Previous Section Back to Table of Contents Lords Hansard Home Page


Lord Lamont of Lerwick: My Lords, perhaps the noble Lord, Lord Simon of Highbury, could enlighten me on one point. Will taxes paid in euros be calculated at the point of assessment or at the point of payment? If there is an exchange rate loss, will that be borne by the Treasury or by the taxpayer? If it is not borne by the Treasury, is not the whole idea of paying taxes in euros simply a gimmick?

Lord Simon of Highbury: My Lords, I do not think it is a gimmick because there is a choice. The exchange risk will be borne by the taxpayer.

The UK must be in a position to make a quick and smooth transition should Parliament and the people decide to join the single currency. What the Prime Minister announced on 23rd February was not a change of policy but a change of gear. The sheer nature, scale and complexity of the arrangements require considerable time for such preparation. If we do not start to face this reality now, we shall simply not have the practical means necessary to make a choice.

The Government have been working with a great many organisations such as the banks, Chambers of Commerce, Business Links, CBI, and others, on

19 Apr 1999 : Column 981

preparations that would be needed for UK entry if that is what Parliament and the people decide. This has been a consultative approach. The changeover plan is very much a consultative document. It seeks to stimulate debate and help people think seriously about what might be involved if we decide to join the euro and it sets out a possible timetable for adopting the euro if the country decides that that is what it wants to do.

Once the Government have announced their decision to recommend joining a single currency to the people, we could hold a referendum of the people within four months. Following a positive referendum result, we would be in a position to introduce euro notes and coins 24 to 30 months later. And six months after that we could see the withdrawal of sterling. So, in total, we estimate it could take three years from a yes vote by the people to the withdrawal of notes and coins.

This is only a provisional timetable and we must do a great deal more work with business and the wider public sector before producing a further plan next year. As I said earlier, this is a consultative process and so we are keen to hear what British business thinks. We can also learn more from the experience of the 11 countries who joined in the first wave and adopt their best practice. There is a wealth of IT experience of euro conversion and real experience of the growth of euro use during the period of changeover which is already developing in continental Europe.

It is essential that as part of this process the public sector shows a lead, making clear the Government's commitment to prepare. Each department now has a Minister responsible for euro preparations and each will now report regularly on preparations they are making. Where computer systems are being upgraded, all departments will build in euro compatibility where that represents value for money. In the case of the Department of Social Security, the Inland Revenue and Customs and Excise, the scale and complexity of their computer systems makes advance preparations critical. Together those departments are the main interface between central Government and the business community, and deal with almost every individual in the UK. They will need to spend some money prior to a referendum to make their information technology systems euro-compatible so that we can maintain the flexibility for Britain to make the changeover as quickly and cost-effectively as possible in the event of a positive referendum result. We are taking the necessary steps in the public sector.

The Outline National Changeover Plan looked at the key sectors across the whole economy to produce the practical steps that would need to be taken if the UK was to join the single currency. One among those key sectors is retail banking which provides essential services for the rest of the economy. Both through the British Bankers' Association and through direct representation, the banks have been working closely with government in developing an understanding of changeover issues. Many are already offering euro services but they need to think about how demand for those services will build up over time and how they will

19 Apr 1999 : Column 982

meet that demand. They need to decide how they will make the process of conversion as simple for their customers as possible.

Retail banks have specialised computer systems which would require thorough planning and significant investment to adapt. This is a complex area. It involves looking at different technical approaches and seeing what lessons we might be able to learn from banks participating in the first wave. The changeover plan states the issue. We now need to continue our work on it.

The retailers are another key sector who would be in the front line in any changeover to the euro; again, we consulted closely with representatives of the sector such as the British Retail Consortium, and all that has gone on behind the development of the national changeover plan. We will continue to do so as planning progresses. Many of the eurozone countries are still developing their approaches in areas such as consumer information and dual pricing, so lessons will only emerge over time and particularly with the introduction of the first euro notes and coins.

Maintaining the confidence of consumers during a changeover would be vital for all retailers; and those that managed to do so most effectively would obviously be at an advantage over their competitors. It is an issue that the retail sector as a whole is keen to address through the development of a draft code of practice, covering such matters as consumer information and dual pricing. The Government welcome that initiative.

Preparations work is not confined to the public sector, the banks and the retailers. The plan also looks at the wholesale financial markets so successfully launched in the first stage on 1st January this year by the City of London with, of course, expert guidance from the Bank of England. We are also studying the production of notes and coins and, separately, the legislative issues which still remain. We will continue to work to refine our understanding of all the issues involved and continue to make practical preparations. My message for noble Lords is that we are making significant progress in preparing the UK for the possibility of joining. The country will have a real choice.

It is government policy that, in principle, Britain should join a successful single currency. That principle is real. The practical preparations that we have set out are also real. The conditions necessary so that we proceed with caution, common sense and in our own interests, are real. If it be the nation's wish that we join, we have an outline programme to facilitate entry into the euro system which will enhance Britain's future in Europe and which has this nation's economic interest at its heart. I beg to move.

Moved, That this House takes note of the Government's outline proposals for a national changeover plan for EMU.--(Lord Simon of Highbury.)

5.56 p.m.

