applying to retail banking services, in place of self-regulation, to be enforced by next year.
This and other provisions in the Banking Bill will provide the UK authorities with tools to address difficulties in the banking sector and protect depositors and the wider economy. Shortly, the Chancellor and I will meet in the high-level lending panel to review more detailed data being collected and analysed by the Bank of England. Initial evidence from the big five UK banks shows that total outstanding lending to SMEs remains relatively stable compared to a year ago. There is evidence of reduced demand for finance. That is inevitable, but we are also beginning to see some evidence of overdrafts being withdrawn and overdraft limits being reduced. However, these moves are affecting only a small proportion of SMEs, as was confirmed by a survey of 5,000 SMEs undertaken by the Federation of Small Businesses and reported to my meeting this morning.
We expect banks to play their part in ensuring that viable businesses do not fail for lack of credit. I welcome the recent initiatives from RBS, Lloyds TSB, HBOS and HSBC on SME lending, particularly RBS’s commitment not to change overdraft pricing arrangements for small businesses for 12 months from the date they are agreed, the commitment of Lloyds TSB not to change the price or availability during the period of a customer’s agreement, and HSBC’s announcement yesterday of a new £1 billion working capital fund for SMEs. This shows the productive nature of the Government’s close working and dialogue with the banks, and I urge others to follow suit. The Government are also taking action to help people who suffer a
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In these extraordinary circumstances, there is wide international agreement on the urgent need to maintain demand in our economies. The Bank of England has already implemented a co-ordinated interest rate cut with six major central banks and, last Thursday, it cut rates to 2 per cent, which is the lowest since 1951. However, it is very clear that monetary policy will not on its own provide the necessary stimulus. Commentators from the IMF, the OECD and, nearer home, the Institute for Fiscal Studies—as well as the former Chancellor, Kenneth Clarke, before his Front Bench moved rather sharply to silence him—have rightly observed that in these exceptional circumstances an additional fiscal stimulus is needed. Yesterday, President-elect Obama added his weighty voice to this conclusion.
At the Washington summit, G20 leaders agreed the need for co-ordinated fiscal action to boost economic demand, with the US, the European Union, China, Japan and other countries all now bringing forward their own measures. They will not be identical, or implemented at the same time, but all will take the same sort of initiative and will go in the same direction.
In the UK, the Chancellor’s Pre-Budget Report brought forward £3 billion in government investments in Britain’s vital motorways, social housing, schools, hospitals and energy efficiency. It provided £1 billion of targeted tax cuts for SMEs and a temporary reduction in VAT—also specifically urged by Kenneth Clarke before the intervention—which is the equivalent, all told, of the Government giving back £12.5 billion to consumers and businesses. The Pre-Budget Report will also provide direct assistance to our vital small business sector, with, among other things, £2 billion of loan guarantees.
Crucially, there will be new latitude from Her Majesty’s Revenue and Customs—latitude and HMRC not being two things that often go together—that means small businesses facing temporary financial difficulty will be able to spread payment of their tax bills over a timetable that they can afford. I welcome that move by HMRC. There will also be a raised threshold for business rates on empty properties, which will exempt an estimated 70 per cent of them. The Government have also guaranteed prompt payment of their own bills—within 10 days—to businesses. Regional development agencies are creating new transitional loan funds for the companies which are hardest hit in their localities. I do not guarantee that every needy business can be helped in one or more of the ways that I have listed. But I hope that, while the Opposition will not join the consensus in favour of action for the reasons that they will no doubt try to explain, the rest of us can agree that extensive action is better than no action at all.
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