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Lord Stoddart of Swindon: My Lords, the noble Lord will know that Honda has a great factory in Swindon. It has recently said that it does not matter what happens with the plan; it is going to stay there.

Lord Taverne: My Lords, the position has been made clear by Toyota and Honda: as far as they are concerned there will be no further investment in the UK if we do not join the euro.

Foreign investment is important for a number of reasons. There are three main arguments for the euro: stability, to which I have referred; competition, which has often been argued about; and foreign direct investment, on which I shall concentrate. It is not only a question of jobs and the enormous contribution it makes to our exports, but the most important factor is its impact on the efficiency of management. Multinational companies are far more efficient than domestic companies, largely because they face tougher competition. They give a lead on productivity and innovation—one only has to look at the number of patents obtained.

Foreign direct investment has had an enormous beneficial impact on this country. If we stay outside the European Union and the eurozone the figures demonstrate, as clearly as figures can demonstrate anything, that investment from abroad will suffer. It will affect our productivity and prosperity. If the recommendations of the noble Lord, Lord Pearson of Rannoch, were to be followed, the United Kingdom would be much the poorer.

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9.48 p.m.

Lord Howell of Guildford: My Lords, my noble friend Lord Pearson of Rannoch has done a great service by enabling us to have this short debate on an issue of vital importance. We can only touch parts of the picture in the time available, but it has been a good debate. If I may add a personal note, it has been a good debate so far for the noble Lord, Lord McIntosh, considering all the nice things that have been said about him. I hope that nothing that will be said in the final few minutes will upset that record.

As always with these issues and the underlying issue about the virtues or otherwise of euro membership, opinion is divided. It is divided in this House; among the captains of industry—although it seems to be tilting a little against at the moment; among the general public—although again the tilt is away; and among the media, some of which take one view and some another. One of the fascinating events of the past few weeks is the sign that the pink one, the Financial Times, has become distinctly more middling and less committed to the idea that it is vital to join the euro soon. That is a fascinating trend.

My noble friend Lord Selsdon and other noble Lords rightly made the point that we are trying to look at this one issue, although it is not a narrow issue, in the great economic sea against a background of enormous turbulence in the world economy. A vast recession is gathering force and, as everyone knows, the world's stockmarkets have a long way down to go.

Here in the UK, not only stocks, but house prices are far too high and are bound to crash. Budgets throughout Europe and the world are going awry. Huge trade deficits are building up in America to unsustainable levels. We have also had our share of enormity in our trade deficit. Trying to look at the issue of the euro, its virtues and positioning in our trade against that type of background, is like trying to row a small boat in a sea with enormous waves and with much bigger ones to come.

Every economist who tries to be objective knows that the famous five tests to which the noble Lord, Lord McIntosh, will no doubt refer, as he often does when answering questions in the House, cannot be unambiguous and clear. Every senior Treasury official—the people right at the top of the thinking apparatus of Government—has said that they are bound to be ambiguous and bound not to be clear. That is the nature of economics. We cannot possibly assume that even if the tests are carried out, they will be more than momentarily valid. What looks like convergence one day does not the next. That is the case in normal times, but it is even more so at present.

I may sound a little sceptical in general, aside from the sin or otherwise of Euroscepticsm, if I say that this is about the attempt to apply the so-called science of economics, which it is not, to the heaving changing scene. In my view—and I had the temerity to write a book on the subject—all economic statistics based on national aggregates are extremely dangerous and extremely unreliable, especially in the hands of political amateurs.

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Nevertheless, having said all that, I shall now go into reverse and try to hang on to some specific facts that have come out of the debate. Fact number one, raised by my noble friend Lord Pearson, is the Customs and Excise official currency of invoice figures applied to the currency denominations of our trade. I am using the word "trade" in the broad sense of earning moneys from overseas by export and paying moneys overseas for imports of services, goods and other items—our overseas transactions in other words.

One would have to be almost a nihilist to deny that 32 per cent of UK trade is denominated in dollars, 20 per cent in euros and the rest in sterling and other currencies. There are less official views, some of which are put out by the organisation referred to by my noble friend Lord Pearson, that put the figure much higher. One has to take into account many commodities, including oil, that are priced in dollars. The noble Lord, Lord Taverne, rightly asked whether that was a relevant factor.

The figures are 32 per cent and 20 per cent, which appears to contradict the famous—I was tempted to say notorious—answers of 26th and 28th February last year when he said at column 1527 on the 28th that the US dollar comprises only 16.5 per cent of overseas transactions.

It must be a puzzle for the observer or spectator that there are two such contradictory perceptions. Not for one nanosecond would I suggest that the noble Lord, Lord McIntosh, was misleading the House. He is far too upright, assiduous and nice—well, most of the time—to go down that road. He would perhaps concede that somewhere up the briefing chain there was some misleading done by those who advise in dragging out the trade weighted sterling index as the guide to the general assessment of the importance of dollar trade versus euro trade or trade in other currencies. I believe that the figure of 16.5 per cent fails to convey completely the reality of the situation. As my noble friend Lord Pearson and others have pointed out, the TWSI covers only trade in goods. It excludes large areas of the world and is hopelessly out of date.