Lord Skidelsky: My Lords, the Outline National Changeover Plan published on 23rd February this year sets out what it calls a "critical path" from the decision of the Government to join the euro to the end of the

19 Apr 1999 : Column 983

changeover period when sterling would cease to exist--a period expected to last three years and four months. It then outlines what the various economic sectors should start doing now to adapt their systems to membership. There is a lot of material about preparing computers, information technology, cash machines, pricing systems and so forth for what the Minister called "euro- compatibility"; the general idea being that the economy should be geared up to a state of readiness to join the eurozone quickly if and when the Government and people decide to join.

Much of what is contained in the national changeover plan is perfectly sensible. We criticise it not for what it puts in, but for the intellectual and political vacuum which surrounds it. The preparations assume that it is in Britain's urgent interest to join the euro; that the economic conditions for our membership laid down by the Chancellor in October 1997 will be met sooner rather than later and, in short, that life outside Euroland is simply unthinkable. Yet astonishingly the Government have never set out the case for any of those propositions. It is as though they were urging us to prepare for a war without explaining why we need to fight that particular war.

I should like to draw attention to what was surely an extraordinary statement by the noble Lord, Lord McIntosh, in your Lordships' House on Wednesday 14th April. My noble friend Lord Peyton of Yeovil had asked,


    "Whether [the Government] will issue a White Paper setting out the political and economic reasons for and against the United Kingdom joining the European single currency". In his reply to a further question from my noble friend Lord Bridgeman, the noble Lord, Lord McIntosh, said,


    "A White Paper of the kind asked for ... is appropriate only when a decision ... is imminent".--[Official Report, 14/4/99; col. 769.]

Do not the Government believe that they have a duty to put all the facts, all the pros and cons, to the public before they exhort or require businesses to make costly preparations for the changeover? The national changeover plan is not simply an outline of what the Government expect businesses to do; it is a set of propositions which will be extremely costly to implement. Businesses are being asked to spend tens, possibly hundreds, of millions of pounds preparing for an event which may never happen, without even being told why it should happen and certainly why it should happen so quickly.

The Government have argued--the Minister has made this point again today--that the case for joining EMU is fully set out in the Treasury paper, UK Membership of the Single Currency, issued in October 1997. It stated five economic tests which had to be met before Britain could expect to prosper in the single currency zone:


    "Sustainable and durable convergence is the touchstone and without it we cannot reap the benefits of a successful EMU". That has been the only official government pronouncement on this matter, but it does not add up to an argument for joining.

The Treasury itself is too cautious, rightly so, to say whether or when convergence will be achieved. Even if we leave that aside, to say that under certain economic

19 Apr 1999 : Column 984

conditions we can prosper inside the eurozone is not an argument for going in, unless it can be plausibly shown that we would be economically worse off if we stayed out or that joining would confer additional political advantages which could not be matched by equivalent gains elsewhere. But the Government have not actually made these arguments.

Our contention, therefore, is that we should have this discussion, this wider debate, before we make any further preparations for joining. The time to start the changeover is when the British people have decided that they want to join the single currency. To start it now, before the debate has taken place, before the decision has been reached, on the ground that unless we prepare now we shall not have a real option to join early in the next Parliament, seems to me to be simply an attempt to bounce us into accepting that our joining is inevitable. Do the Government really believe that three and a half years would be insufficient to prepare for a changeover once the decision has been taken?

Perhaps I may take up one or two particular points. In his October 1997 statement, the Chancellor said that there is,


    "no constitutional bar to British membership of EMU". Ministers flourish that statement as though it were a great discovery. Of course, there is no constitutional bar to our membership, because Parliament is sovereign and it can do what it likes.

But joining has quite profound constitutional and political implications. At each step in our deepening involvement with the European Union, there have been political and constitutional implications which have been deliberately hidden from the British public by successive governments' insistence that the EU is purely an economic arrangement.

The Prime Minister reinforced this in a recent statement. He said:


    "just as the euro cannot be conceived of except politically, it cannot be made to work except economically".--[Official Report, Commons, 23/2/99; col. 181.] I will try to translate, because its meaning is not obviously apparent. To say that the euro is "conceived of politically" surely means that it has political consequences. If we join the euro, Parliament loses control over monetary policy; but do the Government really believe that the European Central Bank will be allowed to remain a kind of Vatican City in the middle of Europe, a 21st century version of the Papacy, answerable only to the god of monetary theory? Is it not much more likely that a successful attempt will be made sooner or later to impose ultimate political control over the European Central Bank at the European level? And does that not mean a European government or a move towards it? That is not just a hypothesis. It is the avowed aim of most leading continental politicians when they talk on this matter.

Politicians in this country need to be as honest as those on the Continent about the political implications of UK entry into a single currency. If the Government said, "We do not believe that monetary union will lead to political union" or, alternatively, "We believe that political union is such a valuable prize that we are

19 Apr 1999 : Column 985

willing to take economic risks to get it", we could at least have a proper debate on the matter. But to pretend that there is no connection between political union and monetary union, that the issue of our membership should be decided solely by economic criteria, is intellectually feeble-minded and politically dishonest.

The changeover plan talks a lot about how businesses and departments should prepare for life in Euroland, but says nothing about how the economy as a whole should be prepared for membership of a single currency. The Government refuse to tell us whether they think that the British economy is becoming more or less like that of continental Europe and they do not tell us how our economy can be made to converge, if it is not doing so of its own accord.

