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Mr. Graham Allen (Nottingham, North): It is a great pleasure to serve under your chairmanship, Mr. Conway, in such an important debate. It seems that we have had the mantra about the eurothe referendum and the five testsfor ever. It has been necessary and important. I do not underestimate it. However, the introduction of the euro on mainland Europe and its creep into the United Kingdom must be taken into account.
My right hon. Friends the Prime Minister and the Chancellor of the Exchequer need to discuss the new situation and to agree a new way forward. Incidentally, I hope that they disagree. It is ludicrous for the media to pretend that Britain's two most powerful political personalities, when discussing the most important issue before the nation, will synchronise immediately. I hope that they have serious discussions, and as an adult, I expect them initially to disagree, but then to reconcile their views. I hope that we all play a mature part in those discussions and I appeal particularly to my friends in the media to allow a sensible debate to take place.
History offers the Government a chance to consider soberly a subtle addition to the black-and-white choice of joining the euro outright and abolishing the pound, or rejecting the euro and clinging to the pound. That has hitherto been on offer at the end of the barrel of a referendum. I propose instead that the euro be accepted in our economy as a parallel currency to the pound, to be used by businesses and customersby choicein the marketplace. That proposal would offer significant advantages to the nation, to businesses and to our economy. In addition, it would avoid major political and economic risks that are associated with joining the euro outright in one fell swoop.
The process of creating a parallel currency has already begun. A recent survey showed that 83 per cent. of retailers in tourist areas will accept euros. Remarkably, those retailers include such normally anti-European retailers as Dixons and JD Wetherspoon, as well as household names such as Marks and Spencer. At Sainsbury's, the euro coin will release a supermarket trolley.
I have tabled questions asking whether Parliament's bars and canteens will accept euros in the new year, and whether Members of Parliament or even Ministers could be paid in euros if they wish. The London Eye will accept euros, although Buckingham palace still requires convincing. In Northern Ireland, where businesses have been working with two currencies for many years, the Assembly takes it as reada couple of weeks ago, there was a debate there not dissimilar to this one that there will be a parallel currency. Businesses currently work with pounds and punts, but after 1 January, that will be pounds and euros. According to a recent survey in Marketing, two thirds of electors think that it would be useful and appropriate to have dual pricing so that the price of goods in our shops is shown in euros and pounds.
This time next year, everyone will have been on their continental holiday. Everyone will have bought their margaritas by the pool using euros, whether they went to Greece, Italy, Spain, or anywhere else in Europe.
Of course, it is open to any business in the United Kingdom to accept any currency, be it dollars, yen or Guatemalan quetzals. Will our Government nimbly respond to the changing situation and encourage, or discourage, the process? Alternatively, will we sit tight and marooned as events change around us and we keep our euro mantras intact? Can we get our act together sufficiently to respond to the new situation?
Our Government should not sit and watch as the situation develops. We should go with the flow and encourage and support the changes. For example, for a small outlay, we could issue free pound to euro calculators to every household and school in the UK. The French chambers of commerce did that successfully. If hon. Members went to Calais to do Christmas shopping over the past two years, they would have found people proudly holding French chamber of commerce euro calculators.
Mr. Hopkins : How would my hon. Friend's system work if there were significant fluctuations in the exchange rate between the euro and sterling? If he proposes a rigid, fixed exchange rate, will that put us back into the exchange rate mechanism and effectively inside the euro?
Mr. Allen : I will deal with that question later. Economic arguments are on my website, which I shall give details of later. The precise answer to my hon. Friend's question is that I would expect individuals to deal with the market rate on a per day basis. Indeed, it may be possible for entrepreneurs, be they landladies of a boarding house or arbitrageurs of the City of London, to make a turn on the exchange rate. That may be more encouragement for those who want a dual currency in the UK.
