Previous Section Back to Table of Contents Lords Hansard Home Page


Lord Ennals: My Lords, I am most grateful to the noble Baroness for allowing me to intervene. I hope that Hansard will show, because I said it, that it was with a twinkle in my eye that I said that I think the noble Baroness knows my admiration for her. I followed it with an assurance that my fear was that we might lose her from her present post.

Baroness Chalker of Wallasey: My Lords, I am very happy to continue in my present post. But, as some people say, you cannot go on and on. So we shall have to see what the future holds. I am a mortal being.

The important matter is that the foundation, as Crown Agents will become, should reflect the international character of the Crown Agents' activities and their

28 Feb 2002 : Column 1443

social purpose and provide an enduring basis on which Crown Agents can expand their business. When one has something as good as Crown Agents, as noble Lords have said in the debate, it deserves to be applied to more countries and to more clients. That is why I have made clear that the foundation membership will consist of organisations active in international development to endorse the Crown Agents' purpose and principles. I mentioned the charities, private sector companies, professional trade organisations, other aid organisations and enduring institutions. That will bring together business ability with wide experience of aid and development which will benefit the Crown Agents of the future. But it is obviously too soon to announce names. Before vesting Crown Agents in the foundation, Ministers will wish to be satisfied that the initial members are appropriate. I sincerely hope that the initial members will have the benefit of the experience of many members of the existing Crown Agents board who have done so much to put this public sector company where it is at present—well and truly on the international map as one of the outstanding providers of goods.

Many comments made in the debate cannot be given a specific answer today, but there is one subject I must mention. Pensions were raised by the noble Lords, Lord Judd and Lord Redesdale.

Lord Redesdale: My Lords, I thank the Minister for giving way. She pointed out that Ministers would not appoint the board members. Can she indicate who will appoint the board members?

Baroness Chalker of Wallasey: My Lords, on the transfer to the foundation the board's membership will be decided by those who take shares in the foundation. It is a technical matter which I shall go into in greater detail in Committee. It is too early to give details now. I am determined that all the bodies I mentioned earlier and just now should be properly represented in the foundation, as well as the Crown Agents themselves, in order to carry on the business.

I was about to turn to pensions which the noble Lord, Lord Redesdale, said were not included in the Bill. He will notice that Schedule 1 to the Bill provides for employment rights to transfer unchanged—an important point—and for the continuity of rights in the pension scheme. I sought to explain at the start of the debate what that would mean in practice for the staff. That is also a matter for detailed exchanges in Committee. Above all, however, it is a matter of the continuity of treatment of employment for pensions purposes and the safeguarding of the value of pensions for Crown Agents' staff. I am certain that that can be achieved without difficulty.

I believe that the noble Lord, Lord Judd, mentioned redundancies; if not, I misunderstood him. I mentioned, but let me repeat, that there are no plans for redundancies as a result of the change of status. The Crown Agents have undergone successful major restructuring in recent years and have cut their costs. They have a workforce suitable for their business. The programme is essential for the viability of their business and for the future foundation. They have a good plan to

28 Feb 2002 : Column 1444

implement that; they run a tight business and have never received a subsidy. They know full well that their current and future prosperity depends on satisfying the markets they serve. It is that ability to satisfy their clients at an acceptable margin that has put them so far ahead of all other procurement companies. Through the foundation's status they will be enabled to take advantage of the new opportunities and of the wider breadth of clients in the private sector.

We have had a short but important debate. I am glad that so much that is positive has been said about the Crown Agents. The Bill allows us to put in place a sound and sensible new structure for Crown Agents. It will be appropriate for the continuation of their traditional activities in which they have been engaged for 162 years and which they are keen to develop on behalf of their international clients in the future. I look forward to a constructive discussion on the provisions of the Bill in Committee. I am confident that we will give Crown Agents the new freedoms they require while retaining the high standards for which they are so widely respected. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

European Convergence Criteria: Deficit Assessment

5.23 p.m.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley) rose to move, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in Chapters 4, 5 and 6 of the Financial Statement and Budget Report 1995-96, as updated.

The noble Lord said: My Lords, this is the second annual debate under Section 5 of the European Communities (Amendment) Act 1993. Section 5 is about the provision of information to the Commission on economic matters. It asks the Government to report to Parliament, for its approval, an assessment of the medium-term economic and budgetary position. It also states that this report shall form the basis of any submission to the Council and Commission in pursuit of their responsibilities under Articles 103 and 104C of the Maastricht Treaty. The Financial Statement and Budget Report 1995-96 provides this report.