Perhaps I may give one example. Article 3 of the protocol on convergence criteria in the Maastricht Treaty states that a member state should have,


    "respected the normal fluctuations provided for in the Exchange Rate Mechanism ... without severe tensions for at least two years", before being allowed to lock its currency "irrevocably"-- a word I never like--into the euro. At the time, the normal fluctuation was 2½ per cent on either side of a central parity. Under present conditions, with all that has happened since 1992, the Government should be preparing, if they want us to enter the euro early, for sterling to shadow the euro as part of their preparations for joining. Yet the Government deny that they have any intention of sterling shadowing the euro and imply that convergence of domestic prices leads automatically to convergence of exchange rates. Do they really believe that? If they do not, how do they square a laissez-faire attitude to the value of sterling with their critical path to joining the euro from early in the next Parliament? I do not find any satisfactory explanation of what seems to me to be a clear inconsistency.

There are many other indicators of divergence between Britain and the Continent which I could go into: the fact that we are the European Union's only oil exporter; that we have far more mortgage debt than the rest of the EU; that UK households hold a higher proportion of their wealth in equities; that we have no pensions "time bomb"; that our labour markets are more flexible, and so on. I would single out just one divergence. I refer to that between our trading patterns and those of our EU partners.

According to Business for Sterling, British industry and commerce do more business in dollars than in all the European currencies combined. We export 19 per cent. of our GDP to the eurozone and 25 per cent of our GDP elsewhere. We do more trade outside the EU than any other EU member, and invest more outside the EU and attract more investment from outside the EU than any other member. That means that any savings for firms as a result of our membership of the single currency would be deployed over only 19 per cent of the national economy. There would also be greater exchange rate instability for the rest of our foreign trade, unless the euro-dollar exchange rate were fixed.

The national changeover plan is costly and premature. Unless we are given a much greater insight than we now have into the Government's reasons for wanting to join

19 Apr 1999 : Column 986

EMU, we cannot have a proper debate; and unless we have a proper debate on the merits of the project--and I stress, on the political merits just as much as the economic merits--we shall be in danger of drifting into irrevocable commitments which we may well live to regret.

We are asked to take note of the national changeover plan. We, on these Benches, do so with regret.

6.10 p.m.

Lord Williamson of Horton: My Lords, the subject of our debate this evening is the Outline National Changeover Plan, which is a fairly substantial document of 64 pages targeted at different sectors and, rather appropriately, printed in red, white and blue for the most part. I should like to make a number of specific comments about the changeover plan during the course of my intervention.

In order to set this in context, which I believe a number of other noble Lords will wish to do and because all questions relating to economic and monetary union and the single currency risk becoming contentious in this country, I should like to make two preliminary comments based on my own experience. I attended all the meetings of the heads of state and government which discussed economic and monetary union and the related issues over a 10-year period from 1987 to 1997. Although some of it was rather boring, I have not forgotten all of it.

I should like, first, to recall that we have had quite a lot of time to think about EMU and the single currency. It is not a new issue; it has been with us quite a long time. Of course, it stems directly from the Maastricht Treaty. Indeed, on reflection, we might say that many of the provisions in that treaty are not very important at all. But three elements of it were extremely important: economic and monetary union, the single currency and the United Kingdom opt-out; the increase in the legislative role of the European Parliament, because there were important changes which increased its powers; and the attempt to create a sort of intergovernmental common foreign and security policy.

At that time, and subsequently, I was very much impressed by two great misunderstandings, going in opposite directions, which applied to the Maastricht Treaty and the subsequent discussion. I believe that those misunderstandings still leave their traces in the discussion on economic and monetary union today and in this debate. On the one hand, the governments of the member states did not generally understand the doubts of the public in a number of member states about the content of the Maastricht Treaty; indeed, the central element of that treaty was economic and monetary union. When the treaty was agreed--I was there myself--the Ministers were as happy as sandboys and did not foresee the difficulties which would arise in some member states. That was one of the problems.

However, on the other hand, the public and the media, particularly in the United Kingdom, did not fully understand the force of the powerful political and economic impulse which drove the heads of state and government of most member states of the European

19 Apr 1999 : Column 987

Union to launch economic and monetary union and to participate in the single currency. The conclusions, in my view, are still relevant today: do not underrate the doubts of the British public today, and do not believe that, in some way or other, the euro is going to fail.

For too long many who commented here on economic and monetary union and the move to a single currency thought that it was not going to happen, that few countries would meet the criteria or that, because it was not an optimum currency area, there would be difficulties which would generate economic shocks. Of course, there was an element of truth in the last point because both the press and economic commentators do often get things partially right, but the situation today is different and very clear. The move to economic and monetary union by 11 member states with the locking of their currencies has been smoothly made, and the preparation for the introduction of the euro notes and coins is going forward according to the timetable.

We can conclude that for the foreseeable future, whether or not the UK decides to participate in the single currency, our businesses and our citizens travelling on the Continent will be dealing with the euro. On balance, the existence of the euro in the 11 countries will be positive for British businesses and British travellers, not only because it reduces the complications of the currencies but also because it will make pricing more transparent and thus improve the operation of the single market.

Secondly, we are in a special position not just because of the opt-out but because any decision to participate in the single currency will be taken by the British people in a referendum. Although there will not be any immediate decision by the British Government and people on the question, in my view it is right that, like the Boy Scouts, we should be prepared. This means that, in the event of a negative decision, we must be able to maximise our capacity to benefit from the existence of the single currency elsewhere and to protect and promote the interest in particular of our position in financial services. In the event of a positive decision, it means that the complicated and difficult changes, to which the Outline National Changeover Plan refers, should be prepared and completed as quickly as practicable in order to minimise the disruption and uncertainties on the practical changes necessary.

