Commons Sitting of 23 October 1990

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRAYERS
  DEATH OF A MEMBER
  Mr. Speaker: I regret to have to inform the House of the death of Norman Findlay Buchan esquire, Member for Paisley, South and I desire, on behalf of the House, to express our sense of the loss we have sustained and our sympathy with the relatives of the hon. Member.
  PRIVATE BUSINESS
    ZETLAND MASONIC SICK AND WIDOWS AND ORPHANS FUND ORDER CONFIRMATION BILL
    Considered; to be read the Third time.
Oral Answers to Questions
  EDUCATION AND SCIENCE

    Teachers
    Mr. Cyril D. Townsend: To ask the Secretary of State for Education and Science what new proposals he will be putting forward to improve the pay and general standing of teachers.
    The Secretary of State for Education and Science (Mr. John MacGregor): The remit that I gave to the interim advisory committee on 14 September as regards teachers' pay and conditions in 1991–92 invites the committee to build on the far-reaching improvements introduced in teachers' pay following its excellent report of last year. I announced on 23 July my intention to introduce legislation at the earliest opportunity with a view to restoring teachers' negotiating rights in time for the 1992–93 settlement.
    Mr. Townsend: Is not it a little shaming that local education authorities like Bexley have to recruit teachers from abroad due to the lack of the home-grown variety? Will my right hon. Friend make it crystal clear that teachers are a special case and that if we are to look after their recruitment, retention and general standing in the community, they must have a significant pay increase?
    Mr. MacGregor: My hon. Friend knows that the position was greatly improved this year in areas where there were previously shortages. Only a handful of schools have vacancies this year. The number of teachers recruited from overseas was very small and in most cases was for
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    special purposes. There has been a big improvement and that is due both to the increases in teacher supply which we are bringing about and to the general increase and improvement in teachers' pay and conditions.
    Mr. Win Griffiths: The Secretary of State will know that many of those teachers recruited from abroad are already leaving schools because they are disillusioned. Will not he admit, that despite his valiant efforts on pay last year, teachers' salaries over the past three years are still lagging behind inflation? Will he now commit himself to ensuring that in this year's pay settlement teachers will receive an award that, at the very least, will keep pace with this year's inflation, if not improve on it? Until that is achieved, teachers, who are facing many extra burdens as a result of the national curriculum, will not teach with any enthusiasm in our schools.
    Mr. MacGregor: The hon. Gentleman made several points and I will deal with one or two of them quickly. I repeat that the number of teachers recruited from overseas is very small in relation to the total teacher supply. Indeed, there are advantages in such recruitment and that practice has always been followed. On average, teachers have had an increase of 50 per cent. in their pay since 1986 and it is well up in real terms over the past 10 years. The hon. Gentleman will be aware that there is much greater flexibility in the teaching salary structure now and many teachers in particular shortage areas are receiving well above the average. There has been a substantial improvement and I indicated in my remit to the interim advisory committee the general shape of what I hope the teachers' pay settlement will be next year.
    Mr. Patrick Thompson: Does my right hon. Friend accept that the general standing of teachers would be helped greatly if teachers and leading teachers in our schools were consulted more often than are administrators, politicians and others? May I congratulate my right hon. Friend on his recent decision on single sciences, which was reached according to the very principle that I have just described? That is good for the recruitment of teachers. Let the advice of good teachers be taken more often.
    Mr. MacGregor: I am grateful to my hon. Friend. He will know that I talk to an awful lot of teachers, not just to my advisory bodies, as I go round the country, and that they come to see me. The single science decision—I am grateful for my hon. Friend's comments on it—in part reflected that. My hon. Friend will recognise also that, with the introduction of local management of schools and with decisions being taken much more at school level, it is much easier now for governing bodies and heads to consult teachers in their schools.
    Mr. Straw: Why does the Secretary of State continue to mislead teachers and the public by making wholly untrue claims about the increases that teachers have enjoyed over the past four years, when the only increase that they have had in real terms was between 1986 and 1987? As the Select Committee report and the Secretary of State's own teachers' pay committee make clear, teachers' pay in real terms has been cut in each of the past three years. What kind of improvement in teachers' morale does the right hon. Gentleman think can be achieved when he and his colleagues have cut teachers' pay for each of the past three years? If he wants to improve matters, will he here and now

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    give a categorical assurance that he will fully fund any increase in teachers' pay recommended by the interim advisory committee?
    Mr. MacGregor: The hon. Gentleman must take into account the fact that there is now much greater flexibility in the teachers' salary structure system. Therefore, a considerable number of teachers will have had substantial increases in the past few years. In the period of this Government, teachers' pay on average has increased by 30 per cent. in real terms; that compares with an average increase of 6 per cent. under the previous Labour Government. I shall be making further comments about teachers' pay for next year. At present, of course, the interim advisory committee has hardly embarked on its work. I shall make comments at the appropriate time when the education part of local authority total standard spending is announced. I noticed that, in the Walden interview, the hon. Gentleman was all over the shop when asked about Labour's commitment to extra spending. It was not going to come from extra taxation; it was not going to come from extra borrowing; it was not going to come from anywhere.

    Teacher Shortages
    Mr. Ian Taylor: To ask the Secretary of State for Education and Science what further initiatives are currently being considered by his Department to help relieve the problems of teacher shortages in particular subjects in the south-east.
    The Minister of State, Department of Education and Science (Mr. Tim Eggar): We already have in place a range of measures that are helping to relieve teacher supply difficulties in the south-east.
    Our September count of vacancies revealed that all local education authorities, including those in London and the south-east, had succeeded in filling the great majority of the posts that were vacant at the beginning of the summer.
    Mr. Taylor: I congratulate my hon. Friend the Minister of State, welcome him to his debut with chalk and blackboard in the House and wish him a long and successful stay in his position.
    In Surrey, the problem is becoming quite serious. The readvertisement of jobs for primary school teachers is running at about 27 per cent., and for secondary school teachers it is now 31 per cent. Will my hon. Friend assure the House that the measures that have been announced will be brought in as soon as possible so that local pay bargaining can increase the potential for giving bursaries to teachers in special subjects, in particular maths, modern languages and science? Will he also make sure that local management of schools provides even greater flexibility so that Surrey and other counties in the south-east can fill their vacancies?
    Mr. Eggar: My hon. Friend will reflect upon the need for his own county council to consider whether local funding is appropriate at some time in the future. Surrey has taken advantage of a scheme run by my Department, that has enabled the setting up of courses specifically for women returners who have experience in teaching modern languages. As a result of one course alone, Surrey was able to recruit 22 modern language teachers.
    Mr. Flannery: Does the Minister of State realise that the Select Committee would never have published its report on teacher supply, which took nearly two years to complete, unless the position was deadly serious? Does he realise also that talking about being able to put a body in front of every class, whether it be in the south-east or elsewhere, is nonsense? The number of applications for major teaching posts has fallen catastrophically. Whereas there used to be 20 or 30 applications, the number has now dropped to one, two or three, and the people who are employed are not necessarily the people who are wanted? As the problem is more serious than that, will the Minister please treat it as being more serious and settle it once and for all?
    Mr. Eggar: The hon. Gentleman appears not to be aware that the overwhelming majority of classes have permanent teachers who teach children on a well-established basis. The level of teacher vacancies in our schools is almost exactly the same as it was 10 years ago when the Labour party left government. Those are the facts. It is no good the hon. Gentleman exaggerating the position.
    Mr. Dunn: Does my hon. Friend accept that the only way to eliminate teacher shortages in the south-east is to abolish national pay scales and to move to a system of regional pay with school-centred pay bargaining? The second thing that could be done to improve teacher morale in the south-east would be to ask the hon. Member for Blackburn (Mr. Straw) to keep his mouth shut for at least a year.
    Mr. Eggar: I am sure that the hon. Member for Blackburn (Mr. Straw) will pay attention to the advice given by my hon. Friend. We should all benefit from that advice being followed.

    Pupils (Testing)
    Ms. Mowlam: To ask the Secretary of State for Education and Science if he will make a statement on his deliberations about standardised testing for seven-year-olds.
    Mr. Robert G. Hughes: To ask the Secretary of State for Education and Science what is his policy on the testing of children at the ages of seven and 11 years as a means of monitoring standards in schools.
    Mr. MacGregor: I made an oral statement to the House on 18 October and published the specification for the first standard assessment tasks to assess seven-year-olds in 1991. Copies of the specification have been placed in the Library and the Vote Office.
    The formal assessment of seven and 11-year-olds is a key part of the national curriculum and will contribute enormously to the effective monitoring and raising of educational standards in schools.
    Ms. Mowlam: Will the Minister think back to when he and his friends took the 11-plus and remember how some of his friends were labelled a success while others were labelled a failure? Will the right hon. Gentleman reassure the House that the results of the testing for seven-year-olds will not be made public?
    Mr. MacGregor: The assessment, or testing, of seven-year-olds is designed to enable teachers and pupils in

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    all schools to be aware on a systematic basis of the level that has been reached by individual pupils so that their strengths can be built on and their weaknesses tackled. Reporting will be to the parent. We have not proposed statutory obligatory reporting of the overall school results for seven-year-olds, but I hope that schools will publish aggregate figures and I shall encourage them to do so.
    Mr. Robert G. Hughes: Does my right hon. Friend agree that what parents really want is to know what their children are being taught and that they will therefore warmly welcome the tests that he has introduced? Does he further agree that, far from tests creating failure,s, the absence of testing would create failure, because no one would have any idea of what is being taught in some of our schools, especially in Labour authorities?
    Mr. MacGregor: I agree with my hon. Friend on both points, but I would go further. I believe that through the standard external—tests—not just the assessments by teachers-parents want to know how their children are progressing with the basics, such as reading, arithmetic, writing and basic scientific skills. That is what the tests concentrate on, because that is what parents and most teachers want.
    Mr. Nellist: What standards are being set for, and what lessons are being learnt by the primary school children at St. Paul's school in Staffordshire, whose parents were told a couple of weeks ago to bring in not only their own pens, pencils, rubbers and hand towels, but—[Interruption.]
    Mr. Speaker: Order.
    Mr. Nellist:—but their own toilet rolls? Is not it a fact that not one education—[Interruption.]
    Mr. Speaker: Order. The hon. Gentleman must be given a chance to put his question.
    Mr. Nellist: Is not it a fact that not one Education Minister on that Front Bench would allow any of his children to learn a lesson like that about the inadequacies of the education provision in this country? Why should our children have to learn that lesson?
    Mr. MacGregor: I do not see what that has to do with the testing of seven-year-olds. The matter that the hon. Gentleman raised is for the local education authority. I believe that there was some misunderstanding of what was said at that time. It has nothing to do with the testing of seven-year-olds or with raising standards.
    Mrs. Maureen Hicks: My right hon. Friend will have noted that the general public invariably dismiss what politicians say but like to listen to what royalty and religious figures say. Will he endorse the comments made today by Her Royal Highness Princess Anne, a leading mother in Britain, who said exactly what we say—that we should get back to basics with standardised testing?
    Mr. Speaker: Order. It is out of order to bring the royal family into our arguments.
    Mrs. Hicks: The standard test brings us back to the three Rs—reading, writing and arithmetic—so that children, parents and teachers know what children should learn. Is not it despicable that many educationists who talk about the decline in education are the very people who are against testing?
    Mr. MacGregor: The vast majority of parents welcome what we propose to do next summer on testing seven-year-olds. As my hon. Friend says, the external testing will concentrate on the basics, which are the fundamental parts of education for all children. I am sure that it is right to do so at the age of seven.
    Ms. Armstrong: The Secretary of State recognises that the real role of testing at that early age is to aid children's learning and identify their strengths and weaknesses. How can teachers work on those weaknesses and give parents the confidence that problems that have been identified will be worked on without the additional support and encouragement which Surrey county council has costed at about £400,000 a year?
    Mr. MacGregor: The hon. Lady will know that we have increased the spending per pupil in all schools across the board, not just primary schools, by over 40 per cent. after inflation. It is absolutely typical and it does not surprise me, but it is tedious to hear Labour Members pretend that they would be willing to spend more on education. They know perfectly well that they always include the phrase, "as resources allow". It was perfectly obvious from the comments made by the hon. Member for Blackburn ( Mr. Straw) on television recently that the Labour party will not increase spending more than we are doing. It is a bit rich of the hon. Lady to put forward that argument. We are increasing spending per pupil.
    Mr. Anthony Coombs: My right hon. Friend will be aware of the anxiety felt by many at a report published at the beginning of September that showed that in 10 local education authorities reading standards have declined during the past 10 years. Does he agree that it is important that an assessment at the age of seven takes into account not only the standards achieved by individual children but the methods used by teachers to ensure that children can read properly? Does he also agree that parents are interested as much in how their children are doing in relation to other children as in how they are doing in an absolute sense?
    Mr. MacGregor: The evidence from reports on some reading tests is not clear. That is why I have asked for testing to be done much more nationally. We shall have the results by Christmas. It is important to stress that that evidence is not clear. The educational psychologists who compiled a report said that it provided only prima facie evidence. However, one thing is clear. If, in any school, there is a decline in reading standards, it is to do not with resources, but, as those same educational psychologists said, with teaching methods. It is from that point of view that I shall consider the evidence. My hon. Friend is entirely right. The whole point of the national curriculum and of testing at seven is not only to make comparisons but to ensure that we have national information about reacting standards compiled on a comparable basis.