In order that there should be no confusion, perhaps I might further clarify the wording of the Motion before us today and in particular the meaning of the phrase "as updated". As the House will no doubt recall, following the decision to leave the rate of VAT on domestic fuel and power at 8 per cent., my right honourable friend the Chancellor of the Exchequer introduced a number of further fiscal measures on 8th December last year in order to ensure that government borrowing would continue to decline along the path set out in the November Budget. On 1st February, I announced to the House in a Written Answer that the Government had published a complete set of tables from the FSBR, revised to take account of the effect of these additional

28 Feb 2002 : Column 1445

measures. These revised tables are also to be regarded as part of the report comprising Chapters 4,5 and 6 of the Red Book.

As the House will be aware, Articles 103 and 104C of the Treaty on European Union require the Government to supply information on the United Kingdom's economic and budgetary position in order to facilitate the various multilateral surveillance discussions that take place during the year. In order to comply with the requirements of Article 103(3) of the treaty, which requires member states to,


    "forward information to the Commission about important measures taken by them in the field of their economic policy",

the Government will send to the Commission a copy of the FSBR together with the revised tables published on 1st February. Since the introduction of the unified Budget in November 1993 the FSBR now contains a full statement of changes to the Government's tax and spending plans as well as a description of the Government's general approach to the fiscal and monetary policy. As such, it is a document that clearly fulfils the requirements of Article 103(3).

In addition, the Government will also make a return which sets out published data on debt and deficit levels together with projections for 1994-95 and 1995-96 taken from Chapter 4 of the FSBR. That is in order to comply with the obligation that,


    "Member States shall report their planned and actual deficits and the levels of their debt promptly and regularly to the Commission",

under the excessive deficit procedure which is set out in Article 104C of the treaty and Council Regulation 3605/93.

The House will therefore recognise that in fulfilling its obligations under the treaty, the Government are not supplying the Commission with unpublished or privileged information. The Government are simply continuing to co-operate in the long-established practice of a free exchange of information and ideas between ourselves and our partners in the Community. The reason that we are here today is not because of the controversial nature of the information required by the Commission, but because the Government remain committed to the undertaking given to this House by my noble and learned friend the Lord Advocate to submit information to the Commission only after parliamentary approval had been secured.

Perhaps I might take a few minutes to remind the House of the key points of the medium-term outlook for the United Kingdom economy, which after all is the subject of this afternoon's debate. Of course, the background to last November's budget decisions was the excellent economic developments witnessed in the United Kingdom in 1994 and the tough decisions of the two 1993 Budgets which set public sector borrowing on a downward path.

One of the most striking developments since our debate last year has been the continuing fall in the number of people registered as unemployed. Since it began to fall in December 1992, unemployment has fallen by over 580,000 and the signs are that it will fall further in the coming months. Such a visible sign of the success of the Government's economic strategy is to be

28 Feb 2002 : Column 1446

welcomed because of the direct effects it has on ordinary people's lives. It will not escape the attention of the noble Lords who took part in the debate last year that these figures are quite at odds with the doom and gloom predictions of the noble Lord, Lord Eatwell, who spoke for the Opposition Front Bench on that occasion.

However, while the unemployment figures are encouraging, the Government remain concerned that the proportion of long-term unemployed—people who have been out of work for more than a year—remains too high. That is why my right honourable friend the Chancellor introduced a package of measures specifically designed to assist that group of people in their efforts to find work. I hope that the noble Lord, Lord Eatwell, will find time in his speech to join me in congratulating my right honourable friend on his determination to tackle this major problem.

In 1994 output grew by some 3.8 per cent. (that is, very nearly 4 per cent.) with a strong export performance being the major contributory factor to this and to the marked improvement in the United Kingdom's balance of payments. In addition, throughout 1994 the Government achieved inflation levels the like of which we have not seen for a generation. Underlying inflation has been below 3 per cent. for 16 months, the longest such period since 1961. The prompt action taken by my right honourable friend the Chancellor in raising interest rates will help to ensure that the recent rises in inflation which reflect the effect of high commodity prices and increases in excise duties announced on 8th December will indeed be only temporary.

Thus, my right honourable friend's priority in framing his November Budget decisions was to ensure that the downward trend in the budget deficit continued, and hence that the recovery will be sustainable—not simply a repeat of the "boom-bust" experiences of the past.

While the faster than expected growth of 1994 has tended to bring down the budget deficit more rapidly than expected this time last year, lower than expected inflation would have tended to increase the deficit had the Government done nothing. Accordingly, the Government made substantial reductions in their cash spending plans to offset the effects of lower prices, leaving those plans broadly unchanged in real terms. As a result, the medium-term outlook for public finances is slightly more favourable than envisaged last year, with a return to budget balance now expected by 1998-99.