I therefore support the decision of the Government to present an outline plan and, in particular, their invitation for comments and informed debate on the many practical issues raised in the plan. I am sure that the Minister will be glad that I have now arrived at Westminster from Maastricht and that I am supporting the Government's position on that point. I know that there are different views, but I think that it would be insulting to the British people if, after they had been invited to make a decision in a referendum in the next Parliament and if they decided to join a single currency, we were then to say that no preparations had been made and that much time would be needed. The Government are right to point out that the Outline National Changeover Plan states that,


    "without preparation, it is not a practical option".

19 Apr 1999 : Column 988

On the substance of the Outline National Changeover Plan, I also have two points to make. First, it is certainly helpful to have the various case studies and an estimate of the timetable for the changeover, which, as the noble Lord, Lord Skidelsky, pointed out, the plan estimates 40 months or less from a government decision to join to the sole use of the euro. However, if we look in particular at the timing for the adaptation of complex IT and other systems-- especially in retail banking where most of those systems which were installed a long time ago have been adapted over the years but are not necessarily capable of continuous adaptation--we can say that this is a rather ambitious timetable both for business and for the public sector. It is unusual for a government to be ambitious, but not forbidden. But I believe that this time it is in fact rather ambitious.

Secondly, the plan asks quite specifically whether there is a role for regulation--by which is meant legislative action--of the practical steps of any changeover. I very much hope that the Government will stay with their support for a voluntary approach and the development of a UK code of practice to help consumers, retailers and suppliers. The first priority should be the consumers. But, to ensure the best deal for them, we need adequate information, very adequate information and perhaps very very adequate information. We also need a certain flexibility within the framework of a code of practice.

To sum up, the people will decide but it is right to prepare information and to examine the practical problems now, using a voluntary approach as far as possible. The Government are also right to invite comments on the outline plan and to be ready to present a further public changeover plan after that consultation.

6.18 p.m.

Lord Barnett: My Lords, I agree with much that the noble Lord, Lord Williamson, has just said. I should like to deal with the three basic attitudes which exist in relation to both the plan and, indeed, economic and monetary union, although there are many strong variations on those basic attitudes. First, there are those who oppose the latter with different intensity. I include the noble Lord, Lord Skidelsy, among them and, indeed, the Official Opposition. In fact, judging from what they say, if they were honest they would admit that they would be opposed not just to EMU but probably even to membership of the European Union. They certainly do not leave many options open.

Secondly, I agree with the Government's White Paper for reasons that were well spelt out by the previous speaker. However, I take a different view, a third view, which I should like to outline.

I begin with those who oppose the changeover plan--the noble Lord, Lord Skidelsky, and the Official Opposition--although that attitude is not held by every Member of the Official Opposition, as we all know. However, the argument was put by the Leader of the Opposition in the other place when the Statement was made on 23rd February. He said that there were fundamental risks. Of course, there are risks. No one

19 Apr 1999 : Column 989

would doubt that; certainly not myself. However, I assume that "fundamental risks" means something fundamental.

Indeed, on 23rd February the right honourable gentleman the Leader of the Opposition asked whether there was not an attempt to lull people into thinking that,


    "a nation that has decided its own destiny for 1,000 years is no longer fit to do so".--[Official Report, Commons, 23/2/99; col. 186.] The Prime Minister challenged Mr. Hague on that occasion. He said, also at col. 186,


    "At least the right hon. Gentleman has made it clear that he is opposed to a single currency for good, for ever". Mr. Hague replied,


    "No, I have not". I quote Mr. Hague directly, which I assume will upset some noble Lords opposite. I see that one of them is laughing now. Certainly that does not appear to upset the noble Lord, Lord Skidelsky. I believe he would strongly agree with those sentiments. However, he said that he does not like the word "irrevocable". What the noble Lord, Lord Skidelsky, has said, and what the Leader of the Opposition said in another place in this context, means "never". I do not think there can be any doubt about that in anyone's mind. On the other hand, one is bound to say that even if it is in the national interest to join in the next Parliament, the noble Lord, Lord Skidelsky, his colleagues and the Leader of the Opposition in another place would not go along with that; they are opposed to it. As I say, those are the people who oppose the changeover plan and economic and monetary union.

I shall now discuss the plan itself. For the same reasons that were given by the noble Lord, Lord Williamson, I strongly agree with the need to make plans and to prepare for the possibility, as the Government put it, of joining. The document emphasises areas of vital national interest. I refer to the timetable which my noble friend Lord Simon mentioned, and which is referred to in some detail in the document, which states that the process would take about four months from the taking of the decision to finishing the referendum, and then up to four years for larger public sector departments, but overall it would be something like 40 months. That means that even if a decision was taken on this matter after a general election--which one assumes, in the light of all that is happening to the Opposition, the Government would win--we are talking about the end of the year 2001. The process would then take up to 40 months, if not a little longer.

Therefore, we would not assume membership of economic and monetary union and a single currency until 2004 or 2005. My personal view is that is far too long for us to be outside such an important currency area. I disagree with the Government on that point. However, that does not mean that I disagree with the need to plan and to prepare for our joining. Indeed, the Government have expressed the view that in principle they are in favour of joining, although they could not help including in the document and in the Prime Minister's Statement the words "conditional", "not

19 Apr 1999 : Column 990

inevitable", and "a change of gear". If that is the position, the noble Lord, Lord Skidelsky, is probably right that we should not have issued the document at all. I hope that our joining is not conditional; that it is inevitable that we shall join; and that it is not just a matter of a change of gear.