Last week, I introduced the Euro and Sterling Choice Bill. The Bill provides for the Government to make the euro legal tender alongside the pound for the settlement of debts above a certain value. It also provides for dual pricing in pounds and euros of goods and services above that value. The choice of the value is left to Parliament and the Government. Initially, I would envisage a level of £1,000 to exclude everyday transactions in shops and vending machines. However, the level would be sufficiently low to include financial purchases such as cars and consumer durables. Dual pricing would help us to discover the often cheaper prices that are available elsewhere in the European Union. When people travel next year and compare the euro price in a showroom in Athens or Madrid with the euro price in the UK, that will have a beneficial downward effect on consumer prices in the UK, which all too often are concealed
Some hon. Members may find the idea of a parallel currency inconvenient or even outlandish. In fact, it is extremely commonplace. All over the world, businesses operate routinely with a parallel currency. Some of those businesses are tiny and their owners and employees have little formal education. If a street trader in India can switch effortlessly between currencies, it should not be impossible for British businesses to do likewise.
The motive for accepting another currency is simple and universalto make more money. A parallel currency and a legal framework for using it are not an inconvenience to business but a resource. British businesses and British people are capable of using more than one currency if they wish. They should be allowed and encouraged to discover for themselves whether the benefits outweigh the costs.
Serious risks are attached to going cold into the euro and abolishing the pound without effective familiarisation beforehand. The political risks begin with the need to pass a referendum Bill. In that regard, I am happy no longer to be in the Government Whips Office. I may be wrong, but I suspect that the Leader of the House and the Home Secretary are not exactly gagging for the challenge of putting that Bill through Parliament. It will have a difficult passage through both Houses, delay more important and popular legislation, and expose the Government to endless argument and recrimination over the perceived fairness of the referendum question and procedures.
What is the rush? Our European colleagues need us in the euro more than we need to be in the euro. They need us to join, not least to legitimise the euro in the eyes of the United States and the global financial markets. Rather than falling for any euro tosh about missing the boat, train or whatever transport analogy comes to mind, we should consider whether the UK's price for what some have called unilateral economic disarmament is far too low. What about applying a quid pro quoor a euro pro quosuch as reform of the common agricultural policy, the integration of capital markets in Europe or the acceptance of funded pension schemes, a time bomb of which many in the European Union are not aware? If we choose to join the euro, we should seek to maximise a unique bargaining opportunity.
Setting up a referendum will be difficult enough. Winning it from a cold startmany feel that little has been done to educate the public about the euro so farwill be even harder. Whenever it is held, there will be a risk of defeat. Opposition will come from all parts of the political spectrum, including the Labour movement, from all classes and age groups, from significant economic and business interests, and, above all, from a hostile and unscrupulous media. Turnout will be low, and even strong supporters of the Government will take
There are many economic risks associated with calling, then winning a referendum. Rather than detain my hon. Friend the Minister by reading them out for the record, my hon. Friend the Member for Luton, North (Mr. Hopkins) may wish to browse my websitewww.grahamallen.labour.co.ukon which I have listed them. Any euro-anoraks in the Chamber who feel the need to go through those arguments can do so, but I do not want to impose them all on you, Mr. Conway. We do not need to flagellate ourselves over the euro. We do not need to prove ourselves and our pain in order to make a sensible decision about it. There is a gentler, subtler way on offer.
There is no good economic scenario in which to hold a referendum. If the economy is doing well, why do we need to join the euro and give up the benefits of the Chancellor's excellent economic management? If the economy were doing badly, why would we expect people to trust our economic judgment? Joining the euro is like buying a dog: it is not just for Christmas, it is for ever. My proposal allows us to take the puppy home for a while to see whether it can be house-trained.
A parallel currency would allow British businesses and British people to choose, in their own time and at minimal cost, whether and how they wish to join the euro. That is what my proposal aims to achieve. It would develop competition between the pound and the euro. In the marketplace, people would choose to be paid in the better performing currencythe one that kept more of its value over time. We should experience Gresham's law in reverse: good money driving out bad.
A competitive process would offer significant benefits for our economy and would provide an additional defence against inflation. I am glad that there are some murmurs of support from Conservative Members. The previous Prime Minister, John Major, alluded to the possibility of what he termed a "hard ecu". That is similar to my proposal and would allow some choice.