    Student Loans
    Mr. Darling: To ask the Secretary of State for Education and Science if he will make a statement on the operation of the student loans scheme and access funds.
    The Parliamentary Under-Secretary of State for Education and Science (Mr. Alan Howarth): The loans scheme is up and running and the access funds are in place.

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    The Student Loans Company opened for business last month and I am delighted to tell the House that, as of yesterday, 14,500 students have already applied. The company is operating very efficiently, as I saw when I recently visited it.
    Mr. Darling: If the student loans scheme is so good, why have only 14,500 students applied for it? Why are the Government spending £1 million on advertising the scheme, especially when, yesterday, Edinburgh university announced a freeze on all staff recruitment because of its dire financial position? Do the Government accept that money should be spent on funding our university education, or are they happy for it to fall further and further behind as the rest of Europe races ahead?
    Mr. Howarth: The hon. Gentleman overlooks the fact that funding in real terms has increased by some 9 per cent. during the period of this Government and, last year, in cash terms, an additional 10 per cent. was made available. During the three years of the present survey about £1 billion will be added to higher education expenditure for all purposes. Universities, far from being deprived of funding by the Government, have had a significant increase in funding and, correspondingly, are increasing the opportunities available to students in higher education.
    Mr. Quentin Davies: Will my hon. Friend take this opportunity to give the House an idea of the impact of the introduction of student loans on applications for student places this year?
    Mr. Howarth: I am extremely encouraged, as is the House, I hope, that 14,500 applications have already been made to the scheme. In response to the first point of the hon. Member for Edinburgh, Central (Mr. Darling), I believe that that is an encouraging start to the scheme, especially considering that universities and polytechnics returned for the new academic year only in the past fortnight.
    Mr. Andrew Smith: May I welcome the Minister to his new responsibilities? I should point out, however, that the 14,500 applications that he has just mentioned represent less than 2·5 per cent. of the Government's target of take-up. Is not that an abject failure? Does he believe that the student loans scheme offers the means by which students can pay supplementary fees for courses?
    Mr. Howarth: Supplementary fees are not under discussion. The student loans scheme is designed to support student maintenance. The hon. Gentleman should not ignore the central fact that our new system of student support means more money for students. The uprated grant and the new loan represent an increase of 25 per cent. on last year's grant. There is no question but that it is welcome to students and all the indications are that this autumn enrolments have again risen substantially.
    Rev. Martin Smyth: Does the Minister accept that although there has been an increase in university funding, the Committee of Vice-Chancellors and Principals believes that the money spent on advertising the loans scheme could have been better spent on better direct grants to students and on funding colleges?
    Mr. Howarth: It is absolutely right that the scheme should have been publicised to students—the higher
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    education institutions asked the Student Loans Company to undertake a publicity campaign. It must be right that students should be helped to be aware of the new entitlement to a loan, and students are finding it attractive. The higher education institutions have been thoroughly briefed on the procedures and students have been made aware of the opportunity available to them. We have already witnessed an encouraging number of applications for loans in the first fortnight of the new academic year and all the signs are that the scheme will be a great success.
    Mr. Burt: Is not it true that Opposition Members and representatives of the National Union of Students spent a lot of time during the passage of the student loans Bill trying to frighten students away from applying to higher education institutions in order to make out their case that student loans would deter such applications? Will my hon. Friend confirm that applications for university and other higher education institutions this year verify the continual upward trend of students going into higher education? Does he agree that the student loans Bill made no difference at all?
    Mr. Howarth: My hon. Friend is right to suggest that there has been a politically motivated campaign to discredit a scheme which is intended to work for the benefit of students. The only achievement of the NUS in its campaign against student loans was to cause a large traffic jam on one occasion in London. It has had to accept that students are welcoming this new opportunity and I was pleased to note that, recently, it advocated that its members should take advantage of the scheme.

    Rural Schools
    Mr. Pike: To ask the secretary of State for Education and Science what assessment he has made of the effect local management of schools is having on small schools in rural areas; and if he will make a statement.
    The Parliamentary Under-Secretary of State for Education and Science (Mr. Michael Fallon): We have said that we shall monitor the effect of local management of schools carefully. LMS was introduced for the benefit of all schools. We expect small rural schools to share in those benefits.
    Mr. Pike: Does the Minister recognise that small rural schools have particular problems arising from LMS? Will he see that local education authorities are able to continue to give the support necessary to ensure a balanced and fair education in those schools, or do the Government intend to put a nail in the coffin of small rural schools?
    Mr. Fallon: There is ample scope for protecting small schools through the formula. Local education authorities may take account of the higher unit costs of delivering the curriculum in small schools and the salary costs in schools with fewer than 10 teachers. Lancashire does both.
    Mr. David Nicholson: I am grateful to my hon. Friend for what he has just said about small rural schools and for the written answers that he has given me in the past two days about the way in which LMS will apply to such matters as school meals and the recruitment of rising-fives. Will he confirm that if parents at a school agree to support, and are prepared to pay the cost-effective price for, a proper school meals system, LMS will help that process?
    Mr. Fallon: I agree with my hon. Friend that there is much scope for further delegation of the current costs of supporting schools and of a number of services.
    Sir Cyril Smith: Does the Minister agree that local management of schools would be better performed if the management were thoroughly representative of all shades of opinion in the community? Is he aware, for example, that in my authority, every secondary school governor is a Labour councillor and that not one Conservative or Liberal Democrat councillor has been elected to the board of a secondary school in the whole constituency? Do the Government have any plans to ensure that in future, local management is more representative of the whole community?
    Mr. Fallon: We have no further plans, although I sympathise with the hon. Gentleman. We have already ensured that a larger number of governors are parent governors and that there is a representative on the governing body from the business community.
    Mr. Nicholas Bennett: I congratulate my hon. Friend on his appointment to his new post after two years' enforced silence in the Whips Office. Does he draw any conclusions from the fact that Labour authorities have kept back more of schools' budgets from the schools than have Conservative authorities? Does he agree that it is part of Labour's continuing negative and destructive attitude to education? Labour is against any form of reform, be it city technology colleges, grant-maintained schools, assisted places or the local management of schools.
    Mr. Fallon: Only about 60 per cent. of the education work force is teaching. There are innumerable advisers and bureaucrats—an army of suede shoes—and, for example, Iancashire holds back about 23 per cent. of its schools budget, about £78 million, or £110,000 per average Lancashire school.

    Scottish Education
    Mr. Douglas: To ask the Secretary of State for Education and Science if he will make a statement on the number of Scottish students entering Scottish universities for 1990–91.
    Mr. Alan Howarth: Reliable figures for admissions to universities this autumn are not yet available. The number of Scottish-domiciled first year students entering Scottish universities last year was more than 5 per cent. higher than in 1988.
    Mr. Douglas: May I crave your indulgence, Mr. Speaker, and that of the House, before putting my supplementary question, to say how sad hon. Members in all parts of the House must have been to hear of the death of Norman Buchan, the hon. Member for Paisley, South? He had enormous interest in the topic of education hut, moreover, enormous interest in freedom of thought and expression. No matter how much one might disagree with Norman, one could always be absolutely sure that he would defend one's right to make one's point here, as much as he would want to have his point of view expressed. It is with great sadness that I rise to put this supplementary question, although he would be among the first to recognise that democracy in this form in the House must go on.
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    May I ask the Minister to say what stresses and strains are being put on Scottish students at university, in particular through the loss of certain benefits and through the harassment that they are experiencing as a result of the threat of arresting their tuition fees to pay the poll tax?
    Mr. Howarth: The House will have heard with great respect and sympathy the tribute of the hon. Member for Dunfermline, West (Mr. Douglas) for his friend the hon. Member for Paisley, South (Mr. Buchan), and we all share those sentiments.
    With respect to the matter that the hon. Member for Dunfermline, West raised in his supplementary question, he should recognise that more resources are now available to support students. We calculate that the average claim for benefit made by students would have been £327 in the current year. As the value of the loan outside London is £420 and there are, in addition, access funds, it is clear that most students are better off. The access funds are there to assist any students who may be found to be in genuine financial difficulty. As to what the hon. Gentleman referred to as harassment, I hope that he will accept that students have a responsibility to meet their community charge. Equally, local authorities have a responsibility to take any steps available to them to recover arrears. Arrestment of payment due to, or on behalf of, individuals is one such step. The exercise of the powers of local authorities and any challenge to them is a matter for the courts.
    Mr. Allan Stewart: May I associate myself with the tribute to the late Norman Buchan, who was a constituency neighbour?
    Will my hon. Friend the Minister confirm that a higher proportion of school leavers in Scotland enter higher education than in England? Is not it also the case in Scotland that all school leavers who are qualified and wish to do so receive places in higher education, either in Scottish universities or in the central institutions such as colleges of technology, which have expanded a great deal under the Government?
    Mr. Howarth: The quality of Scottish education has always been much respected south of the border, both at school and university level. It is noteworthy that rather more than a quarter of students in Scottish universities come from south of the border, which is a measure of the respect given to and attractiveness of Scottish university courses.
    Mrs. Margaret Ewing: Does not the Under-Secretary understand that he stands condemned by his own words for his inability to understand the particular problems facing students? Does he really say to the House that any steps to recoup the poll tax are acceptable? In Scotland, tuition fees are being pursued by regional councillors so that students will have their poll tax deducted. Is that acceptable at a time when students are being denied access to social security benefits, when the grant system has been undercut and when there have been rising costs in accommodation, whether in the private or public sector? What will the Minister do to ensure that our students have a fair deal?
    Mr. Howarth: As I said just now, the exercise of their powers by local education authorities in that regard is a matter for the courts. It would not be appropriate for me to comment on the rights and wrongs of what they are

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    doing. The hon. Lady also ignores the increase in resources available to the vast majority of students and the fact that access funds worth £25 million have been made available to universities and colleges so that they can use them to ensure that students are not in need. Beyond that, I trust that the hon. Lady is not implying that it would be in any way right for students to refuse to pay their community charge.