Although I recognise the political reality that all governments, and particularly this one--if I may put it that way--do not like to commit themselves too strongly until they have certain newspapers, or even the British public, on their side (leaving aside the noble Lord, Lord Lamont), I find it incomprehensible that they are unwilling to say that it is now a matter of "when" we shall join rather than "if". When we debated this matter previously, my noble friend Lord Simon did his best when he said that the matter means effectively what is in the eye of the beholder. He did not exactly use those words, but that is what he meant. I see that he nods his head. When he replies to this debate, I hope that he will do a little better than that because this should not just be a matter of what is in the eye of the beholder. If we agree to the measure in principle, we should say so as that would be beneficial to the whole future of Britain inside Europe.

The third of the basic attitudes that I have mentioned--I include myself in this--is that the UK is now more convergent, and sustainably so, than many of the 11 which are already in the system. The Government still continue to insist that we must meet the five economic tests that the Chancellor spelt out in October 1997. They should not talk about that because we all know that the five economic tests were not terribly relevant then and are much less so today. I recognise the problems that my noble friend Lord Simon faces in agreeing with me, but I hope that he will agree with me on this--to some extent at least. We refer to the economic cycle here as being different, but my noble friend must know that there will always be differences in economic cycles within 15 countries. If we were to insist on that point, then, like the Opposition, we really would mean that we would never join. There will always be some differences in the economic cycles. As regards interest rates, although clearly there is a difference between our interest rate, those in other European Union countries and that of the 11 member states which have joined, the margin is much narrower now. If we were to announce today that we would now join as a matter of fact, I believe we would close that margin considerably and without too much difficulty. That would considerably help the British economy.

It is constantly said that one of the five economic tests is the need for sustained economic strength, as the Prime Minister said in the Statement of 23rd February. I hope that the Prime Minister believes what the Chancellor has been saying. Although I have had my doubts from time to time, I believe what the Chancellor said. I believe that most people in the country have now stopped talking about recession, crises and all the rest of it. What the Chancellor has said both in his Budget and in other statements about the economic strength of the

19 Apr 1999 : Column 991

United Kingdom signifies that we have more sustained economic strength than many of the 11 which have already joined.

I believe that the Government's position is absolutely right as regards the plan. It is sensible to prepare, whatever may be said by the Opposition. But it must be wrong not to give a clear lead today. Let us forget the five so-called "tests". Matters are never likely to be better than they are now, or in the next year or so when I hope we shall join. I hope that the Government will declare their intention to proceed rapidly with the changeover plan so that we can become a real leader in the European Union--and much sooner than now appears to be the case.

6.28 p.m.

Lord Cockfield: My Lords, it is always a great pleasure to follow the noble Lord, Lord Barnett, not least because, although we sit on different sides of the House, on major issues confronting the European Union we stand on very much the same side.

Although this will be well known to most of your Lordships, I support, and always have supported, the concept of a single currency. Indeed, I regard it as the crowning achievement of the single market. It is in fact the keystone which holds a whole edifice together and complete. My only regret is that we did not join at the outset. In the case of the Major government, riven as they were by dissent, that is understandable. But the Labour Government have no such excuse. Having said that, I now propose sticking strictly to the subject matter of the debate, which is the outline changeover plan that has just been published by the Government.

It is a step forward that the Government should have published such a plan, but nevertheless it is deeply unsatisfactory. It sets out various steps in the changeover. There is nothing novel about that. Indeed, virtually all of this information appeared in the Financial Times a couple of days before we last debated this subject on 20th January. The changeover plan adds very little to that. While it is good as far as it goes, it contains neither a starting date nor a date of conclusion. It is as though you invited somebody to take a journey by train and you told them it would take four hours, but you were not prepared to disclose when the train would leave, still less when it was expected to arrive. You did, however, warn the traveller that he might meet delays en route and you even said the train might arrive early. That, of course, is very reminiscent of the way the railways are run at present--except for the possibility of arriving early--but for the Government, that is not good enough.

Having said that, I wish to draw specific attention to two perils which might be encountered on the mystery tour to which the Government are now inviting us and which might have an important bearing on the time the train arrives at its destination. I tried to explain the first of the perils in some detail in the debate on 20th January, but I failed to put over my point. I propose having another go now. I am sorry that the noble Lord, Lord McIntosh of Haringey, has left us because he replied to the debate on 20th January and I would not

19 Apr 1999 : Column 992

like him to think that I was in any way dissatisfied with the reply that he gave. It is simply that it was not an answer to my question. I am hoping for rather better luck with the noble Lord, Lord Simon of Highbury.

From the political point of view, what really matters about the changeover is the retail stage. That is when euro notes and coins will be substituted for our existing currency. That is when the general public--the man in the street, the shopper--will come face to face with the reality of the changeover. Anyone whose memory goes back to 1972--and the memory of some noble Lords will do so--when decimalisation was introduced will recall the public outcry that occurred on that occasion. They will recall that people claimed they did not understand and that there was profiteering on the part of retailers and other people. The reaction to the introduction of the euro at the retail stage is likely to be far worse than anything that occurred in 1972.