The fact is that manufacturing in the modern world—the making by hand of physical objects—first, accounts for less than half the UK external payments. Secondly, again, as some of us have tried to point out in the past, the whole concept of identifying a different area of the economy called "manufacturing" is probably out of date. Vast parts of the so-called "manufacturing economy" are in fact services, technology and software, and large parts of the software and service industry include the structure of physical objects and manufacture. The matter is vastly confused, and I believe that our statisticians do us no service by clinging to these outdated definitions of the catallactic of industrial activity. However, we must live with it. That is the first point to have come out of the debate.

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There appears to be a complete conflict, and I believe that we must accept that either the trade weighted sterling index is not a very good guide or that the Customs and Excise official currency of invoice has simply got it wrong. I do not believe the latter. I am sure that, looking back at his remarks last year, we would all like to hear how the noble Lord, Lord McIntosh, now sees the situation.

The other issue that has come up—a vast range of issues is connected with our debate tonight and we cannot begin to debate them all—is the question of volatility, which is related to the question of dollar denominations of trade. The noble Lord, Lord Cobbold, referred to that, as did the noble Lord, Lord Taverne.

I believe that we know one or two facts rather than statistical opinions. We know that, against the dollar, in recent times sterling has been the most stable of all currencies. Indeed, this morning the Daily Telegraph—not always the most reliable newspaper, but in words which sound to me reasonably objective—states that, while other currencies fluctuate, measured by its trade-weighted average, which is surely the most objective way to judge its international value, the pound has hardly budged for years. It is, in short, one of the world's most stable currencies. That appears to be the record in a time of extreme turbulence. It is a time when, as the noble Lord, Lord Taverne, reminded us, the euro has been way down and way up and we are probably heading into a period when the dollar will slide away.

Secondly, with regard to the issue of volatility, we have the extremely remarkable and learned report from the National Institute of Economic and Social Research, as has already been mentioned. It comes from Christopher Taylor, who is the former chief adviser to the European division of the Bank of England. The report repays study because it casts enormous light on the issues on which we are trying to focus this evening.

Mr Taylor's three most important conclusions out of a very learned and detailed paper are that, first, sterling has, always has had and is bound to have dual affinities to the euro and to the dollar. He sees the prospect of more polarisation between the euro and the dollar and believes that maintaining those affinities will become more of an aching, stretching job even than it has been in the past.

Secondly, he speaks of the likelihood of greater volatility of the euro against the dollar as time goes by. Thus, if we are riding the euro horse, we shall be rocked around against the dollar far more than we have been over the past few years.

Thirdly, he establishes that, when the split in trade between the euro and the rest of the world includes services and investment income, the figures are 48 per cent for the European Union and 52 per cent for the rest of the world. He goes into that in such detail that I honestly do not believe there is much point in arguing further about the precise percentages because they are very closely around those levels.

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Mr Taylor's conclusion is that if we become euro members, volatility will only marginally reduce—that has been one of the main arguments of the supporters—and could, depending on a number of factors, worsen. Those appear to be the two hot issues of the debate. Many others have been raised, including foreign investment flows and the Japanese, which I would like to debate with the noble Lord, Lord Taverne, at another time, because in the words of Ernest Bevin, "I have heard different".

What we have heard tonight is important. If there is to be honest and open debate, the facts and conclusions should be clearly on the table. In the end, there will be a political decision. The British public know that, even if the politicians pretend that it is otherwise. It will also remain an extremely difficult decision, and I suspect that in the network world it will become more and more difficult to assess the final policy move on the euro.

The dual affinities are there; we are either doomed or blessed to live with them. I believe that we are blessed to be the land in between the great lumbering blocks. Giant blocks, like dinosaurs, have a limited lifespan, but that is the way it will be. It has been useful to discuss a part of the issue this evening.

10.1 p.m.

Lord McIntosh of Haringey: My Lords, I have enjoyed the past hour, listening to three speakers quote so fully from the well written, but badly argued, papers by Global Britain. I have enjoyed seeing the noble Baroness, Lady Cox, added to the small but doughty band of Eurosceptics. They had better be careful if they want to hold on to her because she may be too rational and too respectful of facts to stay with them. Their numbers are declining. It would be sad if they died out because they give so much innocent amusement to the House.

The noble Baroness, Lady Cox, accused the Government of sometimes answering with derision the arguments of the noble Lord, Lord Pearson. I am tempted towards derision, but I shall try to avoid it. There were so many plain, vulgar errors in his analysis and his speech that I must point them out, but I shall have to try to maintain a straight face while doing so.

First, the noble Lord, Lord Stoddart, is right: we are a trading nation. Our exports of goods and services in 2001, the year for which we have the most recent figures, were 27 per cent of GDP and our imports of goods and services were 29.3 per cent of our GDP. Clearly, trade is important to us, but that does not reflect the measure of importance to us of the euro-zone or the United States, or NAFTA, which I believe the noble Lord, Lord Pearson, wants us to join. A figure of 10 per cent of exports in goods to the euro 12 does not mean that they are not important and that 90 per cent of our trade goes somewhere else. That is plainly wrong.

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