    Schools-Industry Links
    Mr. Knapman: To ask the Secretary of State for Education and Science what recent initiatives have been taken by his Department to develop closer links between schools and industry; and what resources have been committed for 1990–91 to help foster such links.
    Mr. Fallon: The Department collaborates closely with other Government Departments in a range of activities including, in particular, an initiative to stimulate and support local education-business partnerships. We are also co-funding the new Foundation for Education Business Partnerships. This year, we expect to spend some £250,000 in direct grants to school-industry links; that is in addition to the considerable resources devoted to that purpose by local education authorities.
    Mr. Knapman: May I congratulate my hon. Friend on his consistent support for closer relationships between industrialists and educationists, because it is important that local education and training is directly tailored to the needs of the local community? What progress is being made by the education-business partnerships initiative recently announced by the Department of Education and Science?
    Mr. Fallon: The partnerships initiative is making good progress. Already, about 90 per cent. of secondary schools have links with industry, as have more than half of all primary schools, but there is still more to be done.
    Mr. Hardy: Such initiatives are clearly desirable, but would the Minister care to tell us how we can further pursue them in my constituency, since, if the level of present central support and rate capping persists next year, we seem bound to lose up to six teachers in every secondary school? Does he realise that teachers who would be involved in the initiative cannot be sure that they will retain their employment and thus take part in the initiative that the Government are eager to sponsor and applaud but quite unwilling to fund?
    Mr. Fallon: The Department provides a considerable amount of money to help fund the initiatives and many heads, governors and teachers are co-operating closely with their local industries.
    Sir John Stokes: Does my hon. Friend agree that one of the difficulties is the apparent reluctance of some of our well-known industrial leaders to speak on this subject on radio, television or directly to schools and to point out the satisfaction, scope and challenge of a career in industry?
    Mr. Fallon: I agree with my hon. Friend. The object of school-industry links is to improve young people's readiness to cope with the opportunities, responsibilities and experience of working life, and to give them proper understanding of the enterprise culture and the importance of wealth creation.

    Graduates
    Mr. Dalyell: To ask the Secretary of State for Education and Science what representations he has received from Sir David Smith FRS, principal of Edinburgh university, on the subject of graduates using degrees for public service rather than making money for themselves.
    Mr. Eggar: None, Sir, although the hon. Gentleman has kindly sent me a copy of Sir David's speech.
    Mr. Dalyell: Whose fault is it that the world-ranking university of Edinburgh yesterday had to freeze staff appointments?
    Mr. Eggar: Responsibility for financial matters rests with the university. The Universities Funding Council is available to provide advice and help to the university, if it is asked to do so. In his speech, which the hon. Gentleman sent to me, Sir David pointed out that Scotland benefited from the system of GB-wide higher education funding to the tune of some £30 million to £40 million, according to Sir David's calculations.
    Mr. John Marshall: Does my hon. Friend agree that it is high time that academics became more businesslike in the use of the substantial amounts of public money that they receive?
    Mr. Eggar: There is always a need for all higher education and other education institutions to think carefully about how they deploy their resources. Much progress has been made in the higher and further education sectors, but more remains to be done.
    Dr. Bray: In universities such as Edinburgh, with a distinguished record of scientific research, the greatest discouragement falls upon those whose public service lies in such research. Is the Minister aware that the practical effect is that an increasing proportion of postgraduate students now come from abroad?
    Mr. Eggar: It is right that there is a great deal of interchange of postgraduates among universities throughout the world. That is an increasing trend in all developed countries, and I am sure that the hon. Gentleman welcomes it. We need to continue to increase our scientific research. A great deal has been done and we have a fine record in scientific research in this country.
    Mr. Oppenheim: Will my hon. Friend remind the hon. Members for Linlithgow (Mr. Dalyell) and for Motherwell, South (Dr. Bray) that graduates who go into the private sector help to create the wealth to pay for those who go into the public sector?
    Mr. Eggar: Graduates make a major contribution to our country, whether they go into the private or the public sector. I readily accept my hon. Friend's point that if successful graduates did not go into the private sector, we should not create the wealth that enables us to fund universities.
    Mr. Dalyell: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the Minister's reply, I beg to give notice that I shall seek to raise the matter on the Adjournment.

    Student Accommodation
    Mr. Nigel Griffiths: To ask the Secretary of State for Education and Science if he will make a statement on student accommodation.
    Mr. Alan Howarth: Higher education institutions are autonomous bodies, and it is for them to decide what accommodation to provide for their students. Approximately half of the students in higher education are accommodated by their institution or live at home with their parents.
    Mr. Griffiths: Why have the Government done nothing to tackle the serious problem of accommodation for students, and left students in Edinburgh and elsewhere sleeping on camp beds in common rooms and using staff accommodation in hospitals? Is not it time that they conducted an inquiry and took effective action to make adequate accommodation available?
    Mr. Howarth: The hon. Gentleman completely fails to understand that Britain provides far more accommodation for students than any other country. Some 37 per cent. of students in higher education in Britain are accommodated by their institutions. That is a much higher percentage than elsewhere. In France and Germany, it is about 10 per cent. and in other European Community countries it is as low as 3 per cent. The hon. Gentleman overlooks the fact that during the period of office of the previous Labour Government it was decided that accommodation matters were not part of the University Grants Committee remit and that student accommodation should not receive a public subsidy. We have provided £25 million in access funds to enable institutions to help students who are in need. I pay tribute to accommodation officers in all universities for their successful efforts to ensure that students are accommodated.

  PRIME MINISTER

    Engagements
    Mr. Barron: To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others, including one with the Emir of Kuwait. I also attended the arrival of the President of the Italian Republic, President Cossiga. In addition to my duties in the House, I shall be having further meetings later today. This evening, I shall be attending the state banquet given by Her Majesty the Queen in honour of President Cossiga.
    Mr. Barron: Will the Prime Minister make her next instruction to a Minister one to the Chancellor of the Exchequer telling him to end the tax dodgers charter that was created by her and is used by her super-rich friends at a cost to the country of some £1 billion a year?
    The Prime Minister: My right hon. Friends, successive Chancellors of the Exchequer. have reduced tax right across the income range, greatly to the benefit of all people. Perhaps the hon. Gentleman will remember that when we took over, the level of income tax was up to 83 per cent. on earnings. It is now down to 40 per cent. on both earnings and savings.
    Mr. Heseltine: Has my right hon. Friend had a chance to see the reports in this morning's newspapers that the Saudi Defence Minister, Prince Sultan, is reported to have said that he sees no harm in an Arab country giving to its Arab sister a site, Iand or a position on the sea? Will my right hon. Friend confirm her understanding that that represents no change in the position of Saudi Arabia that Saddam Hussein must not gain from his aggression? Secondly, will she confirm her understanding that it is imperative that no signals are sent to Saddam Hussein that the world coalition against him is losing its nerve?
    The Prime Minister: I totally agree with my right hon. Friend. We were in touch this morning and our ambassador in Saudi Arabia was given a formal assurance that Saudi policy had not changed, that Prince Sultan had been misquoted, that Saddam Hussein must totally withdraw from Kuwait, the legitimate Government must be restored and that compensation must be paid for the damage. Then we shall have to deal with problems such as chemical, biological and nuclear weapons so that this matter does not ever arise again.
    Mr. Kinnock: Will the Prime Minister say today that she is completely against the freezing of child benefit?
    The Prime Minister: Our policy on child benefit was set out in the last manifesto. We have honoured it and shall continue to do so.
    Mr. Kinnock: Since the Prime Minister is now the Minister in charge of child benefit, will she say whether she agrees with one of her Ministers who said yesterday that she wanted an end to the freezing of child benefit and that her "personal view" was that
    "improving Child Benefit is preferable to bringing in a Tax Allowance as a Tax Allowance would not hit the right target."
    Is that the Prime Minister's personal view as well?
    The Prime Minister: The right hon. Gentleman must await a statement from my right hon. Friend the Secretary of State for Social Security on his annual review of social security benefits. Our family policy has increased payments to the family. Indeed—[Interruption.] Whereas Labour cut—[Interruption.] They hate facts, Mr. Speaker. [Interruption.]
    Mr. Speaker: Order. The Prime Minister has been asked a question; she must be given a chance to reply.
    The Prime Minister: Let me compare our family policy with that of our Labour predecessor. Labour cut family support by 7 per cent.; under the present Government it has increased by 27 per cent. more than inflation, and for families with young children our support is among the most generous in the EC. Has the right hon. Gentleman got it? His Government cut support for the family by 7 per cent.; we have increased it by 27 per cent. more than inflation.
    Mr. Kinnock: Surely, in her new role as the person in charge of child benefit, the Prime Minister does not expect us to wait for a statement from the Secretary of State. She could tell us herself exactly what is going on—or is it possible that she is starting to make a bit of a habit of dodging responsibility?
    The Prime Minister: I am very pleased that the Government whom I lead can boast that they have increased family support by 27 per cent. more than