The FSBR which the Chancellor presented in November has been thoroughly debated in another place. I hope that the House will agree with me that the said assessment is a prudent and reasonable one and that the Government's economic policies mean that there is every chance of achieving sustained and non-inflationary growth into the medium term. I beg to move.

Moved, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in Chapters 4, 5 and 6 of the Financial Statement and Budget Report 1995-96, as updated.—(Lord Henley.)

28 Feb 2002 : Column 1447

5.32 p.m.

Lord Eatwell: My Lords, this debate is to consider European convergence criteria—a matter to which the noble Lord, Lord Henley, devoted only a few minutes at the beginning of his speech. I hope that when he comes to sum up he will have something more to say on the topic of the debate.

When we debated a year ago the equivalent report to that which we are considering today considerable displeasure was expressed on all sides of the House—by the noble Lord, Lord Cockfield, from the Government Benches; by the noble Lord, Lord Thomson of Monifieth, from the Liberal Democrat Benches; and by myself from these Benches—that instead of the report that was required by the European Communities (Amendment) Act 1993, Parliament was offered chapters of the Red Book—which is not the same thing at all.

The Red Book contains virtually no information on the social and environmental goals set out in Article 2 of the Maastricht Treaty which Section 5 of the Act calls for. Nor does it contain any information whatsoever on the comparative performance of the UK and other member states as required by Section 4 of the Act, to which Section 5 is clearly linked.

Last year the critics were ready to be indulgent. They accepted that this procedure was being invoked for the first time, and it was just nine months after the passage of the Act. Moreover, they realised that the debate took place just three months after the first consolidated Budget and conceded that the Government might be allowed a certain latitude in substituting the Red Book for the required report on that first occasion.

But it is clear today that we were too indulgent. Instead of responding to our legitimate concerns, the Government have simply, without explanation, totally ignored them. And indeed they have ignored the law of the land from which those concerns derived. I hope that the Minister can give us an assurance this evening that this evasion of government responsibilities will not happen again.

Despite the Government's obvious unwillingness to obey the requirements of the Act, this debate comes at a propitious time. Never before have the convergence requirements of Stage 2 of economic and monetary union been such a hot topic in the saloon bar. But they are now. It is scarcely possible to buy a beer these days without being asked for an opinion on nominal and real convergence, or, more generally, on whether monetary union is a threat to the Royal Family and the Union Jack. I suppose that the Prime Minister, Mr. Clarke and Mr. Portillo deserve some credit for having excited interest in such an important, though admittedly abstruse, problem.

Unfortunately, the Red Book contains only a limited amount of the information which is sought by thinkers in the saloon bar. It deals with only two of the criteria which Article 103 of the treaty states are necessary,


    "to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the Member States";

28 Feb 2002 : Column 1448

namely, it deals with the maximum deficit and debt ratios demanded by Article 104c—and, even then, it deals with those two only in passing and, as I shall illustrate in a moment, imperfectly.

In part, the limited consideration of convergence criteria in this ersatz report is understandable. The Red Book is designed as a budgetary document, attuned to the British financial year and to British accounting standards. As I have complained already, it is not a convergence report and, to the extent that it tries to be one, the job is ill done.

For example, while the Red Book works on financial years, convergence criteria are defined in the treaty in calendar years. So despite the recalculation of the deficit GDP ratio and the government debt GDP ratio in terms recognised by the European system of accounts, the figures presented in the Red Book do not correspond to the convergence criteria that are demanded. That information for 1992 and 1993 only was contained in a CSO press release last week. I suppose that even this Government were too embarrassed to pretend that a press release is a report.

Careful reading between the Red Book lines produces some rather surprising snippets of information. For example, it is revealed that without any explanation whatsoever the Government have changed the fundamental objectives of their fiscal policy. In last year's Red Book, paragraph 2.08 stated that:


    "The objective of the Government's fiscal policy is to bring the PSBR back towards balance over the medium term, and in particular to ensure that when the economy is on trend the public sector borrows no more than is required to finance its net capital spending".

This year, in paragraph 2.09 of the Red Book, we read:


    "The Government's fiscal objective is to bring the PSBR back to balance over the medium term".

And that is all. There is no mention any more of financing capital spending by the public sector, which was previously a fundamental objective of fiscal policy. Where has it gone? And this is all the more surprising because Article 104c of the treaty requires that in considering the deficit convergence criteria,


    "the Commission shall also take into account whether the government deficit exceeds Government investment expenditure".

In other words, the treaty expresses exactly the same concerns as are contained in last year's fiscal policy objective but are not in this year's.

