Previous SectionIndexHome Page

19 Dec 2001 : Column 112WH


12.26 pm

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 euro—the referendum and the five tests—for 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 customers—by choice—in 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 read—a 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.

19 Dec 2001 : Column 113WH

That will turn this year's euro fear into next year's cool fashion accessory. I can imagine you, Mr. Conway, in the bars—not that you frequent the bars—paying proudly with your new, crisp and colourful euro notes and expecting, or even requesting, that your change be given in euros.

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. Kelvin Hopkins (Luton, North): Will my hon. Friend give way?

Mr. Allen : I will, but I ask my hon. Friend to allow the Minister plenty of time to reply.

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

19 Dec 2001 : Column 114WH

behind the myriad exchange rates in Europe. Parliament would be free to lower the £1,000 figure if and when business and consumers—without being forced or pushed—welcomed and started to use the euro and wanted to extend its use. My Bill would also provide Government help for businesses and consumers who want to take advantage of the euro as an alternative means of payment.

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 universal—to 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 quo—or a euro pro quo—such 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 start—many feel that little has been done to educate the public about the euro so far—will 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

19 Dec 2001 : Column 115WH

it as a free kick—a chance to have a go at the Government of the day to protest on any issue that comes to mind.

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 website——on 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 currency—the 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 project—I am not against it in principle—is that it is far from similar to buying a dog for life. We might be sold a pup.

Mr. Allen : I am pleased to be the straight man for my hon. Friend—I call him my hon. Friend for his lines. None the less, I do not believe that there was a serious point behind the joke.

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.

United Kingdom businesses and customers would conduct an informal rolling referendum, and would provide not a snapshot of one day in the distant future,

19 Dec 2001 : Column 116WH

but a constant series—almost a hidden hand—of market-oriented interventions in buying and selling. That would give a longer-term rolling picture of how the British public felt about the issue. Our European partners would also be relieved to avoid a premature British referendum, which would be likely to paralyse European decision making and provide an outlet for yet more British hostility towards the European Union.

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 successful—and 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 works—and to walk away from it, if it does not.

12.45 pm

The Economic Secretary to the Treasury (Ruth Kelly) : I am delighted to speak under your chairmanship, Mr. Conway, for the first time in Westminster Hall.

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.

The Government believe that, if a clear and unambiguous case in favour of joining can be made, it would be right and proper to put that case to Parliament

19 Dec 2001 : Column 117WH

and, subsequently, to the British people in a referendum. Government, Parliament and the people must all agree. It is clear that my hon. Friend would impose the euro on the British people before they had the opportunity to register their preference in a referendum; that is inherent in the proposal that he has put forward today.

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 environment—not 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.

Mr. Tyrie : That is visible trade.

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.

Mr. Allen : May I obliquely refer to the question asked by my hon. Friend the Member for Luton, North?

19 Dec 2001 : Column 118WH

Clearly, the more we trade in sterling and the euro within the European Union, and the more we are dealing with the euro in the UK, the more accurate a market rate we will develop as we move, if we do, towards a European referendum. The most viable rate at which to go in will be a sustainable one, which will be closer to a market rate. The more market transactions, the more likely it will be that we will reach that rate by encouraging use of euros, rather than allowing things to move at their own steady pace.

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 euro—competing 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 outlets—for 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 higher—at £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.

Ruth Kelly : I thank my hon. Friend for making his position clear. I respect the fact that he does not believe

19 Dec 2001 : Column 119WH

that we should abandon the five economic tests. As he acknowledges, businesses already accept the euro. Even Northern Ireland would be directly affected by the euro. Many businesses in Northern Ireland may choose to accept the euro, just as Irish punts are accepted today. However, I do not believe that merely raising the threshold of the limit changes the principle involved. I therefore disagree with him in that respect.

Mr. Tyrie : Will the Economic Secretary give way?

Ruth Kelly : I must make some progress.

Mr. Tyrie : I promise to be brief.

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.

Ruth Kelly : I have the figures with me, and I shall give the hon. Gentleman an estimate. However, I shall finish the argument that I was advancing when I gave way.

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 the Member for Nottingham, North would effectively be asking shops and businesses to incur the costs of accepting two distinct currencies

19 Dec 2001 : Column 120WH

simultaneously and indefinitely, while denying them the benefits accruing from participation in the single currency area. They would face the additional expense of maintaining a daily calculation of exchange rates, running concurrent pricing system structures, training staff to work with euro cash and maintaining accounts in two currencies. In addition, UK businesses would still be adversely affected by the foreign currency and hedging issues arising from trade with euro-area businesses. Issues of complexity would be involved.

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.

The proposal of my hon. Friend the Member for Nottingham, North has significant disadvantages, particularly the extra cost to business. Business could regard the euro as a threat—

Mr. Derek Conway (in the Chair): Order. Time is up.

19 Dec 2001 : Column 119WH

19 Dec 2001 : Column 121WH

Next Section

IndexHome Page