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    inflation. Despite his meaningless words, the right hon. Gentleman's Government cut it by 7 per cent. Furthermore, by means of family credit we have helped poorer families in particular: they now receive three times as much over and above inflation as they used to receive under Labour.
    I do not wonder that the right hon. Gentleman is forced to go for trivia: his record is so bad. [Interruption.]
    Mr. Speaker: Order.
    Mr. Riddick.rose—[Interruption.]
    Mr. Speaker: Order. Mr. Riddick—come on. [Interruption.]
    Mr. Riddick: Mr. Speaker—[Interruption.]
    Mr. Speaker: Order. Come on, let us settle down.
    Mr. Riddick: Would my right hon. Friend care to join me in condemning the free riders—many of them Opposition Members—who are refusing to pay their community charge, and who expect everyone else to pay for the local services that they receive? Does my right hon. Friend agree that there is now a case for turning the poll tax into exactly that—for taking the vote away from people who have not paid their community charge, and giving it back to them only when they have done so?
    The Prime Minister: Mr. Speaker—[Interruption.]
    Mr. Speaker: Order. If we continue at this rate, we shall make very slow progress.
    The Prime Minister: People who do not pay their community charge must be dealt with by the law. The House passes the law; the law courts uphold it. Those who pass the law in the House must be prepared to set an example by upholding it as well.
    Those who, by an act of will, do not pay their community charge are expecting to receive all the services themselves and to pass on the cost to their neighbours and constituents. That is most reprehensible.
    Mr. Ashdown: The Prime Minister has said that she will not accept the imposition of a single European currency. Does that mean that she will never accept such a currency, whatever the conditions?
    The Prime Minister: A single European currency would mean a form of economic and monetary union under which the House gave up control of economic and monetary policy. Is the right hon. Gentleman's policy to come into the House only to denude it of its powers?
    Mr. Lord: Is my right hon. Friend aware that many people believe that the A-level examinations are now the only true benchmark of academic achievement in our schools? Will she assure the House that there are no plans to alter or undermine those examinations?
    The Prime Minister: I know of no plans to undermine the most excellent A-level examinations. When our young people go to university, they provide the basis for one of the highest rates of achievement in degrees anywhere in the world.
    Mr. Pendry: To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Pendry: When the Secretary of State for the Environment was in Tokyo last month, he promised to inject some £3 billion into the north-west economy should Manchester win the bid for the 1996 Olympic games. Is the Prime Minister aware that many organisations as diverse as chambers of trade, chambers of commerce, trade unions, investment agencies and local authorities insist that that sort of investment must be made in any case, if the infrastructure of the north-west is not to be in danger of collapse? Olympic games or not, will she back the north-west and give it the money that it deserves?
    The Prime Minister: The Manchester Olympics committee is an excellent organisation. The Duke of Westminster is in charge of it—[Laughter.]—and he has great faith in the infrastructure—[Interruption.]
    Mr. Speaker: Order.
    The Prime Minister: One reason why Manchester's bid was so excellent is that the road and air services to Manchester are extremely good and there is excellent hotel accommodation within easy reach. The infrastructure is first class, and the committee has given me to understand that it is obtaining any necessary finance from the private sector. We firmly backed the bid, but we made it clear that no public sector money would be forthcoming.
    Mr. Thurnham: To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Thurnham: Is my right hon. Friend aware that this country is the first in the world to carry out commercial field trials for the new ozone-friendly refrigerant gas R134A? Will she ensure that the Government follow that private sector lead? Should not the Opposition realise that voluntary measures work best?
    The Prime Minister: I am aware that my hon. Friend has first-hand knowledge of that matter. I know that the new gases have been produced, and I understand that ICI is to set up the first commercial plant for the production of ozone-friendly refrigerant gases. That is excellent news for the country and for the environment.
    Mr. Orme: To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
    The Prime Minister: I refer the right hon. Gentleman to the reply that I gave some moments ago.
    Mr. Orme: How can the Prime Minister reconcile the statement made by the Secretary of State for Employment on Sunday that the Government now have an incomes policy, especially in the public sector, of about 7 per cent., with the fact that chairmen, managing directors and chief executives are having pay rises of 30 per cent? Is not it outrageous that this country is being robbed of £5 billion a year through tax evasion? Are not the low-paid having to pay for the Government's disastrous policies?
    The Prime Minister: The Government do not have an incomes policy for the public sector of 7 per cent. or any other figure. Each settlement must be negotiated separately. My recollection is that a figure of 7 per cent.

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    was given in evidence as the then underlying inflationary pressure—I think that it related to nurses' pay—and it has no more relevance than that. We negotiate each pay claim in accordance with the need to retain and various other factors, including, of course, what the taxpayer can afford to pay.
    Mr. Gregory: Is my right hon. Friend happy with the slow progress on competitive tendering being made by socialist authorities such as York? Does she agree that either inefficiency or corruption is behind such slowness, and that the community charge in such authorities is unnecessarily high as a result?
    The Prime Minister: I agree with my hon. Friend. Competitive tendering leads to more efficient services at lower cost and, therefore, to a lower community charge. It should be followed by all who are interested in keeping their community charge down and their efficiency up.
    Ms. Ruddock: To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
    The Prime Minister: I refer the hon. Lady to the reply that I gave some moments ago.
    Ms. Ruddock: Does the Prime Minister recall that her last words at the world summit for children were:
    "We will go away from here knowing that it is what we do that will count"?
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    If she really believes that, will she today announce the restoration of the full value of child benefit, or does she regard that as trivia?
    The Prime Minister: The trivia was attempting to say that I was in charge of everything. [Interruption.]
    Mr. Speaker: Order. The House wants to hear the answer.
    The Prime Minister: The Leader of the Opposition and the hon. Lady refuse to turn their attention to the Government's excellent record on family support. The children's summit was more concerned with children overseas and the amount of help that they need and, as the hon. Lady knows, the Government's record on overseas aid to children in need is very good indeed. Let me give the hon. Lady some additional statistics. We have given extra help to poor families on income support or family credit, which is now worth £350 million a year, and the average family credit payment is now £30 a week—three times what it was under Labour, even taking inflation into account.

  NEW MEMBER
  3.32 pm
  The following Member took and subscribed the Oath:
  David Frank Bellotti Esq., for Eastbourne.

Secretary of State for Foreign and Commonwealth Affairs
3.33 pm
Mr. Dave Nellist: On a point of order, Mr. Speaker. The Foreign Secretary returned from a long visit to the middle east on Friday—I know that he was in Luxembourg yesterday. Does he intend to make a statement to the House? Some of us wonder whether the Government's position on occupations, be they in the west bank and Gaza or Kuwait, are an example of double standards.
Mr. Speaker: I have not been told that a statement is to be made today.

BILL PRESENTED
  MEDICAL Acr 1983 (AMENDMENT)
  Mr. Nigel Spearing, supported by Sir Anthony Grant and Mr. Sam Galbraith, presented a Bill to amend section 36 of the Medical Act 1983 to enable the Professional Conduct Committee of the General Medical Council to exercise greater discretion in respect of conduct which they judge cannot be regarded as acceptable professional conduct; And the same was read the First time; and ordered to be read a Second time on Friday 14 December and to be printed. [Bill 203.]

  Animals (Welfare in Transit)
  3.34 pm
  Mr. Terry Lewis: I beg to move,
  That leave be given to bring in a Bill to provide for the welfare of animals being exported alive from the United Kingdom; to require adequate periods of rest, sufficient food and water, and regular veterinary inspection during transit; and for connected purposes.
  The House will be aware that until now United Kingdom law has been sufficient to provide significantly for the welfare of farm animals transported alive. Right hon. and hon. Members will know also that EEC regulations will shortly take the place of our own legislation, which will have enormous consequences for exported animals—unless the Commission and Council of Ministers can be persuaded to adopt a more humane approach.
  That approach should be based on practices recommended by the Royal Society for the Prevention of Cruelty to Animals. By 1 January 1993, frontier controls between member states of the Community will be lifted and it will become a free trade area. The directive on international transport will be replaced by new legislation covering the transportation in Europe of all animals, whether within national boundaries or between one member state and another.
  The new regulations impose requirements relating to the transport of all animals. Instead of customs checks, inspections of animals and of vehicles will take place at markets, staging, transfer and assembly points and slaughterhouses rather than at the point of departure. Random checks will also be made by the competent authorities on vehicles in transit.
  Under the previous European regulations, veterinary inspection of all animals was required prior to their transportation from one member state to another. Such inspections will in future be required only if the animals are to travel for a longer time than is specified before they must be rested, fed and watered. In the case of cattle, sheep, pigs and horses, that will be 24 hours.
  There is growing concern about the impact that 1992 and the abolition of tariff barriers between EEC member states will have on the live food animals export trade. There are fears that the creation of a free market will result in diminishing standards of welfare for all the animals caught up in that trade. The worry is that new European transport regulations will not only take the place of existing directives but supersede national legislation so that trade between member states will no longer be known as exporting or importing.
  The transportation of live sheep over long distances to slaughterhouses in France, Italy, Germany and other member states is of particular concern. As I said, many journeys can take more than 24 hours, and one can have little confidence that other member states will enforce transport legislation as strictly as does the United Kingdom.
  Under present United Kingdom law, animals that are being transported must be fed and watered every 12 hours unless the journey can completed within 15 hours. That legislation will disappear, so theoretically it will be possible for sheep to be bought at market in Scotland and transported to Dover and then over the channel into France—but one must doubt whether feeding and watering will take place when it should, because of the

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  French Government's known inability properly to enforce transport regulations. Who will ever forget the disgraceful images on our television screens this summer of French farmers abusing innocent animals in such a scandalous and uncivilised way? Despite the regulations, was that not a uniquely French form of protection, and will not it arise again in other forms after 1992?
  Foremost in the campaign to secure post-1992 standards compatible with those of the United Kingdom is the RSPCA. Through its European organisation, Eurogroup for Animal Welfare, it is attempting to ensure that the new regulation, which has yet to be finally agreed by the Council of Ministers, is as detailed and as strict as possible. It has also been trying to ensure that the provision is properly implemented and enforced throughout the Community.
  The campaign has been based on the policy that food animals should be slaughtered as near as possible to the point of production. The recent problems caused by French farmers—to which I have already referred—and their willingness to perpetrate outrages on lorry loads of live sheep coming from the United Kingdom and other countries have shown, yet again, that it is impossible properly to protect the welfare of live animals being transported through the Community.
  Moreover, I would argue that there is absolutely no need to transport animals long distances to slaughterhouses. British farmers get the same price for their lamb whether the sheep are taken to a slaughterhouse in the United Kingdom and the carcases transported to France or to other markets or are transported live to a French slaughterhouse. One consequence of an increasing trade in live animals being transported to slaughterhouses on the continent would be the loss of business in abattoirs in the United Kingdom.
  It seems logical, therefore. that the distances that animals travel to slaughterhouses should be limited in the new European legislation and that we should follow the principle that United Kingdom animals should be slaughtered in United Kingdom slaughterhouses, French animals in French slaughterhouses, and so on. To that end, we should insist on the introduction of a provision in the new transport regulations that would limit to a maximum of eight hours the journey times of animals destined for slaughter. That is a practical and logical proposal, as it would allow farmers the choice of several suitable abattoirs as well as reducing the possibility that animals will suffer unnecessarily. The regulations will also apply to animals originating in France, Germany, Holland and so on, which will all have to limit the journey time to eight hours.
  The fact that the amendments have been passed by the European Parliament does not guarantee that they will be
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  accepted by the Commission or the Council of Ministers. The Commission has stated that it is prepared to accept the principle of limiting the journey time of animals destined for slaughter, but so far it has not suggested that the journey time should be anything other than the period after which feeding and watering are due, which is 24 hours.
  We in the House and our colleagues in Europe must therefore bring pressure to bear on Ministers of Agriculture to accept the eight-hour limit on the journey time of animals going to slaughter. Such a rule would go a long way towards dissuading people from re-establishing the trade to the continent in live horses for meat. Many people have been worried about that, because the United Kingdom is having to drop its existing legislation prohibiting trade in live horses and ponies.
  An eight-hour limit on the journey time of animals going to slaughter will not harm British farmers in any way. It will assist the United Kingdom slaughtering industry and, more important, it will be of great benefit to the animals. It seems illogical that we can export sheep to a slaughterhouse in the south of France, which will then make a profit on that transportation, only to export the majority of the carcases to Italy. Why cannot British sheep be slaughtered close to the point at which they were reared and why cannot the carcases then undertake the long journey from the United Kingdom to Italy? There is already a substantial trade in meat—in lamb, beef and pig carcases—from this country to other member states. At present, for every live sheep that is exported, seven lamb carcases travel the same route. It does not seem such a big step to make that eight carcases and no live sheep.
  I fully recognise the unfortunate balance of power problem in this matter between the United Kingdom Government and the European Community, but I believe that the passage of my Bill—I hope, with Ministers' blessing—will serve to demonstrate our determination to prevent the dilution of our more humane procedures.
  Question put and agreed to.
  Bill ordered to be brought in by Mr. Terry Lewis, M r. Don Dixon, Mr. Harry Cohen, Mr. Ron Davies, Mr. Peter Hardy, Sir David Steel, Dame Janet Fookes, Mr. Nigel Spearing, Mr. Simon Hughes, Mr. Roger Gale, Mr. Tony Banks, Mr. Alan Meale and Mr. Doug Hoyle.