By an irony of fate, the retail stage under the timetable for the introduction of the euro, which has now just started to run, coincides with the date when the next general election might be held. That is likely to be in 2002. In our debate on 20th January I asked the Government how they proposed to deal with that singularly unfortunate coincidence of two major events. As I said, I received no reply, so I am now trying once again. To some extent, the answer is given in the changeover plan. I shall give two quotations, but I have left out what I regard as unnecessary words. The changeover plan states that,


    "making a decision, during this Parliament, to join is not realistic". The second quotation follows almost immediately afterwards:


    "a decision to join ... can be made early in the next Parliament". Leaving aside the question that "can" can always be interpreted as "might" if it is expedient so to do, it would seem at first sight to meet my concern as it places the whole operation beyond the next general election which, incidentally, need not take place until May 2002. But it raises all kinds of other problems. In particular, it could create real problems in relation to the following general election, especially if the election in 2002 were late and there was then pressure to wait until the reaction on the Continent to the retail stage was known. That might well take many months to assess. That might have repercussions in relation to the timing of the following general election.

I realise that all this can be dismissed as idle speculation, but unless the Government have a very clear idea of how they will address these problems, industry and the private sector generally will be left in a state of uncertainty. Fortunately, there is an answer--I offer the Government this advice--in terms of having an early general election this time round. Instead of letting the present Parliament run its full term until May 2002, a general election could be called a year early; namely, in May 2001. There is nothing unusual in a four-year Parliament instead of a five-year Parliament. Indeed, a five-year Parliament carries certain risks for the incumbent government, as the noble Lord, Lord Callaghan of Cardiff, and my right honourable friend John Major, will testify, both of whom thought that they would run to a five-year Parliament.

19 Apr 1999 : Column 993

In offering the Government the option of a four-year Parliament I am trying to assist them. The decision to join could then be announced in the Queen's Speech; the changeover programme could begin to roll and would be completed well before the following general election. It would require real courage, but unless the Government are absolutely clear and categoric about this and, therefore, about the timetable as a whole, many people will simply sit on their hands, wasting time arguing the toss, and the end result will be disaster--not just for the Government, which arguably does not matter, but for the country, which certainly does matter.

We have before us now the lesson of the millennium bug. People have not been prepared to take it seriously and we have reached the stage where, if people have failed to take the necessary measures, it is almost too late to do so.

There is a second peril which must at all costs be avoided; namely, going in at what proves to be the wrong rate of exchange. To understand this point we need to return to the disaster that occurred when we joined the ERM. It is commonly said that we went in at the wrong exchange rate. That is not the real explanation. The real reason is that we went in at the wrong time--just at the time when the Lawson boom was reaching its climax and the economy was poised to slip downhill. When a country moves into recession, normally its rate of exchange weakens. That is a benign development because the weakening of the rate of exchange encourages exports, and that in turn can often start the recovery under way.

When we entered the ERM the exchange rate was entirely correct as of that day. But as we moved into recession the exchange rate ought to have fallen, but it could not do so because of the constraints imposed by the ERM. In short, after proclaiming year in, year out that we would enter the ERM when the time was right, we went in exactly when the time was wrong. I hope that that error will not be repeated. I shall deal with the point in greater detail. In the end, we broke out of the bind, which was a self-inflicted injury--no one else was to blame--by leaving the ERM. That drastic remedy is not available in relation to the single currency. It is a case of once in, effectively always in. So once we join, we have to get this one right. Ideally, that means entering the ERM when we are at the bottom of the economic downturn, when our currency is at its weakest and when, it is to be hoped, the other countries are at the top of their economic cycle. That is precisely the opposite of what Mr. Brown has advocated in wanting our economy to be "in sync" with the other economies of the economic union.

It is no good thinking that this problem can be solved by negotiation. The other member states will never for a moment accept a rate of exchange for the pound when we enter which is different from the current rate of exchange. We must ensure that, when we enter the single currency, the facts meet our expectations. There is, of course, a problem with the Maastricht criteria--if anyone really knows what those criteria amount to. I know that my remarks may sound pretty Machiavellian, and I would never accuse the Government of being

19 Apr 1999 : Column 994

as clever as that, but the European Union is no gentlemen's club. You have to be pretty ruthless if you are going to survive.

6.43 p.m.

Lord Peston: My Lords, I congratulate my noble friend both on the plan that we are debating and on his presentation of it. I begin from the position that, no matter what the theoretical pros and cons of monetary union per se, now that EMU exists the United Kingdom should be a member. I appreciate the difficulties of a new government, after 18 years in opposition, taking an early decision to join. But, like my noble friend Lord Barnett, I am sorry that the earliest Britain could now be a member would be the third, fourth or even fifth year of the new century.

The present document refers to whether the economic case for the United Kingdom joining is clear and unambiguous. I can only say that I am hesitant about regarding the economic case for anything as capable of being clear and unambiguous. That applies even more so to business decision-making, which is usually about the balance of advantage and disadvantage, or the choice of evils.

With that caveat, I would assert that at this moment the United Kingdom would be more likely to prosper within the single currency system than some of the countries that have already joined. That is also true if the criteria of sustainable convergence are examined. Rather like my noble friend Lord Barnett, I believe that we have converged to the necessary degree and can sustain that position relatively easily. I am therefore much more optimistic about this matter than is my noble friend the Minister.