This requires some explanation. Why have the Government changed the declared objective of fiscal policy? Why has the reference to public sector investment been dropped? These are important questions. But I have to admit they are still not the questions which are causing the stir in the saloon bar. What is exercising the public is, to put the matter simply: what is the point of all this; what do the Government believe that the convergence criteria are for?

Up to a few months ago we thought we knew the answer. The convergence criteria, as explained to this House on 24th February last year by the noble Lord, Lord Henley, (at col. 772) are the vital components of Stage 2 of the process which is designed to achieve

28 Feb 2002 : Column 1449

monetary union. That is what the convergence criteria are for. But now we have Mr. Portillo telling us that monetary union would,


    "mean giving up the government of the UK. No British government can give up the government of the UK. That's imposssible".

The point has been reinforced by the Chief Secretary to the Treasury, who has declared:


    "I don't want to see a single currency, period".

That seems clear enough—no single currency. But then why are we bothering with convergence criteria, since monetary union is what convergence criteria are for?

But then along comes the Chancellor of the Exchequer. He tells us that, in effect, Mr. Portillo does not have the faintest idea of what he is talking about and that:


    "the idea that [a single currency] is in itself some threat to the nation state is wrong".

Moreover, he says:


    "You cannot negotiate an opt-out and then suddenly decide that you did not want to join in any circumstances. That is inconsistent ... How could the government that took Maastricht through Parliament say, 'Actually, we never wanted to join anyway'? It would make us look ridiculous".

Those are Mr. Clarke's words, not mine. Accordingly, he says, Britain "will certainly play a constructive part" in the preparations for monetary union. So there we are; the convergence criteria have a point after all. They are part of the constructive preparation for monetary union.

But then, just as the Chancellor has cleared things up, we have the Prime Minister assuming his now traditional role of spreading confusion where once clarity reigned. In his recent address to an organisation—which has for its title an oxymoron; namely, Conservative Way Forward—the Prime Minister first declared:


    "We cannot accept that sterling should be part of a single currency in '96 or '97".

That was intriguing. To begin with, nobody has ever proposed that there should be a single currency in 1996, nobody at all. So the first part of the Prime Minister's declaration is, to say the least, a little odd. Whatever did he have in mind? Probably we shall never know.

Turning to the substance of the matter, the Prime Minister went on to tell us that there will be no single currency in 1997 because economic conditions will not be right:


    "And, by right economic conditions, the Government does not only mean the Maastricht criteria ... Ken Clarke will go into further detail on this".

So let us go back to the Chancellor for further detail. The Chancellor said:


    "by the date from which a single currency could first be introduced"—

he realises that it is 1997 and not 1996, as the Prime Minister seems to think—


    "only Britain, Germany and Luxembourg seem likely to satisfy the Maastricht criteria".

As to the extra conditions of which the Prime Minister spoke, they include:


    "trade balances, the integration of markets, the development of unit labour costs, productivity growth and relative flexibility in labour markets".

28 Feb 2002 : Column 1450

That is clear enough too. Clearly, the Chancellor is talking about real convergence. I am delighted to hear that he has caught up with Labour Party thinking, which was arguing well before the Inter-Governmental Conference at Maastricht that real convergence is a necessary condition for successful monetary union.

But what is unclear is whether the Chancellor and the Prime Minister are saying that the British economy is not ready for monetary union because it has failed in real convergence, productivity growth is too low in Britain or the British trade balance is too weak—or whether they are saying that the economies of the other states which have also achieved nominal convergence are not ready for monetary union because they have not achieved real convergence.

The second position does not seem to be credible. All things considered, it seems obvious that the real economies of Germany and Luxembourg are stronger than Britain's real economy. The only sense that can be made of the Chancellor's argument is that it is the Government's opinion that, although nominal convergence has been achieved, the real state of the British economy is too weak for monetary union. Why cannot they say so clearly? Perhaps the noble Lord will confirm that that is exactly what the Chancellor meant.

That raises a further problem. Granted that a monetary union of just Britain, Luxembourg and Germany would look rather silly in 1997, what of 1998 and 1999? If the convergence criteria, nominal and real, are satisfied by a substantial group of countries which decide to form a monetary union and both nominal and real convergence criteria are satisfied by the UK economy, will Britain join the monetary union? I should be grateful if the noble Lord will answer that straightforward question, although I must say that I do not hold out any great hope of an unambiguous answer.

If the Government would not join when real and nominal convergence had both been achieved, what other criteria would the Government be applying to the choice to stay out? In a debate on convergence criteria surely we should know the actual criteria that the Government have in mind.