  ANIMALS (WELFARE IN TRANSIT)
  Mr. Terry Lewis accordingly presented a Bill to provide for the welfare of animals being exported alive from the United Kingdom; to require adequate periods of rest, sufficient food and water, and regular veterinary inspection during transit; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 26 October and to be printed. [Bill 204.]

Exchange Rate Mechanism
[Relevant document: Minutes of Evidence taken before the Treasury and Civil Service Committee on 25th July 1990 on Economic and Monetary Union (House of Commons Paper No. 620)]
Mr. Speaker: I have selected the amendment in the name of the Leader of the Opposition. Furthermore, as 39 right hon. and hon. Members have already submitted an application to speak, I propose to place a 10-minute limit on speeches between 6 pm and 8 pm. I am afraid that that may mean that some Privy Councillors will be called within that 10-minute period. In fairness to all, I hope that right hon. and hon. Members who are called will bear that limit broadly in mind.
3.45 pm
The Chancellor of the Exchequer (Mr. John Major): I beg to move,
That this House congratulates the Government on joining the Exchange Rate Mechanism of the European Monetary System; notes the clear evidence that the Government's tight monetary and fiscal policies are reducing inflationary pressures in the economy; and believes Exchange Rate Mechanism membership will reinforce the Government's counter-inflationary strategy and help to strengthen the framework for a sustained improvement in economic performance.
Sterling's entry into the exchange rate mechanism is undoubtedly an important economic event and, moreover, an event which has long had the general support of the House, industry, commerce, the City and most, although inevitably not all, economic commentators.
This debate is a welcome opportunity to set out the rationale for entry; the potential advantages and constraints that it brings with it; and to consider also the effects of standing aloof from membership. I wish also to address the details of entry: the rate; the timing; the bands; and the necessary discipline of membership. And, of course, I shall touch also upon how entry affects the wider question of economic and monetary union, which is, I know, of great concern to the House.
It is now 12 years since the European monetary system and the exchange rate mechanism were established. At the outset, in 1978, the last Labour Government decided not to join the exchange rate mechanism. Since then the question whether and, if so, when we should join has been an important and contentious issue at the very centre of political and economic debate.
Two years ago my right hon. Friend the Prime Minister set out our commitment to join the mechanism and the conditions in which we would do so. On the free movement of capital, the single market, competition policy, and the liberalisation of financial services those important conditions have effectively been met for some time. It is possible to quibble about them only if excuses are being sought not to enter the ERM.
For some months the key remaining condition has been that domestic conditions—and our inflation performance in particular—should enable us to accept the exchange rate discipline. In economic terms, what mattered for that was not what happened in the months leading up to membership, nor was it the distortions in comparative inflation performance caused by different methods of measuring inflation. The important factor was that our inflation performance would enable us to converge and thus enable us to compete at the chosen exchange rate. It
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was for that reason that we did not join the mechanism until we were absolutely sure that our tight monetary policies were having their intended effect and inflationary pressures were easing.
That is now the position. The evidence that this has now happened comes first from the monetary aggregates. The growth of narrow money, M0, has fallen in each of the last five months and is now back well within the target range I set for this year. M4 growth—broad money—has fallen steadily throughout 1990 and currently stands at its lowest point for nearly three and a half years. Bank lending has also decelerated sharply.
In the real economy the picture is the same. The indicators show that the economy is slowing, as indeed it must if inflation is to fall. That is clear in the high street, it is clear in the housing market, it is clear in the figures for car sales, and it is clear in activity generally. It is clear also in the gradual and welcome recovery in the savings ratio, which hit its low point of 4·9 per cent. in the third quarter of 1988 and has now risen again to 7·7 per cent.
It was those conditions—that amalgam of conditions which are now clear—which prompted me to cut interest rates by I per cent. at the same time as entry. Some external commentators claim that it was too early; others claim that it was too late. I am confident that events will justify the timing of that reduction in interest rates.
If I had cut interest rates before joining the exchange rate mechanism, I believe that it would have been viewed by the markets and by commentators as driving the exchange rate down before entry or, alternatively, as a signal that entry was to be delayed. Both of those were wrong and both would have weakened the exchange rate and thus our anti-inflationary position. It was for those reasons that I announced both those steps at the same time to ensure that the markets were fully aware of our position as we entered the mechanism and were fully aware of what the immediate prospect was for monetary policy.
Mr. D. N. Campbell-Savours: On timing, in so far as it is quite clear from a series of parliamentary questions given to me by Ministers that people in the Bank of England, senior civil servants and some Ministers knew of the Chancellor's intention to make his statement at 4 o'clock on that Friday, and in so far as it is also known that Ministers and civil servants may well have met people in City institutions in the five days prior to that Friday, why cannot we now have a leak inquiry into how three separate markets in the City rose substantially in the 90 minutes before 4 o'clock, in conditions in which some people made millions of pounds in capital gains in a few minutes? Why cannot we have a leak inquiry into that? Let us have the truth.
Mr. Major: If the hon. Gentleman has any information whatsoever to suggest that there was advance knowledge of entry into the exchange rate mechanism—[Interruption.] Perhaps the hon. Gentleman would do me the courtesy of listening. If he will give that evidence to me, I shall ensure that it is placed before the proper authorities and that the appropriate action is taken. Unsubstantiated allegations do not help. If the hon. Gentleman really believes that there was a leak, he should provide the information so that it can be properly examined and not make widespread scatter-gun allegations for which at the moment he has provided no evidence.

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As we have seen repeatedly throughout the past 30 years or so, inflation is always one of the last measures in the economy to register that the growth of demand is falling away; and the rise in oil prices in the past few months has complicated the picture this time and, conceivably, may yet push up the headline total further. But I now have no doubt that we shall see inflation falling substantially throughout next year. It will do so particularly quickly from next April, and for two reasons: the underlying rate will improve and some of the unusual adverse factors that have artificially boosted the headline rate will drop out next year. Our inflation performance will improve therefore both in absolute terms, and, just as importantly for entry into the mechanism, relative to those of our European competitors. I shall make a detailed forecast in the autumn statement in due course.
There was, therefore, no reason for further delay in meeting our long-standing commitment to join the ERM. There is a further point of some importance. The persistent market rumours of entry and non-entry were damaging to stability and created uncertainty for industry. Week after week some chance remark, some speculation, some unsubstantiated rumour changed the value of sterling. I wished therefore to end the damaging uncertainty at the earliest possible moment, and I believe it was right to do so.
Mr. Harry Ewing rose——
Mr. Major: Perhaps the hon. Gentleman will forgive me if I do not give way for a moment.
The House will remember that I answered questions on this matter for an hour a week ago. I shall be here at the Dispatch Box on Thursday and a vast number of hon. Members—[Interruption.] Perhaps hon. Members would listen for a moment. A vast number of hon. Members wish to speak today. I shall give way to a small number, but perhaps not as generously as I sometimes do.
Mr. Harry Ewing: I am grateful to the Chancellor for giving way. If the right hon. Gentleman is pleading that the reason that he took this country into the exchange rate mechanism was to get rid of all the rumours about whether we would or would not join, is not that the fault on the one hand of the Prime Minister, who constantly said that we would not join, and of the Chancellor himself on the other hand, who constantly said that we would join? Which of the two of them was the City and the country to believe?
Mr. Major: The hon. Gentleman will do well tomorrow to read my speech in Hansard. He will then see that I made it perfectly clear that we entered because I thought that the conditions were right for our entry. I set that out plainly. I also set out a subsidiary matter that weighed on my mind—that the essential reason for entry was that the market conditions were met and the preconditions that we had set out were now right for sterling to enter the mechanism.
The belief that we should end the uncertainty and that we should enter early was also held by others. We got a great deal of advice. In June we were told:
"We do not urge the Government to wait until some unspecified rate of inflation or fulfilment of the Madrid conditions is attained. We urge them to commence discussions now."—[Official Report, 15 June 1990; Vol. 174, c. 636.]
That was not an overenthusiastic Member of the European Parliament speaking—it was the Opposition Front Bench in the persona of the hon. Member for
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Islington, South and Finsbury (Mr. Smith). Nor was that an isolated comment. In August the hon. Gentleman was strongly supported in that view by his right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who said:
"I don't think there is ever going to be a perfect time for Britain to enter the ERM, and I think therefore that we should take the opportunity to do so at the earliest time."
That is what I have done and the reason why Opposition Members attack us is that they know that we have taken the right decision and they do not want to acknowledge it. They want to hide the fact that their party is split asunder on the issue. [Interruption.] Oh yes. Of course, Opposition Members want it both ways. If we had delayed they would have questioned our intention of going in. They would have said that my right hon. Friend the Prime Minister was preventing us. Now that we have gone in they question our motives and claim that my right hon. Friend has been pushed. The simple truth is that my right hon. Friend first stated our commitment to entry during stage 1—over two years ago. She and I have been discussing possible dates for months. Four months after the start of stage 1 we found an appropriate date and honoured our promise. That is what Opposition Members cannot stomach. Their attitude is the typical triumph of expediency over conviction—[HON. MEMBERS: "Your attitude."] That is their attitude.
Now that we are in the ERM we need to be entirely clear about what it means. First, maintaining the exchange rate will be an important discipline. Tight monetary conditions will have to be sustained to put continued downward pressure on inflation. Joining the ERM in no way replaces the need for a tight monetary policy; it reinforces it. Indeed, making a success of the ERM means making a success of our own domestic monetary policy, not abandoning it. That is why joining the ERM is in no sense a soft option or a short-term one.
The euphoria with which some people greeted the news of our entry seemed to me mistaken; and the argument that entry has short-term advantages and a long-term cost is wholly misleading. In fact, it is a complete misunderstanding of the ERM. In the short term, membership will require tough action to ensure that we achieve low inflation thereafter. The rewards are long term with that very low rate of inflation. That does mean making no further reductions in interest rates until it is prudent to do so.
Mr. Anthony Nelson: My right hon. Friend has referred to the prospect of reductions in interest rates. Is not it probable that, if we were within the narrower band of fluctuations within the ERM, as certain other European countries are, we would enjoy lower rates of interest, as they currently do? As it is a matter of enormous interest to millions of mortgage payers and others in Britain, can my right hon. Friend say a little about the conditions that must be precedent upon our becoming part of the narrower bands of the ERM?
Mr. Major: I shall turn shortly to the question of the narrow band.
In case there was any misunderstanding a moment or so ago, I was saying clearly that membership means that we shall be in a position to make no further reductions in interest rates until it is prudent to do so. I hope that that point is fully taken on board. I shall turn to my hon. Friend's specific point in a second or so.