The noble Lord, Lord Skidelsky, gave the usual list of all the ways in which this country differs from all the other members of the European Union. He did not include the main difference, which I am convinced underlies the opposition of the so-called Eurosceptics. The main difference between us and them is that we are British and they are foreigners. That is the whole point about Euroscepticism. It has nothing to do with a serious analysis of economic matters. Happily, the noble Lord, Lord Skidelsky, did not take that xenophobic view.

The noble Lord led us to the serious question of the exchange rate. The document refers to exchange rate stability against the euro. I do not know whether that replaces the Maastricht Treaty condition, which related to membership of the ERM and exchange stability within it. For several years (I asked this question several times of the previous government) the Treasury appears to have said that the original Maastricht condition no longer applies. It would be useful if the Minister could confirm that.

Much more important is the question raised by the noble Lord, Lord Cockfield, to which I have to say I do not know the answer. Almost everyone agrees that the fixed value of our currency within EMU must be lower that it is at present against the euro. What is not clear is how we arrive at the correct value, assuming that we can work out what it is. The Bank of England's Monetary Policy Committee has a remit to hit an

19 Apr 1999 : Column 995

inflation target. The Chancellor has set fiscal policy in the medium term, and therefore has shown what used to be called Keynesian short-term interventionism.

It follows logically from that that the exchange rate is simply determined by market forces. The Government have no control over it at all. That means that at some point either the remit of the Monetary Policy Committee has changed, or something miraculous has happened. I, for one, am not a great believer in miracles. It is, anyway, true that in due course new legislation must be introduced to replace the 1998 Bank of England Act. The Monetary Policy Committee of the Bank of England will cease to exist and the Bank of England will become just like the central banks of other member countries, sending a representative to the European Central Bank in order to help formulate monetary policy and retaining only a technical role for itself.

Here is as powerful an example as any of what we lose by not being a member now. A new form of policy-making is emerging at the European Central Bank. Member countries openly state that they are learning the ropes and gaining experience as they go along. But by the time we join, a great deal of their operating procedures and monetary policy philosophy will be determined, without our having any ability to influence or change it. In other words, it is a repetition of the story of the European Union in all its forms over all these years. That is a great pity.

Perhaps I may now make a few remarks on the practical details as they are admirably set out in the document. My noble friend and his committee (or committees) are doing an extremely good job in most difficult circumstances. It is a commonplace of economic theory that changing the currency unit has no economic effects. It is equivalent to the proposition that the real temperature is no different whether it is measured in centigrade or Fahrenheit. That said, it is interesting to the average academic economist how difficult and costly changing the unit of account turns out to be.

I also note, somewhat wryly, how IT appears to be as much a part of the problem as the solution. The miracle of computing power available at all levels of business and households would have caused naive people such as me to say that the changeover would be easy. It would be like my route-planning software. At one click I can tell it to calculate distances in miles or kilometres or petrol consumption in gallons or litres. Telling computers to calculate transactions in euros instead of sterling would be just as simple, I would have thought. But I am clearly wrong.

In those circumstances, I have to reflect on the following sentence on page 31 of the document, to which the noble Lord, Lord Williamson, has already referred:


    "By and large the UK clearing banks have core systems which were originally built--" believe it or not--


    "in the 1960s or 1970s but which have since been expanded over the years as services have become more sophisticated. The systems are very good at what they do, but are quite difficult to adapt".

19 Apr 1999 : Column 996

    I can only comment that you do not have to be a genius to see that in the contemporary world adaptability is of the essence. What kind of people, including the retail banking system, are ordering and building systems which are difficult to adapt to changing needs?

My last technical comment concerns business preparation generally. What assumption is business being asked to adopt? The document sets out clearly and forthrightly the problems of planning. But are businesses being urged to plan on the assumption that we will join? If not, when will they be advised to make that assumption? That point was made by other noble Lords. Presumably the public sector is planning on the assumption that we might join. But with what degree of probability? I do not expect my noble friend to answer questions like that now, but they cannot be left unanswered indefinitely.

That leads to my conclusion on information. It seems to me that the public is bewildered by all the single currency business. The reason is that ordinary people are being asked to respond to hypotheticals: what might be or what would be. What they need are actuals. My own view is that we require a public information campaign, but we require it now, precisely as the document says--


    "the early provision of clear, accurate information and its delivery through primed information channels".

Unfortunately, there is a great deal of disinformation. Some people seem to be in the business of providing disinformation on a grand scale. The Government feel, on constitutional grounds I think, that they cannot yet intervene. That is a puzzle to me, but it relates to the point made by my noble friend Lord Barnett, that it is time the Government said, "Yes", and when.

One benefit of the document and of our debate is that perhaps it will reassure the public that we are taking the planning phase seriously, that we can say to the public that there are enormous potential benefits to be gained from EMU. If someone, perhaps, from the Opposition, would put the right subject down for debate, I would be happy to outline what I think the enormous potential benefits are. I happen to believe that they are not benefits that fall into your lap, but benefits you have to grasp and towards which the Government must lead us.

6.53 p.m.

Lord Hamilton of Dalzell: My Lords, I find myself in fundamental agreement with my noble friend Lord Skidelsky. Whatever the pamphlet is, it is not a discussion document because it leaves out the political factors. I shall always remain opposed to our joining the single currency because of our loss of sovereignty, which I think will inevitably occur. In my view, the pamphlet is designed to reinforce the impression of the inevitability that we should join. The noble Lord, Lord Simon, talked about the smooth transfer, the ability to make a choice in a hurry, flexibility, speed and all such matters. Having read the pamphlet, I turned to the front cover, fully expecting to see that it came from the "Ministry of Information"--that well-known euphemism, in countries where they have one, for the

19 Apr 1999 : Column 997

Ministry of Propaganda. The pamphlet follows the cardinal rule that if something is repeated often enough, most people will begin to believe it.