Mr. Andrew Tyrie (Chichester): The hon. Gentleman is right to say that his proposal is strikingly similar to the hard ecu proposal or currency substitution ideas introduced in Major's Administration. My concern about the European monetary union projectI am not against it in principleis that it is far from similar to buying a dog for life. We might be sold a pup.
The political benefits should appeal to my right hon. and hon. Friends. By keeping the pound, the Government would deprive the Conservative leadership of its only popular policy overnight. I am trying to be non-partisan. I would risk saying that it is not the Conservative party's only popular policy, but its only policy, but that would break the all-party consensus that I am trying to develop on the issue.
On the economic front, a parallel currency would not need to meet the five economic tests. It would avoid the need to fix exchange rates irretrievably, and avoid the risk of Britain being trapped with the wrong interest rate, thereby being forced to raise taxes or cut public spending. A parallel currency would reinforce convergence with the other economies of Europe but would give time for that convergence to become permanent. Our European partners may also welcome that, as it may be preferable to having to accommodate within the euro zone a large economy that continues to follow a different, more transatlantic economic rhythm. It would spread the costs of conversion to the euro, giving businesses the chance to delay them until it becomes advantageous to use the euro, and it would allow the British people to adjust voluntarily to the euro, if it is successfuland to stick with the pound, if it is not.
My hon. Friend the Minister will have to stick closely to the approved script of the Treasury and No. 10 Downing street. I understand that. However, behind the scenes, I hope that the Government will take seriously the creative, imaginative but very practical idea of encouraging the euro as legal tender alongside the pound. That could provide a democratic and organic way for the British people to take themselves into the euro, if it worksand to walk away from it, if it does not.
I welcome the opportunity to discuss the introduction of the euro in the 12 countries in the euro area, and to restate the Government's policy on membership of the single currency. In the course of so doing, I also hope to answer the points raised by my hon. Friend the Member for Nottingham, North (Mr. Allen). His speech was thoughtful and well argued. I was delighted to learn that his economic arguments are presented on his website, and I look forward to browsing through them. He has a long-standing interest in these matters, and I hope to hear more from him about them.
The Government's policy on the single currency remains unchanged, as my hon. Friend is well aware. The policy was set out by the Chancellor of the Exchequer in October 1997, and it has frequently been reiterated by the Chancellor and the Prime Minister. In principle, the Government are in favour of UK membership of EMU. In practice, the economic conditions must be right. The Government have set out five economic tests that must be met before any decision to join the euro can be made, and an assessment of those five tests will be made within two years of the start of this Parliament.
I turn to the important subject of business preparations. The introduction of the euro marks the end of years of careful planning in the 12 countries in the euro area. Wim Duisenberg, president of the European central bank, has highlighted the challenge of the cash changeover. It must not be underestimated, but he is confident that careful and comprehensive preparations should ensure a smooth changeover. In the United Kingdom, we must be equally careful and equally comprehensive. Let us make no mistake: for firms operating in the United Kingdom, the introduction of the euro marks a major change in the business environmentnot a threat to our tradition of free trade, but an opportunity to engage in a more efficient and competitive single market.
The changeover will have major implications for businesses with links with the European Union, including importers and exporters. Our fellow members of the EU are the recipients of the majority of the United Kingdom's overseas trade; over half of our exports go to other members of the EU. Individually, France, Germany or Italy may not be our largest trading partner, but I do not think many people are aware that we export more to the Netherlands than we do to Japan. The EU as a whole accounts for about 53 per cent. of our exports. That means that it is more important for our exporters than the United States of America or the far east.
Ruth Kelly : The hon. Gentleman makes a point from a sedentary position. I am sure that he is well qualified to speak on such matters, but he would not doubt that trade with the euro zone is important to companies in the UK. The euro zone is not as far away as one might think. The Republic of Ireland will, of course, also be dealing in euros. It is vital that companies in the UK are able to benefit from free trade with our European partners. From 1 January next year, that means having the choice to trade, quote, invoice and account in euros.
Mr. Hopkins : I am interested in our trade relations with the euro zone countries. Currently, a significant trade deficit arises from the overvaluation of our currency in relation to the euro, or the undervaluation of the euro in relation to sterling. If no reference is made to an appropriate parity during our entry discussions, there might be serious dangers. If there is overvaluation, it will leave us at a permanent competitive disadvantage. Alternatively, if we try to get down to a serious competitive parity, euro zone countries might find that unacceptable.