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What we have undertaken is an express obligation to keep sterling within the bands around our central rate of DM2·95. We take that obligation seriously and we intend to meet it. We decided to enter the mechanism with wide 6 per cent. margins to give sterling an opportunity to settle down. It is a widely traded currency and it is necessary to give the markets some time to assess the implications for entry and the domestic response to it. But when conditions permit, and only then, we will move into the narrow 21 per cent. band to which my hon. Friend the Member for Chichester (Mr. Nelson) referred.
I want to add a word about fiscal policy. Throughout the 1980s my two predecessors have successfully used fiscal policy to buttress monetary policy. That is precisely what we shall continue to do in future. But what we shall not do is to resort to fiscal fine tuning, the effects of which tend to be unpredictable and, in many cases, unworkable. I have no intention of returning to the era of mini-Budgets, but we will keep to our policy of a balanced budget over the medium term.
Dr. Lewis Moonie rose——
Mr. Major: If the hon. Gentleman will forgive me, I shall make a little more progress in the interests of several other hon. Members who wish to speak.
It is clear that membership of the ERM will impose an extra discipline on the Government's conduct of economic policy. But, equally, membership of the mechanism requires businesses and industry to take tough decisions of their own. Companies must understand the need to contain their costs—principally, but not, of course, exclusively, their wage costs. For them, joining the ERM means that devaluing our currency to bail out uncompetitive firms is no longer an option. It was never an attractive one and now it has gone. It is ruled out by our commitment to maintain a broadly stable exchange rate. If the costs of British companies rise, inevitably orders will be lost, profits will be squeezed, jobs will be shed, and companies will put their futures at risk. That has always been true, but ERM membership will make it even more apparent, for the devaluation option is no longer there.
For business, staying competitive means relating wage rises to what is realistic and justifiable. That means what can be afforded by the individual company facing tight competition in the international market with no help from a falling exchange rate.
Sir Anthony Grant: On that point, does my right hon. Friend agree that the necessary exhortations to pay restraint would be very much helped if senior leading industrialists who are on performance-related pay related their pay to not only the profits but the losses that they sometimes sustain?
Mr. Major: I share that view strongly. Leadership in this matter must come from the top, and I hope that it will do so.
Mr. Dennis Skinner: Is not the truth of the matter that the exchange rate mechanism is another name for a Common Market incomes policy? Why should people who work for a living, the real wealth creators, have a wages or incomes policy stuffed down their throats by the Government when the bosses got increases of 28 per cent. the year before last and 33 per cent. last year? In the
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past 10 years the wealthiest 1 per cent. in Britain have received cumulatively £26·2 billion in tax cuts; now they are calling upon the workers to bail out this Government, but they have no intention of doing so. Everyone who is fighting to get a living wage needs the support of Opposition Members to sustain that living wage.
Mr. Major: Well, so much for unity on the Opposition Benches about joining the ERM.
On the substantive point that the hon. Gentleman makes, he will be aware that I have said before—I reiterated my remarks to my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant)—that I share his view that the sacrifices that may need to be made on wages must apply to those at the top of industry as well as those elsewhere.
The hon. Member for Bolsover (Mr. Skinner) should be aware, however, of the consequences of taking his theory a stage further. The consequences for people not obeying that necessary discipline will be lost jobs. I cannot compel people to negotiate sensibly, but I have an obligation to make it absolutely clear to people what the effect of not negotiating sensibly will be. That I am seeking to do, and that I am prepared to do; and I share the hon. Gentleman's view that that applies to all people in industry and commerce and not just to those on the shop floor. What does that mean? It means negotiating what can be afforded by the individual company facing the international competition in the market. In essence, it is that which will determine our performance.
There can be no more negotiating around the benchmark of the retail prices index as though that represented the minimum increase it was reasonable to expect. I know that that kind of inflationary psychology is deeply embedded in the consciousness of British industry. I believe that, over the years, it has damaged us greatly, and, if it continues, it will cost us jobs in the future. I do not for a second underestimate the cultural change that that will mean for many wage negotiators, but the sooner they make the change the better. That psychology needs to be shaken out of the system, for the Government cannot keep companies competitive—they can only warn them of the dangers that they face. Their fate is in their hands—the hands of those on each side of the negotiating table who will determine the future of their companies and their work forces in the next few years.
Mr. Rhodri Morgan: I am grateful to the Chancellor for telling the House that the Government cannot bail out companies that persist in using the RPI as a benchmark for wage increases. If the Opposition accept that, will the right hon. Gentleman accept that he should not allow his Ministers to use the RPI as a benchmark for price increases in former nationalised industries now in private ownership? The electricity industry has not yet been privatised, but its prices are set to rise every year by an RPI-related formula. Is the right hon. Gentleman prepared to instruct the Secretaries of State for Energy and for Trade and Industry to give up that practice, which is applied to British Telecom, water and gas charges?
Mr. Major: Some of those increases are less than the retail prices index and many of the others are far more specifically related to investment performance than to anything else.
Those are the constraints and restraints which management and work forces will need to accept if we are

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to make a success of membership of the exchange rate mechanism. I know that they are not easy, but I believe that they are worth while because they will help us to achieve lower inflation by reinforcing existing policies. I am delighted that, fully understanding those points, the CBI has given such a warm welcome to our decision to enter the ERM.
In recent years, the average inflation performance of the countries participating in the ERM has been significantly better than that of all those outside the mechanism. Between 1979 and July 1990, inflation in countries within the mechanism fell by nearly two thirds; in European countries outside the ERM, by one sixth; and in OECD countries outside the mechanism, by two fifths.
As inflation in member countries has come down, the prospects for steady, sustainable economic growth have improved, and that is the prize to be achieved. The growth rates in Germany, France, Italy and a number of smaller mechanism countries have increased in the last few years and the prospects for growth continuing at favourable rates in the future appear good. I believe strongly that that is a goal worth pursuing by us as well.
Mr. Jeff Rooker rose——
Mr. Major: I hope that the hon. Gentleman will forgive me if I do not give way. I have given way on a number of occasions, and I am conscious of the number of hon. Members who wish to take part in the debate.
Moreover, maintaining a broadly stable exchange rate will assist British companies to plan ahead and to invest with greater certainty about the future. Since the mechanism has been in operation, there have been a few changes of parities, but there has been no substantive realignment since the beginning of 1987.
That stability will enable firms to develop their business strategies in Europe and be well placed for the opportunities of the single market. They will no longer face the problems of exchange rate movements disrupting their plans by imposing on them unexpected cost increases or pricing their goods out of the European market. It will mean, in my judgment, that Britain will prove still more attractive to inward investors. We already attract more direct investment from abroad than any other Community country. Membership of the ERM can only add to that.
During my statement last week, a number of hon. Members expressed concern at the exchange rate at which we had entered. For some of them the argument was a surrogate for outright opposition to entry at any exchange rate. But others are concerned lest the rate we have chosen is too high. That reflects a longstanding argument over whether devaluation is required for economic success. It is a legitimate argument which has a long political pedigree, but I believe that it is wholly wrong.
I believe that our central rate can be sustained, and I will explain why. Some hon. Members fear that the exchange rate will damage exports and encourage imports. But experience in recent years suggests that other factors are more important. The volume of our exports, excluding oil and erratic items, is up 8 per cent. on last year, and our share of world trade in manufactures increased in 1989 and is likely to rise again this year. Japan and Germany, with the firmest exchange rates over the last decade, also have the best current account performance.
The rate that we have chosen is also sterling's recent market rate and the average real exchange rate over recent
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years after making adjustment for differential inflation performance. Other subsidiary information suggests that we have not put sterling at a competitive disadvantage. Independent analyses suggests that DM2·95 is sustainable. Indeed, a report by CBI economists only recently advocated entry into the mechanism at around the bands that we have chosen. Some comments that I have read have focused on the dollar. I would only make the point that our membership of the ERM does not in any way determine the sterling dollar exchange rate.
Mr. Peter Shore: The inflation-adjusted real exchange rate of DM2·95, or the right hon. Gentleman's choice of that rate, is 20 per cent. higher—that is, an appreciation of sterling against the mark—than it was in the first half of 1987, which was the last time we were in current account balance with the rest of the world. We are now disastrously in deficit. We are going in at an exchange rate 20 per cent. higher against the mark than it was when we were last in balance. What does the right hon. Gentleman say about that?
Mr. Major: We are in deficit because of the growth of demand, which is self-evident from the change in our position during the past year as sterling has appreciated and the trade gap has begun closing. Therefore, there is no reason why British companies should not compete successfully in Europe at present exchange rates, and, in the medium term, with lower inflation, they will compete even more successfully.
Although entry to the mechanism is part of our commitment to stage I of economic monetary union and the single market, it in no sense commits us to the Delors approach for stages 2 or 3. I assure the House that there has been no shift, no weakening in our opposition to the imposition of a single currency and a single monetary authority. We remain opposed to that, and I believe that our opposition has the overwhelming support of the House. That does not mean that we shall play a wrecking role at the intergovernmental conference—the IGC. We have no intention of doing that. We shall continue to advocate our plans for the development of the hard ecu.
We believe that our proposals are practical, evolutionary and based on markets and choice. They offer a realistic solution that would enable the 12 to move forward together without risking damaging rifts in the Community. They leave open the possibility of the hard ecu evolving towards a parallel currency and then a single currency, but only if that were the wish of Governments and peoples. That is subject for ever to the check of the House of Commons.
Mr. Paddy Ashdown: The House will have made particular note of the right hon. Gentleman's use of the word "evolutionary". The matter that isolates Britain in Europe, divides the Conservative party and splits the Cabinet is whether his hard ecu is to be regarded as the ultimate, final position or is a transition to a future European single currency. If in due course, his hard ecu proposals were to be used as a transition mechanism to a single European currency, would the Chancellor oppose that?
Mr. Major: If the right hon. Gentleman reads what I have just said, he will have his answer.