The first point that struck me was the repetition, eight times, of the blue diagram marking the 40-month period between the "decision" and the "end". It has been described by the noble Lord, Lord Simon, as "a provisional timetable". It is a clever device giving the impression of a fait accompli. Why otherwise would it be necessary to repeat such a simple thing so many times?

You have to hunt around to find out what the end is-- perhaps aptly, because if we were ever to get that far, it would be the end of parliamentary democracy in this country, as we have come to know it.

Like my noble friend Lord Skidelsky, I made a note of the response of the noble Lord, Lord McIntosh, at Question Time. Indeed, I felt strongly about it because I received a Written Answer in the same vein. I have sympathy for the noble Lord, Lord McIntosh, who is captive in the position of having to answer such Questions. His instructions seem to be that all he can do is to give his name, rank and number. He might just as well say, "McIntosh, Lord, 2193131", and we would be just as wise as we are from his replies.

The opinion polls show some success in the effort to enshrine inevitability. Although the majority in the country are opposed to our ever giving up the pound, there are many people who think that we will join, whether they like it or not. I wonder whether that is a good basis on which to proceed.

Having lost all the other arguments, the selling of the idea that we will join and that there is nothing anyone can do about it is the only strategy left. It must be given the best chance possible to impress itself on the population before the difficult obstacle of the referendum has to be surmounted. To this end, the persuasion of business is vital.

The pamphlet is, in my view, aimed at continuing that process. However, I suspect that many businessmen who read it will be outraged at its effrontery in the way it tells them how to run their businesses in such elementary terms and how it attempts to inveigle them into spending large sums of money on what must still be regarded as a speculation. Surely they will see through the conspiracy that they are being persuaded to make the bet so that they will then want to see the horse run.

If the referendum goes against joining or even never takes place, money will have been needlessly squandered and the performance and share prices of companies will be adversely affected. If businessmen need more time after the referendum, why can they not have it? The real information they need on the basic assumptions of economic interest is not here. Again, my noble friend Lord Skidelsky mentioned various information that businesses would want and asked about our position as an oil producer. My noble friend Lord Cockfield mentioned how important it is to have

19 Apr 1999 : Column 998

the rate fixed at exactly the right level. But what is the right level for exporters against importers? It seems to me that you cannot satisfy both.

Will restructuring in the EU ever take place? We now have socialist governments all over the EU and it seems to me that that is becoming much less likely. There are many questions to which they must know the answer: what will be the rate against the US dollar and the yen? Since we last had a Labour Government in office, we have become a great deal more suspicious of government's expertise in corporate affairs. No doubt we had similar prospectuses for the benefits of nationalisation, the ground nut scheme, de Lorean, and the benefits of sending ships to Poland loaded with taxpayers' money so that the Polish fleet could compete on unequal terms with our own merchant fleet. Concorde and the ERM have been already mentioned. Those are just a few of the instances which spring immediately to mind. Noble Lords will be able to think of many more.

I hope that the chairmen and directors of banks, the motor car industry, the supermarkets, the City of London, and the water companies--I wondered why not the oil industry; is it because it already deals in US dollars or is it because its chairmen and directors are too clever to need it?--all of whom are paid to run their businesses and who are being offered this advice free, gratis and for nothing, will treat it with the scepticism it deserves. But before they put the document in the bin, they should turn to page 46 where they will find the green chart describing the public sector structure. There, they will see in the structure plan, the little triangles, government departments (for which they can read the Westminster Parliament) coming underneath euro ministers. I encourage them to take a pen and insert at the top "The unelected European Commission and Central Bank". They will then have its true significance in a nutshell.

7 p.m.

Lord Kingsdown: My Lords, in case I fail to make it clear in my speech, perhaps I may open by saying that my position is very close to that of my noble friend Lord Williamson. Certainly, my position is closer to that of my noble friend than the noble Lord, Lord Hamilton. I last spoke in your Lordships' House during a debate on the economy. I concluded by saying that what was then a very satisfactory situation would be perfected by the granting of independence to the Bank of England. This was received by the then Front Bench good-naturedly but as a plea inspired by special interest. Nevertheless, I admit that to my surprise that was exactly what took place within a matter of months. I have allowed myself since to feel that at least on that occasion I spoke with effect. I have been very selective about speaking since then for fear of compromising this record.

I must confess, however, to having already made a plea in respect of the subject that we are debating this evening in a publication entitled--I hardly dare say it--Kingsdown Revisited, which represented an assessment of where the United Kingdom's interest was likely to lie after the introduction of the euro. It was a report

19 Apr 1999 : Column 999

sponsored by an organisation called Action Centre for Europe and it commended the line taken by the Government then in respect of EMU, subject to the typical schoolmaster's comment "could do better". There must be a much clearer signal not only of where the Government are going but also in order to justify the need and cost of preparation in advance of a decision by the UK to join. In such circumstances I can hardly fail to approve the plan that the Government have put before us today. I was pleased to hear from the noble Lord, Lord Simon, that progress in it appears to be greater than I had realised. I would regard it as irresponsible of a UK government at the present stage not to prepare for conversion.


Next Section Back to Table of Contents Lords Hansard Home Page