It is precisely the lack of clarity that is causing all the confusion and preventing the serious debate which the Chancellor called for in his 9th February speech. We are continually told that decisions can only be made three or four years hence. That is fine. But what are the convergence criteria that the Government are proposing on which that decision should be made? Surely the British people and the British Parliament deserve to know. If the Government are incapable of making clear those criteria through their own confusion and divisions, then no constructive debate can take place. Without a constructive debate, Britain's approach to the 1996 Inter-Governmental Conference will be forged from the dogma, xenophobia and downright irrationality which have had the Prime Minister on the run for the past year or so. That will be a grave disservice to the future of our country and to the future of Europe.

5.46 p.m.

Lord Thomson of Monifieth: My Lords, I shall not delay your Lordships for many minutes. I admire the

28 Feb 2002 : Column 1451

speech that has just been delivered by the noble Lord, Lord Eatwell. But, as he himself confessed, he was an optimist in feeling that there was likely to be any serious reply from the Government in this very curious debate.

As has been said, this is the second annual debate under Section 5 of the 1993 European Communities (Amendment) Act. As the noble Lord, Lord Eatwell, said, it is an opportunity for the Government to treat your Lordships' House more sensibly than they did last year. The Minister who opened the debate signally failed to do so.

The real purpose of the debate is for the Government to make an annual report in relation to the convergence criteria under the Maastricht Treaty. Instead, the Government dodge that important issue. They bury themselves and the House beneath the verbiage of the three general chapters of the Budget Red Book and a bland sentence in Chapter 1. This ought to have been a serious debate, which would respond to the points made by the noble Lord, Lord Eatwell, on the economic aspects of the European Union, instead of which the Government have converted it into a minimalist account of their own Budget proposals.

A year ago the noble Lord, Lord Cockfield, from the Government Benches, with all the authority that he brings to bear on these matters, made the modest and sensible suggestion that there should be a two- or three-page summary of the state of the financial relationships between the United Kingdom and the European Union. The Government simply refuse to do that. It is as though they are still sulking over an amendment to the Maastricht Act which they never wanted in the first place. They try to palm off Parliament with a few pages of the Red Book and a Motion which, to be polite about it, is very ambiguously worded and could literally be taken to imply some approval for the Government's national budgetary policies.

If the Government had been prepared to provide what the noble Lord, Lord Cockfield, sought—a short, clear report on Britain's progress in achieving the Maastricht convergence criteria—it could have been the basis for a useful annual debate on the very important problems of moving toward economic and monetary union. There is a reason why the Government do not remotely attempt to do that. All that could be said in favour of the Minister's speech this evening is that it was just a little fuller and longer than the speech which was made in another place last night when introducing this Motion. The reason, as the noble Lord, Lord Eatwell, set out in detail—and I shall not attempt to repeat it—is because the Government are so deeply divided over these issues that they again and again fail to do their duty to the nation by giving the kind of clear lead that the British people need in terms of Britain's role in the European Union.

We are an insular nation. For special geographical and historical reasons, it is difficult for us to make the imaginative leap to being full members of a European Union. It is the betrayal by this Government of the long-term interests of the British people in terms of the role that they should be playing in leadership in the European Union that is our major complaint. As it is,

28 Feb 2002 : Column 1452

the real debate on these important issues will take place tomorrow in another place on a Motion from the official Opposition and next Wednesday in your Lordships' House, when my noble friend Lord Jenkins of Hillhead will propose a Motion that the Government should take a positive role of leadership in the approach to the Intergovernmental Conference. Rather than waste more time on this rather demeaning non-debate, I am prepared to wait until next Wednesday.

5.51 p.m.

Lord Haskel: My Lords, we are indeed fortunate to have on our Benches such an eminent economist as my noble friend Lord Eatwell. However, it is not economists who keep the economy going, it is the industrial manager who pays the wages at the end of the week, the bank at the end of the month, the shareholders at the end of the year and the Inland Revenue most of the time. What is his or her view of this Motion? In answering that question perhaps I can fill in some of the detail my noble friend Lord Eatwell said had been omitted from the Red Book.

Industrial managers are interested in the practical aspect and their first concern must be the differences within the Government over Europe. That is because those differences are having an impact on the relationships laboriously and patiently built up since 1992, when Europe became a single market. There was a time when business relationships depended mainly on price. With the single market, business has become more competitive and, with competition, additional factors have become more and more important. Those relationships now depend on quality, reliability, co-operation in product development and, most importantly, co-operation in cutting costs and prices.

Many of those relationships are working successfully, and that is one reason why our export performance is better, as the Minister reminded us. However, the conflict over Europe within the Government is casting a shadow over those relationships and creating a feeling of uncertainty. The single market is the bedrock of those arrangements and talk of upsetting it is fatal to long-term alliances. There is no doubt that companies on the Continent are looking to replace their alliances with British firms. I hope the Minister understands that and understands how delicate those arrangements are, how easy they are to destroy and how difficult they are to rebuild. Perhaps the Minister will tell us when all the wrangling will stop.