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Our proposals are those that I have set out on a number of occasions and are subject to the check of the House of Commons at future stages.
Mr. Julian Amery: While I fully understand the Chancellor's reluctance to have anything to do with the date of 1994 proposed by the German Chancellor, cannot he say that if everyone were prepared to go ahead with the hard ecu in 1994 we should be happy to go along with them?
Mr. Major: We must wait and see how the IGC develops. But the only way in which this country could proceed would be on the basis of the hard ecu, for in my judgment there is no will in the House or country to surrender the use of sterling as our currency.
During the past half an hour or so, I have set out in some detail what I believe will be the effect of membership of the exchange rate mechanism and our policies. I hope that in the next few minutes the right hon. Member for Islwyn (Mr. Kinnock) will set out his views with equal clarity. Judged by what he has said, there is more agreement between us than he may imagine. He shares my view that entry is not an alternative to the economic realities—he has said so—can work to the advantage of the British people—he has said so—and can help in securing stability—he has said so, and I agree with him about that.
I hope, therefore, that as I have done, the right hon. Gentleman will set out his party's policy precisely—on rates, bands, timing, and fiscal policy. He committed himself to entry some years ago, so he has had ample time to consider the implications. If he does not do so, the suspicion will arise that Labour's commitment to enter the mechanism has been nothing more than a device—a clever device but a device none the less—which was intended to hide the fact that there is no real determination to tackle inflation at the heart of the Labour party's policies.
The conditions that they devised for entry into the mechanism are frankly incredible. They involve fundamentally subverting the whole purpose and structure of the EMS. The main reason why many people on all sides of the political spectrum have come to appreciate the benefits of the mechanism is that it provides a buttress and an anchor against inflation. That is precisely the feature of the mechanism which the Labour party planned to ditch.
That could not have been clearer from the remarks made by the Opposition in the House last week. Time and again they made it plain that their inclination would always be to take the easy option and to go for devaluation. When the right hon. Gentleman replies, will he tell the House: would he devalue or would he fight inflation? He cannot do both, and if he is to be credible he must tell us which he would do.
I noted with interest that the Opposition's amendment commends credit controls similar to those in other exchange rate mechanism countries. I wonder which countries he has in mind, for France had credit controls, but abandoned them at the end of 1987, Italy had bank loan ceilings, which were last used in 1988, the Netherlands had an informal corset—it lapsed some months ago. Germany has never used credit controls proper, although it uses a reserve asset ratio, as we use Treasury bills. In Europe, only Spain, Greece and Portugal have credit
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controls. Perhaps the right hon. Gentleman can tell us whether he equates our economy to theirs, and what sort of credit controls he plans to introduce. Under a Labour Government no doubt that is the sort of economy that we might move to.
The truth is that membership of the exchange rate mechanism involves maintaining an agreed range for the exchange rate and it requires tight monetary discipline to counter inflation. In short, it involves all the things that the Labour party has set its mind against.
For us, the ERM stands for stability—for effective, reliable management; it stands for low inflation—for an end to ruining money. For the Opposition it means credit controls—and excessive restrictions on mortgages. It stands for all its old policies of expropriation, renationalisation and meddling. I commend our policy to the House.
4.23 pm
Mr. Neil Kinnock: I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
"while recognising the potential opportunities for economic stability afforded by the inclusion of sterling in the Exchange Rate Mechanism, notes the failure of the Government to achieve the reduction in inflation repeatedly stipulated by the Prime Minister to be the essential condition to be satisfied before entry; considers that political expediency rather than economic considerations prompted the Government's decision to participate in the Mechanism from 8th October; regards the Government's continuing refusal to use credit controls similar to those employed in other Exchange Rate Mechanism countries as imprudent; deplores the fact that the task of achieving economic success within the Single Market and the Exchange Rate Mechanism has been made immensely more difficult by Government policies which have resulted in the United Kingdom experiencing a large and persistent current account deficit, 10·9 per cent. inflation, rising unemployment and losses in domestic and world manufacturing market share; again urges Her Majesty's Government to adopt policies that are essential to the achievement of a productive and competitive economy, particularly those required for improvements in the quality of and opportunities for education and training, for the development of a modern economic infrastructure, including an adequate transport system, for the promotion of sustained investment in civilian research and development and for the instituting of a vigorous regional policy; and concludes that if such policies, long advocated by Her Majesty's Opposition and long resisted by Her Majesty's Government, are not adopted, producers in Britain will continue to work at considerable disadvantage by comparison with those in other Exchange Rate Mechanism member countries and the nation will continue to lag behind the standards of economic success and social progress achieved in other European Community countries.'.
May I begin by saying how grateful we are to the Government for providing the time for this debate on their decision to take sterling into the exchange rate mechanism of the European monetary system on 8 October.
As the Chancellor said, that was a decision of immense importance; it will have effects on every person, family and business in Britain; it will have significant influence on shaping all future economic policy and very obviously, it can have major implications for the constitutional future of our country and of the European Community. There can be no one in the House or outside who does not regard the decision to enter the exchange rate mechanism as being truly worthy of the adjective "momentous", and since that is self-evidently true, it is all the more difficult for us and the British people to understand the refusal by the Head of the Government who made that decision to participate in

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the debate. [Interruption.] Let the Prime Minister speak for herself. It appears that the Prime Minister has chosen this significant occasion, of all occasions, to become untypically reticent, to embrace a previously undisclosed shyness, to become—how shall I put it—a sort of crypto-Trappist.
Today and on previous occasions since entry to the ERM, the Chancellor has made a characteristically suave presentation of the circumstances in which the decision to put the pound into the ERM took place. We heard a repetition today of the way in which he put it at the Mansion house last Thursday. There is nothing wrong with that at all. It is one way of demonstrating total consistency, but it is causing some problems on the Government Front Bench.
Dame Elaine Kellett-Bowman: The right hon. Gentleman should take a look at his lot.
Mr. Kinnock: I look at my lot with great pleasure.
In the Mansion house on Thursday the Chancellor said that inflation was definitely coming down. He said:
"There was therefore no further reason for delay in entering the mechanism. And it was, of course, those very same conditions that indicated that a reduction in interest rates was now appropriate. I decided, therefore, to announce the two moves at once."
It was a smooth and soothing explanation—and absolutely unconvincing to everybody concerned. Hardly anyone believed the Chancellor. In the markets and in the newspapers the general and justifiable feeling has been that his action was far more political than economic. Mr. Robin Marshall, chief economist at Chase Manhattan, said:
"Major comes out of this looking like Mrs Thatcher's poodle."
Mr. Peter Spencer, chief economist at Shearson Lehman, said:
"The base rate cut was clearly dictated by No. 10".
I can see from the friends that they have in the City that Conservative Members are hearing exactly the same thing. Those economists were only two of many people in similar positions who put the view that agreement to ERM entry was nothing more or less than the price paid by the Prime Minister for the 1 per cent. cut in interest rates that she needed to take to the Tory party conference. Never has so much been done that affects so many to please so few. [Interruption.]
Mr. Speaker: Order.
Mr. Kinnock: Of course, those accusations of political rather than economic motivations are serious and they could have serious consequences. They call into question the credibility of the Government's commitment to the ERM. In spite of that seriousness, the witness whose testimony is essential simply refuses to be called. At the Dispatch Box where, on this momentous issue, the Prime Minister should speak we have merely a question mark. The reason for the Prime Minister's unwillingness to speak is quite obvious. The right hon. Lady has been saying since 1985 that we will go into the ERM only "when the time is ripe" and she could hardly say in this debate, "Inflation is 10·9 per cent., we have a huge balance of payments deficit, the economic consequences of the Gulf crisis are unknown, output and investment are down, so the time is not ripe. In fact, it's pretty rotten—but we have entered the ERM in any case, regardless of everything that I have ever said before."
Mr. A. J. Beith: Does the right hon. Gentleman himself think that the time was pretty rotten? Or have his conditions been satisfied? Can he conceive that his condition that the ERM should be accompanied by a Europewide reflation will ever be satisfied?
Mr. Kinnock: Our case was never made in the way in which the hon. Gentleman professes that it was made. Our argument has been, and remains, that when, from time to time, Europe is faced with the threat of Eurosclerosis—the hon. Gentleman will be familiar with the term—the case for joint growth strategies exists and is widely accepted. [Interruption.] I realise that Conservative Members are very reluctant to allow any answer to be given to a Liberal Democrat on this particular day: there is a certain Eastbourne sensitivity about. None the less, I shall reply to the hon. Member for Berwick-upon-Tweed (Mr. Beith)—[Interruption.]
Mr. Speaker: Order. We shall make very slow progress at this rate. The Chancellor of the Exchequer was heard in relative silence; I ask for the same treatment for the Leader of the Opposition.
Mr. Kinnock: Thank you, Mr. Speaker. A different order of decency and discipline applies on this side of the House.
Mr. Phillip Oppenheim rose——
Mr. Kinnock: I will respond to the hon. Member for Amber Valley (Mr. Oppenheim) if he will first permit me to reply to the hon. Member for Berwick-upon-Tweed.
It is true that my right hon. and hon. Friends and I have been making the case for entry into the exchange rate mechanism, because of its basic attractiveness, to which the Chancellor referred. It gives the British economy the necessary stability, allowing us—together with other policies—to secure an advance in productivity and competitiveness. That is still our case for entry: for that reason we welcomed Britain's entry on the date on which it took place, and will continue to argue that ERM membership is right.
That stability, however, is put in jeopardy if the Government's commitment and the sincerity of the Prime Minister are not even evidenced by the right hon. Lady's willingness to come to the Dispatch Box. I am sure that the Government will have noted the reactions to the circumstances in which Britain entered the ERM, and the excuses that they presented for their timing. The fact remains that our ERM membership is legitimate, valid and to be worked on to the advantage of our country.
Mr. Oppenheim rose——
Sir Peter Hordern rose——
Mr. Major rose——
Mr. Kinnock: I will give way to the Chancellor, by all means.
Mr. Major: I am grateful to the right hon. Gentleman for his courtesy.
A moment ago, the right hon. Gentleman had something to say about the interest rate cut and the timing. May I remind him of what he said three days before we entered the ERM? First—at the Labour party conference—he said that the Government should cut the very high

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interest rate and should be negotiating entry into the exchange rate mechanism of the European monetary system. That is precisely what we did. Why will the right hon. Gentleman not give us unalloyed credit for doing it at the right time and in the right way?
Mr. Kinnock: The Chancellor negotiated nothing, other than a little deal with the Prime Minister to swap a 1 per cent. interest rate reduction for ERM entry. That was the only bit of negotiation.
Mr. Major: If the right hon. Gentleman will permit me, I will correct the misconception in his mind. Uniquely—somewhat to the irritation of our European partners—I told them the terms of entry that we sought before I went to them. We obtained those terms of entry, absolutely and entirely. I think that that is quite a success.
Mr. Kinnock: I really do not think that obtaining DM2·95 to the pound in a 6 per cent. band required all that much negotiating skill.
The Chancellor asked me about a speech that I made. Let me tell him precisely what I said. I said not only that we wanted entry to the ERM, and would certainly have brought it about had we been in office, and not only that we wanted a reduction in interest rates, which we would also have introduced, but that we would have accompanied those moves with two other policies essential to the proper working of our economy in an intensely competitive European Community and trading world.
First, we should institute exactly the same form of credit controls as those still operated in comparable countries with great success, and which result in much lower interest rates. The Banque de France operated such a policy only last Wednesday, to ensure that France could retain its position within the ERM while lessening the burden of interest rates on the productive sector of its economy. Conservative Members know that that is precisely what happened. Secondly, and most important, we still want a commitment—and I shall again make the case for it this afternoon—to a proper, comprehensive, modern, supply-side policy, something which the Government have never introduced and will never introduce.
Mr. Oppenheim rose——
Mr. Kinnock: I must continue. I gave way to the Chancellor, who asked an interesting question which required a prolonged answer.
The Prime Minister's absence from the Dispatch Box is further explained by the fact that she came to the House in June 1989, from the European Community summit, and told us that she had made it clear that before ERM entry,
"We must first get our inflation down."
She told me that
"One condition"
of entry
"depends on us".
It was that
"we get inflation well down".
She was saying that repeatedly during all the following 15 months, right up to and including her visit to Switzerland where, on 20 September, she said:
"The Madrid conditions won't be changed and they include getting inflation near to the European average."
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Nothing could be clearer, nothing could be more absolute, nothing could be more implacable than those words from the right hon. Lady—the prima donna of the Madrid conditions.
Against that background, the Prime Minister plainly felt that it was beneath her dignity to come to the House today to justify her abandonment of that paramount condition on inflation, while simultaneously standing on her head. That is why she will not speak.
Mr. Quentin Davies rose——
Mr. Kinnock: I must continue. If Conservative Members have any questions, please address them to the Prime Minister—although she never provides any answers.
The Prime Minister felt that she could not say that she knew that the whole Government—[Interruption.] Perhaps I could have some order, Mr. Speaker. She knew—[Interruption.] The people watching this exhibition will pay due regard to the continual interruptions by Conservative Members. They are not making genuine inquiries; they are trying to disrupt the business of the House. Everybody will understand that. The more that I pursue the question of the Prime Minister's motivation, the noisier they are likely to become.
The Prime Minister knew that the whole Government had been chanting that cardinal Madrid condition, but, because their policy of high interest rates was throttling the economy, interest rates had to be cut, even though the only way to do that, without sending the pound plummeting, was simultaneously to join the ERM and desert the Madrid conditions. It was not so much a case that the lady was for turning, as a case of the lady twisting in the wind—a wind of looming recession and greatly increasing political unpopularity.
Of course, the Prime Minister and the Chancellor tried to make the best of the mess. The Chancellor said that the prospects were good and that the market conditions and the market rate were right. He said that there was an ideal conjunction of events—precisely the right conjunction of events. I note that he has not repeated those phrases in the House today, but I am sure that he will not disown them.
The Prime Minister was similarly fulsome. She took out the portable pulpit that she has taken to using in Downing street and announced that it was suddenly possible after all to put sterling into the ERM because
"of the uncontestable signs that the economy is working in the way that we intended it to."
Unemployment is rising, bankruptcies this year are up by 35 per cent., industrial output is falling, inflation is still rising, the business community is warning that there is recession in several industries and recession threatens the whole economy, but the Prime Minister describes all that as
"uncontestable signs that the economy is working in the way that"
the Government
"intended it to".
Could there be any greater self-condemnation of the Government? Could there be any clearer admission of incompetence and failure over 11 years? The Government could not even clip 1 per cent. off the highest interest rates of all major industrialised countries without joining the ERM—10·9 per cent. inflation and all. What a mess.
Mr. Teddy Taylor: On behalf of the Labour party and a future Labour Government, the right

