Select Committee on Trade and Industry Second Special Report


1Neither edition of the National Changeover Plan adequately addresses the issue of the cost of a changeover to the single currency. There is no evidence that any estimates of cost provided by business to the Treasury are reflected in the Plans (paragraph 13).

The first and second Outline National Changeover Plans are aimed at exploring the practical steps that would need to be taken were the UK to decide to join the single currency. The Government works very closely with business on changeover planning and takes advice on what factors would contribute to a cost-effective changeover. Businesses and business organisations are able to offer such advice, even though few have attempted an overall cost estimate. So, while the Changeover Plans do not offer any estimates of cost, the approach to changeover which they set out reflects business views on minimising the cost of changeover.

2We recommend that decimalisation, although not to be used as a model for a changeover to the euro, be studied for those successes which could be adapted for a move to the single currency (paragraph 22).

The Euro Preparations Unit (EPU) has already studied past papers relating to decimalisation to see what parallels might be drawn. As the Committee has noted, the circumstances of a UK changeover would be very different.

3The Government should produce guidance on planning and budgeting for IT projects for euro conversion at the earliest opportunity after a decision is made. We look to the Euro Preparations Unit to prioritise IT, in order to minimise costs (paragraph 31).

The importance of IT has been recognised in the work of EPU, and they will consider what more might be done in this area.

4Public information on planning and budgeting for IT projects for conversion to the euro should be produced at the earliest opportunity after a decision is made. We look to the Euro Preparations Unit to prioritise IT considerations, in order that the costs might be minimised wherever possible (paragraph 35).

See response to (c) above.

5We find the prospect of large costs arising from variation in coin manufacture, and of fraud, alarming, and urge the Government to work now with the industries most affected. We also recommend that the Government discuss the issue with euro area governments, in particular Germany, to discover what measures are in force or planned to combat potential problems arising from non conformity of coinage (paragraph 38).

The EU Mint Directors Working Group, on which the UK is represented, is monitoring the quality and consistency of euro coin manufacture. A common quality assurance plan has been agreed.

The vending industry was extensively consulted during the development of the detailed specification of the coins, and their views were taken into account as far as technically and practically possible.

The UK consults its euro area partners on all euro area issues on a regular basis at both Committee and Working Group level.

6Expenses generated by the transition period may well be unavoidable; but the Government should try to limit these (paragraph 46).

EPU is working with interested parties - including the Royal Mint, the banks, retailers, the vending industry and consumer groups - to develop understanding of the optimal period to allow a smooth cash changeover to be completed as cost effectively as possible.

7We recommend that the Government set E-Day in February if and when a decision in principle to join the single currency is made; and that there is full consultation now with those bodies which would be most concerned with the practicalities of the possible coinage change (paragraph 50).

The second Outline National Changeover Plan acknowledges that, should the UK decide to join, there is a strong case for euro cash being introduced at a time of year when cash circulation is low and when retailers have time for staff training.

EPU will continue to work with major stakeholders in order to develop understanding of the factors which would determine the timing of an E-day. The names of EPU's working groups can be found in Annex 2 of the second National Changeover Plan.

8The Euro Preparations Unit and the Information Working Group must make communication with SMEs a high priority; and they must be able to test the effectiveness of different means and techniques of communication (paragraph 54).

The Information Working Group was set up in 1998 by EPU and contains organisations from a broad spectrum of the economy (including the British Chambers of Commerce, Confederation of British Industry, Royal National Institute for the Blind and the Royal National Institute for Deaf People). It was established specifically to consider the challenges for the provision of public information which would arise from a UK changeover to the euro, were the UK to decide to join EMU. This work has included consideration of the need to communicate with Small and Medium Sized Enterprises (SMEs).

In addition, EPU is also helping SMEs in the UK to understand and prepare for the business effects that the introduction of the euro in the euro area may bring about.