Thanks to the hard work of building up those relationships, and helped by devaluation when coming out of the ERM, our exports are doing well. Indeed, we should compliment the DTI on the efforts it makes to encourage exports. But we are still heading for a current deficit of approximately £9 billion, the major part of which is in manufactured goods. Managers know that that can only be rectified by investment, training and innovation and good management practices. Sadly, Table 6A.3 shows that the budget for those activities in the DTI is going down after this current year. The spending on export credits is going up. I believe that

28 Feb 2002 : Column 1453

that emphasis is wrong because there is still a lot more work to be done in improving the competitiveness of British industry, and that must come first.

The way the DTI spends its budget and the source of its money is confusing. For example, large sums are spent on grants for inward investment. Indeed, the Government trumpet those investments as an accolade from overseas companies for the Government's policies. It is part of the DTI's programme of spending to encourage that, and quite rightly too. But people in industry know why many companies invest here. They have been bought with large grants, the excellence of British workers and the fact that English is the European language that most business people from Asia can cope with best. Also, much of that inward investment is due to the hard work of many local development companies such as the Northern Development Corporation, which must have one of the best track records in Europe. Incidentally, many of them operate under a Labour administration. However, it is unclear whether the source of the money is the European Union, the DTI or the local authority.

Certainly those grants have helped to bring jobs, new technology, new standards and new ways of working which have been of great advantage to the competitiveness of British industry. But managers know that there is a downside. It is that we are helping those overseas companies to achieve their ambitions and strategy to become global players based on their strong home market. We should not forget that, in doing that, we may be denying valuable assistance to some UK companies which in turn could become global players.

I am not being critical; I am being realistic. The true measure of the success of the investment is the amount by which industry improves its performance. In the past 12 months we in this country have cut our unit labour costs by 1.5 per cent., which is quite a good result. Knowing that noble Lords opposite have an interest in the Social Chapter, I looked up the figure in Germany. In that country, with the help of the Social Chapter, they have over the past 12 months reduced their unit labour costs by 6 per cent.

DTI grants are a complex matter made yet more complicated by the tax regime, and nowhere is that more apparent than in the area of British corporate research and product development. Sadly, some 40 per cent. of that is now conducted abroad—and that after the Lords' Science and Technology Committee warned that the Inland Revenue should be careful not inadvertently to create incentives to place research and product development outside the UK. One of our major engineering companies recently located a product development project in Germany where there is government funding, and that in association with BMW. They also recently purchased a major US engineering company because that company obtains US government funding for product development. No wonder managers are confused.

For managers, the single most important factor in the DTI budget is the encouragement to invest. Investment in the last quarter was disappointing. The most recent figures look a little better, but not much. The DTI must

28 Feb 2002 : Column 1454

spend time, money and effort on encouraging this. Investment in new plant and machinery is critical, and the single most important area for that is information technology.

I wish to make one final point. The collapse of Barings reminds industrial managers how they are controlled by the financial markets. Trading in financial markets, which produces very little, vastly overwhelms the trade in real goods and services. It is said that the total annual production of this country in goods and services is traded in just three days on the financial markets in London. Is that not a case of the tail wagging the dog? The Government see effective regulation as essential in achieving a level playing field. They may see it as a football pitch; the industrial manager sees it as a battlefield full of mines and hidden tank traps.

6 p.m.

Lord Bruce of Donington: My Lords, I have some sympathy with the approach to this debate adopted by the noble Lord, Lord Thomson of Monifieth. It is quite clear that the debates which are to take place in another place tomorrow, and the debate to take place in your Lordships' House on 8th March, will be devoted to questions of considerable principle. They will involve, I hope, an unambiguous declaration as to precisely what the Government's policies are towards the Inter-Governmental Conference in 1996 and what proposals they intend to bring forward.

I propose to confine myself to the somewhat mundane task of dealing with the Motion on the Order Paper. It is unexciting and does not give me even a frisson of either amusement or despair. It merely asks us to approve,


    "for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in Chapters 4, 5 and 6 of the Financial Statement and Budget Report 1995-96, as updated".

We can soon do that. We can look first at the provisions with which we are supposed to comply and the response to them.

Section 5 of the Act reads:


    "Before submitting the information required in implementing Article 103(3) of the Treaty establishing the European Community, Her Majesty's Government shall report to Parliament for its approval an assessment of the medium term economic and budgetary position in relation to public investment expenditure and to the social, economic and environmental goals set out in Article 2, which report shall form the basis of any submission to the Council and Commission in pursuit of their responsibilities under Articles 103 and 104c."