Ruth Kelly : The Chancellor has made his position clear. The economic case must be clear and unambiguous before the Government recommend to Parliament and the people, in a referendum, that we should enter the euro. The tests must have been met.
Ruth Kelly : My hon. Friend makes an interesting point, but it is not one with which the Government agree. Our position is that the economic case must be clear and unambiguous before the recommendation to join the euro is made to Parliament and the British people, whereas he proposes that the euro should be adopted before that case is clear and unambiguous.
To return to the question of business preparations, we have been working with businesses in the UK for the past few years to ensure that they achieve the right level of preparation for the euro. Our euro website has received 230,000 visits. A guide, "Using the eurocompeting in Europe" has been mailed to 1.5 million small and medium-sized enterprises, and a leaflet has been sent to 1.6 million businesses with autumn VAT returns. We are ratcheting up our efforts as the introduction of notes and coins draws near.
Of course we want as many businesses as possible to be prepared, and we have made every effort to assist them. However, we will not go down the road of compulsion. Why is that? Among other reasons, there would be potentially significant costs to business were we to do so. UK businesses already have the choice to use the euro. There is no need to legislate for that choice. Many retailers have already stated that they will accept euros in many of their outletsfor example, in hotel chains and major tourist areas. I recently visited the North West Euro Forum near my own constituency in Bolton. In the course of meeting businesses large and small, I was impressed by their engagement with the possibilities opened up by the introduction of the euro. They saw it as an opportunity to gain competitive advantage and break into new markets. Their attitude might be very different if, instead of having the choice of trading, pricing and invoicing in euros, they faced a compulsion to do so, whether or not they judged that it was in their best interests, before the economic case had been decided, and without the consent of the British people.
Mr. Allen : To pick up on my hon. Friend's point, it may therefore be sensible for the Government not to adopt the figure of £1,000. Let us start a lot higherat £1 million, or whatever the Government or Parliament feel is appropriate as a way of testing the water.
To correct a possible misunderstanding, especially in the Treasury, I do not propose that we ditch the five economic tests; indeed, I agree that they must be passed if we go exclusively into the euro. My proposal is to dip a toe in the water before making that decision. I would not want it to be regarded as an alternative. It is in a sense the widest possible market testing ahead of the difficult decision that must be made on, I agree, the basis of the five tests.
I am sympathetic to the idea of currency substitution in principle, but a cost is involved to the Exchequer in the loss of seignorage. Will the Economic Secretary estimate what seignorage loss the Government expect without an element of compulsion? If she does not have the figures with her, perhaps she would send them to me and make them publicly available.
The argument advanced in the Bill is that using the euro as a parallel currency would avoid the deadweight cost of converting Britain to the euro. However, in most cases the systems that would allow dual currency functions would be similar to those necessary for a complete changeover to a single currency. Legislation to make the euro legal tender alongside sterling would not avoid the deadweight cost. Indeed, it is hard to envisage how that would demonstrably help UK business. Businesses with both high and low-cost transactions would be placed in a particularly difficult position.
My hon. Friend says that two thirds of people believe that it would be helpful if shops showed euro prices alongside sterling prices. However, there are difficulties in doing that, and it may cause confusion, especially as euro and sterling would not, under his proposals, have a fixed exchange rate.
The value of debts would be affected by fluctuations between sterling and the euro. Those fluctuations in value would be more pronounced in the relatively high value transactions that my hon. Friend suggests would be subject to the dual pricing requirements. I have only a minute left, and I had better discuss seignorage if I have a chance.
Notes and coins in circulation generate seignorage income from the issuing authority. To put the figures into the public domain, for every £1 billion of sterling notes displaced, an estimated £39 million of seignorage would be lost each year. For every £1 billion of sterling coins displaced, an estimated £880 million would be lost. Granting parallel legal tender status to the euro without the UK's entering the single currency would therefore entail a transfer of seignorage away from the UK. It would have other implications, which I do not have time to go into today.