In November 2000 EPU published its Fourth Report on Euro Preparations. This included details of the Government's activities to help UK SMEs deal with the introduction of the euro in the euro area.

9We recommend that, should there be a 'yes' vote on a single currency referendum, the Government encourage businesses to prepare financial plans for the changeover as soon as possible. We also urge the Euro Preparations Unit to make businesses aware of the cost implications of a changeover to the euro when advising them on dealing with the euro area and to publicise steps that can sensibly be taken now to minimise expense (paragraph 55).

Ensuring that SMEs plan effectively is clearly important. For now, the Government believes that it is more important to focus on the factors which would improve the cost-effectiveness of a UK changeover - for example the timing of E-day or dual display requirements.

The introduction of the euro in the euro area is a commercial reality for UK firms with links with the euro zone and it is essential that this reality is reflected in their business planning immediately.

10It would be a huge wasted opportunity should the Government not monitor developments in the euro area extremely closely up to and after January 2002 (paragraph 56).

The two Outline National Changeover Plans stressed the importance of learning from the euro area. EPU collates, analyses and disseminates information on developments in euro area participants in the single currency. The UK is learning from the euro area in a number of ways:

  • Discussions with representatives from the public and private sector (including finance ministries, retail banks, business representatives, local authorities and changeover boards) in participating member states;
  • Participating in EU networks on the euro; and
  • Direct contacts through working groups, embassies and secondments.

Relevant information on euro preparations in the euro area is being disseminated to regional representatives from the public and private sector via the regional forums. This is in addition to the regular consultation on the subject in working groups.

The Government agrees that the cash changeover in the euro area at the start of 2002 should be given particular attention. EPU will be working on a specific programme to take advantage of this unique opportunity during 2001.

(k)Fear of producing high figures cannot be a barrier to thorough and informed consideration of the likely costs of the changeover period (paragraph 57).

The Government does not believe that it is possible to produce credible estimates of the cost to UK business of a changeover to the euro, as this would depend on the approach adopted by individual firms and sectors. Nor does it believe that such estimates improve understanding of the factors that would be necessary for a smooth and cost effective changeover.

(l) SMEs should be a priority in any business information campaign, in which the Small Business Service should be given a primary role (paragraph 60).

Providing information to SMEs is clearly a priority.

(m)We have not sought to decide whether joining the euro would be a positive step for the UK. We have concentrated on determining the validity of previous cost estimates and the areas in which costs will be incurred. The potential costs to business of joining the euro are high, to be measured in billions not millions. There is a danger that the Government and business are underestimating the work and expense. Over the 18 months, developments in the euro area will provide all those concerned with an opportunity to learn from example. The Government is unwilling even to discuss the costs to business of UK membership of the euro, let alone to estimate them. There may be good political reasons for this: but we fear that this policy is deterring companies from preparing estimates for a changeover and may eventually increase these costs. Unless and until the Government takes steps to identify the nature and scale of the possible costs, including in particular the implications for IT expenditure, its awareness campaigns will prove ineffective. Costs to business will also be affected by the transition period and the timing of physical introduction of the new currency. These are to be decided by Government: that decision must be based on a proper understanding of the likely impact of the different options. The cost burden is likely to be particularly heavy on SMEs; information and assistance for them must be a priority (paragraph 61).

Few individual businesses have carried out an analysis of their own potential costs, and many are reluctant to devote resources to such an exercise. Furthermore, different approaches to changeover and different methods of accounting for expenditure mean that there is no robust body of data on which to base an estimate of any reliability. For example, many larger organisations have been adding euro functionality to their systems as part of routine upgrades and would not necessarily identify this element as a separate cost.

The Government believes that it is more important to focus on the factors which would improve the cost-effectiveness of a UK changeover - for example, the timing of E-Day or dual display requirements. That is why the Government's approach to planning is to work in partnership with key organisations across the economy (including SMEs).

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Prepared 29 January 2001