Perhaps we should look at Article 2. I am sorry to be a little prosaic but, after all, the documents themselves should be referred to. I refer to an unauthorised copy of the treaty obtainable for £18.91, or 24 ecu. It is not authorised by the Commission but is reputed to be authentic. But the Government do not believe in issuing copies of the Treaty. Article 2 states:


    "The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of

28 Feb 2002 : Column 1455

    employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States".

My noble friend Lord Eatwell was perfectly correct in what he said. The Government in simply producing Chapters 4, 5 and 6 and appendices, as updated, as an authentic response to the information that is supposed to be given have been perfectly correct. But, of course, the document that has been produced does not contain any of the vital information that is required in the event of any policy of economic cohesion being followed in respect of member states.

The Central Statistical Office produced a news release on 21st February that gives part of the information. It is even more up to date than the Red Book. It gives the cental government financial deficit as a percentage of GDP and central government gross debt at nominal value. This is good information, but I am a little mystified by what follows. It says that the estimates are based upon the European system of integrated accounts (ESA). This is somewhat new to me. The expression is referred to in the protocol which deals with excessive deficits.

Being a curious person in these matters, I tried to find out about the European system of integrated accounts. I have done so because the Commission, on receiving information from various states, including ourselves, as required by the articles concerned, ought to make comparisons among the figures submitted by member states. A European system of integrated accounts will enable the Commission to make that comparison. In the report that it is required to make to the Council of Ministers under the Treaty of Maastricht, it ought to be able to state those figures. I have made a diligent search. There is no record in the Library of the European system of integrated accounts. Nobody has ever heard of it. I made further inquiries of those whose business is closely associated with European affairs and could find not a word about it. There is no book or pamphlet upon it, nor does it appear on any computer.

In the absence of a European system of integrated accounts, to which our submissions are required to conform, I just wonder how the Commission can possibly arrive at any conclusions to forward to the Council of Ministers. The Council of Ministers is entrusted with the task of disciplining member states if they diverge too much from the targets set out in the protocol. It is required to make an appraisal, examine the accounts and ponder over them. It can even issue warnings to member states when they fall short on what the Council thinks they ought to be doing. By qualified majority, the Council can decide whether to admonish a member state and require it to conform to the categories. It can also fine a member state by qualified majority. In the absence of a European system of integrated accounts, how can the Commission be expected to make any valid judgment?

I do not wish to denigrate the abilities of members of the Commission. I have been carefully through the list of the members. Three of them have qualifications that border upon a knowledge of accountancy. Therefore, one will tend to trust them on such matters. I have also examined details of members of the Council. I ask

28 Feb 2002 : Column 1456

myself who really is qualified to assess the reports that the Council receives. Who in the Council of Ministers, within the limited time at their disposal prior to passing round the port and cigars, is able to make some assessment of these matters? I do not speak insultingly. As Mark Anthony would say, they are all honourable men.

All of this paraphernalia of the reports is not for the purpose of our being able to make fundamental judgments of principle, which in another place will be made tomorrow and in your Lordships' House on 8th March. It is for the purpose of leading up to economic and monetary union and disciplining people into various stages of some kind of recognisable cohesion. If we are to have economic cohesion, let us by all means have it; but let us define what we want.

The noble Lord, Lord Eatwell, came very nearly to it. Perhaps on 8th March he will expand on it with even greater precision. But, quite clearly, any assessment that does not deal with the prospect of unemployment is quite worthless. Unless economic cohesion makes some endeavour to eliminate the scourge of waste and misery, and even crime, then social cohesion is not worth looking at. The fact is that in Europe the record so far has not been particularly good—far worse than in Japan and the United States.

The other aspect of our affairs that needs some attention is our adverse balance of payments. I see from correspondence in the press, sometimes under the pen of the Foreign Secretary, that he appears to be satisfied with our balance of payments vis-o-vis in particular the EEC. He mentions record exports. There is one thing the Government never do. They never mention record imports. They have never recognised in the past 10 years that we have a trade deficit in total of some £70 billion, a very large proportion of it in Europe.

The progress towards the elimination over the medium and long-term of our trade deficit is also a matter of some importance. No economic assessment of the country is worth the paper that it is written on unless there is an assessment of investment that actually takes place within the United Kingdom by United Kingdom firms. There is Japanese investment in the United Kingdom and American investment in the United Kingdom. United Kingdom finance houses invest in America and Japan. But there is one place they do not invest in—the United Kingdom. Those are economic factors that have to be taken into account.

I have detained your Lordships for far too long, but I am bound to say that the Government on their own say-so certainly have not complied with the treaty. I have a certain sympathy for them. I am known to be somewhat mildly critical of certain aspects of the treaty, and indeed debated it when it was passed. I may be forgiven perhaps for holding true to my original beliefs that go back a long, long way and do not change because of any tactical political considerations. I hope therefore that your Lordships will forgive me for not going further on to matters of greater controversy. But I look forward to the time, either tomorrow in another place or on Wednesday 8th March in this place, when both parties can make absolutely clear and unequivocal statements as to whether and under what circumstances they are in

28 Feb 2002 : Column 1457

favour of economic and monetary union and a single currency. If they can reply to that without hedging, without any ifs and buts, then the whole of the country will be very satisfied with them.

6.13 p.m.

Lord Henley: My Lords, I should start by apologising both to the noble Lord, Lord Thomson of Monifieth, who felt that the debate was something of a waste of time, and to the noble Lord, Lord Bruce of Donington, who felt that the debate lacked excitement and then proceeded to give us a little excitement over the 13 or 14 minutes of his very interesting speech. I feel that there is some contradiction between their desires, but I hope that he provided some amusement—if our function is to provide amusement—to the noble Lord, Lord Thomson. He certainly raised issues of considerable interest for the House.

As the noble Lord, Lord Bruce, so helpfully pointed out, the Motion asks us to approve the Government's assessment of the medium-term economic and budgetary position for the purposes of Section 5. Section 5 is about the basis of material to be submitted to the Commission under the multilateral surveillance and excessive deficits procedures. The noble Lord, Lord Bruce, said that he required a more exciting Motion. No doubt he will get a more exciting Motion tomorrow week and no doubt the noble Lord will be taking part in the debate. I can only say how sorry I am that it will not be my privilege either to open or to wind up for Her Majesty's Government on that occasion, but I am sure that my noble friend Lady Chalker is greatly looking forward to doing so. I am sure she will welcome the noble Lord's speech.

It follows, therefore, that the Motion is not about the principle of submitting information to the Commission; nor is it about the question of Brussels' sphere of influence, or the rights and wrongs of a single currency—though I shall have a word or two to say about that in due course—and the United Kingdom's participation in such an arrangement. The real subject matter of the Motion before us is the assessment of economic and budgetary prospects set out in the FSBR. That is what I set out to explain in my introductory remarks.

The noble Lord, Lord Eatwell, was somewhat coy about giving quotations from his speech of last year when, as I pointed out in my opening remarks, he made some fairly gloomy and doomy predictions about the level of unemployment, the balance of trade, and so on. We had no mention of that this afternoon and no welcome for the very dramatically improved employment statistics that we have seen over the year or for the various measures introduced by my right honourable friend in the Budget which are designed to reduce long-term unemployment. We heard a great deal about what was being said in the saloon bar. The noble Lord has obviously moved up from the public bar. I dare say that this represents the degree of social mobility that we have seen under the years of Conservative Government. We heard a great deal about oxymorons allegedly uttered by my right honourable friend the

28 Feb 2002 : Column 1458

Prime Minister. We then had what I thought was the best oxymoron of all—when the noble Lord talked about Labour Party thinking.

I should like to address the first and principal point raised by the noble Lord about the Red Book not being a satisfactory vehicle for the Section 5 report and his suggestion that we should produce a separate report. I do not believe there is a need for that. It would simply result in unnecessary duplication. It is the appropriate vehicle for a Section 5 report as it contains all the relevant information. Perhaps I may give one example. The noble Lord mentioned environmental considerations as referred to in Article 2. I can give an assurance that the Government recognise that environmental considerations need to be taken into account when shaping economic policy. Indeed, the Government are committed to using economic instruments to address environmental objectives where they are appropriate. A good example of that is the use of different rates of excise duty applied to leaded and unleaded petrol in successive Budgets. As the noble Lord will know, if I may give another example, the November Budget proposed a new landfill tax.

I should also like to say a few words about convergence—an issue which the noble Lord accused me of ducking in my opening speech; a charge which I would certainly regret. Thanks to the prudent policies of this Government the Budget deficit is now falling rapidly. We expect it to be below 3 per cent. by 1996. Our inflation, our interest rates and our general government debt burden are comfortably within the reference limits set out in the treaty and associated protocols. We have a strong interest in the economic stability and prosperity of our main trading partners. We therefore support policies for convergence on both low inflation and sound public finances.

The noble Lord moved on to ask whether we would give a categoric answer—yes or no—to the question "Shall we join the EMU and, if so, when shall we join it?" The noble Lord knows quite well what the answer is. No one need concern himself with this vital question at the moment. It is one very much for the future and one which in due course Parliament will have an opportunity to consider.


Next Section Back to Table of Contents Lords Hansard Home Page