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hon. Gentleman has said that the ERM will help to bring stability. On behalf of the Labour party and future Labour Government, will he give us some idea about what he thinks the ERM will help to stabilise and roughly how he thinks that will be achieved?
Mr. Kinnock: The exchange rate. That is the whole purpose of the mechanism. If the hon. Gentleman does not have that basic piece of knowledge, I am not suprised that he takes the view that he does. I am sure that he has. [Interruption.]
Mr. Speaker: Order. It will be impossible to call all those who wish to participate if the Leader of the Opposition is continually interrupted. I notice that the three hon. Members who have recently been rising all wish to speak later.
Mr. Kinnock: Inflation is vexatious when it is as high as it is and so largely the result of the Government's policies, but the Chancellor tells us that it is not the actual rate of inflation but the prospective rate of inflation that matters. When he went to the IMF meetings in Washington at the end of September he said
"What matters … is less the difference between headline figures which measure what has happened over the last 12 months than the prospective movements in price levels from now on."
Forecasts have always been important. Obviously they are essential to economic navigation. But now it seems that they have gained unprecedented significance. Not only do they matter more than the actual rate of inflation with which people have to live, but they are important enough to justify the most momentous of economic decisions, such as entry into the ERM.
But if the Government have such boundless confidence in forecast inflation rates, I am bound to wonder why sterling was not put into the ERM a year ago. After all, at that time in his Autumn Statement last November the Chancellor told us that the prospective rate of inflation for this quarter of 1990—the period that we are in now—was 5·75 per cent. He was just about 100 per cent. out in his forecast. He tried to correct that in the Budget in March, seven months ago, when he said that his 5·75 per cent. forecast for this quarter of 1990 had been revised upwards to 7·25 per cent. That was only 50 per cent. out on the actual rate of inflation that we are experiencing now.
That record hardly fills us with confidence about the Government's judgment, especially when the Treasury had to admit yesterday:
"Since forecasts of the RPI were first published in 1976 only one year has seen a larger error than the forecasts for 1988 and 1989."
That is not much of a crystal ball, especially as an important indicator on which to base a judgment such as the Government's abandonment of the Madrid conditions.
But at least one Government forecast will be right. The rate of inflation will come down. If any economy is squeezed hard enough for long enough, and this one certainly has been squeezed hard and for a long time, eventually prices will almost certainly follow demand in a downward direction. But the damage already done to the economy by the high interest rate squeeze, and the damage that will be done to the economy, has pushed Britain back, pushed costs and inflation up and weakened our
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productive industries in the approach to the single market. What a fine preparation for the coming of the single market at the end of 1992.
Even if the crude recessionary slump contrived by the Government brings inflation down, it certainly will not keep inflation down. It cannot, as the Government have already proved. The Conservative party chairman's absence today is notable—it may be because he can count his supporters in the Cabinet on the fingers of one finger—so unfortunately I speak in his absence. A few weeks ago in September he said that the Government's interest rate strategy for bringing down inflation would work because they had done it "twice before".
But clearly, if the Government have used the strategy twice before and now have to use it a third time, it is not because it has worked; it is because it has failed. That must be the case. It will go on failing because, in the very act of being applied as an instrument against inflation, recession causes extra living costs, pushes up wage demands and imposes extra borrowing costs that bring bankruptcies, cancelled investment plans, instability and underperformance causing inflation to come back again, as it has.
We have had 11 years of repeated use of those policies alternating with pre-election credit sprees, but the Government have not yet learned the error of their ways. The only response that the Government have ever made to a mistake is to repeat it and then call that being resolute. Despite his many charms, the Chancellor of the Exchequer is no exception to that rule.
The Chancellor told us last week, and again this afternoon—it was an important point in his speech—that the only real problem afflicting Britain is excess demand. That, he said, is the single evil that causes inflation and the massive trade deficit. He says it with such charming bravura that he would convince anyone who did not know better that he had never been in a Government who had repeatedly generated excess demand for electoral purposes. Unfortunately, about the supply side the Chancellor says next to nothing.
Mr. Jonathan Sayeed: Will the right hon. Gentleman give way?
Mr. Kinnock: No, I am sorry. I have given way several times.
I suppose that the Chancellor knows that if he did give real attention to the supply side he might have to do something more than undertake some City deregulation, some trade union legislation and give some tax handouts. If he really was interested in wanting Britain to succeed, he would do much more. If he really wanted to encourage enterprise and combat inflation, he would be doing what other ERM countries do and use more moderate interest rates in combination with credit controls instead of relying so heavily on high interest rates.
If the Chancellor and the Government really wanted to attack the rigidities, the bottlenecks, the restraints on the productive economy, they would have followed the example of Governments of other countries in the ERM. Those Governments have ensured proper investment in modern transport. This Government have not. Those Governments have invested more in civil research and development. This Government have not. Those Governments have wisely invested more in education and training. This Government have not.
Mr. Nicholas Bennett: That is not true. Look at the OECD figures.
Mr. Kinnock: I am not so interested in the OECD comparisons. Why does not the hon. Gentleman go to a school or college in Britain and see the results of under-investment?
The whole country knows that the Government have failed to make the necessary investment. To see the results of the difference between both kinds of performance, it is only necessary to compare this country's oil-rich economy after 11 years of Tory Government and those of other ERM countries, whatever the political colour of their national or regional government, and none of which has any oil. The difference is that the Governments of those other countries have enabled a productive economy, whereas the Government of our country have disabled a productive economy.
Whatever our future may be in the European Community, that situation must change, so that our industries may have a fair chance under the exchange rate mechanism. Many tough, determined and enterprising people are saying still that they are not enjoying a fair chance by comparison with their competitors in other ERM countries. There is a great deal in what they say.
It is not just a matter of the ERM, because attitudes towards the supply side must change as pressures build up within the Community to go beyond the ERM and stage 1 of the goal to which the Chancellor says that he is committed, of economic and monetary union. The Chancellor said also that movement towards a single currency is "not inexorable", and he is absolutely right. That movement is the result of a deliberate decision by free countries. It is not a consequence of faith or of dictatorial imposition.
If the Chancellor had said that, with the economy in its present state, monetary union was not in any case acceptable, he would also be right. Given Britain's deficit, inflation rate, inadequate training and substandard transport systems, there is no possibility, without great change, that monetary union could be tolerated.
The question that is increasingly posing itself is not whether monetary union is desirable to us but whether it is the ambition of others, including the strongest economies of the Community—with or without the United Kingdom.
The plain fact is that monetary union is something to which those other member states aspire, and they are intent on achieving it—if not within the next five years, then not very long after that. That is a certain prospect. The consequence of all that is that our future will be more strongly influenced than ever not only by what we would prefer to do for ourselves but by what others prefer to do for themselves, and which they will do for themselves.
Mr. Nicholas Budgen rose——
Mr. Kinnock: Just a moment.
The European Community has not yet decided on the path to a common currency. There is much that we should and can do in this House and through government to shape the course of events. However, we are not helped much in that by the isolationism of the British Government—or at least that part of it that is controlled by the Prime Minister. Those parts of the Government that owe fealty to the deputy Prime Minister and to the
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Foreign Secretary are different, but I say to both Governments that, however we might try to influence events, it is imperative to ensure that the British economy is more productive and competitive, less prone to trade deficits and more resistant to inflation than it is now.
The Government should be the ally of modern industry in a way that the present Government have never been, nor ever will be. The pre-conditions that I describe have merit at any time, but they are of extra importance now. Only by gaining those strengths can we achieve convergence with the higher performance standards of our neighbours and fellow members of the exchange rate mechanism. That effort of upward convergence represents a sensible strategy, and it is among the aims of the Labour party.
Only by improvements in productivity will we be able really to choose between co-existing with monetary union if we choose not to join and thriving economically within currency union if we do decide to join.
Mr. Jacques Arnold: Would Labour take Britain into monetary union or would it not? Will the right hon. Gentleman show some leadership?
Mr. Kinnock: When it comes to leadership, I am rather less susceptible to challenge than the Prime Minister at this precise time, so the hon. Gentleman would do well to keep his own counsel.
Those are the facts of life that we must face. There is no refuge from them, in the blithe hope that our economy can make such a bound forward in competitive performance that Britain will suddenly be able to recapture great swathes of world markets and will thus push the European Community to the periphery of our interests as an important trading nation.
Mr. Budgen: Will the right hon. Gentleman give way now?
Mr. Kinnock: No, I will not give way, because of time constraints.
Mr. Budgen rose——
Mr. Speaker: Order. The hon. Member for Wolverhampton, South-West (Mr. Budgen) also has indicated that he wants to participate in the debate later. Perhaps he will get a chance to do so.
Mr. Kinnock: The hon. Member for Wolverhampton, South-West (Mr. Budgen) will acknowledge that there were a number of disorderly interruptions earlier, which took up time. I regret that, but I shall respond to the hon. Gentleman on a future occasion.
There is no serious third way out of the stark choices that face us in the form of the Chancellor's proposals for the so-called hard ecu. That is a clever illusionist's trick from the right hon. Gentleman, but it is a trick nevertheless. The Chancellor claims to be against what he calls the imposition of a single currency, so he advocates a multiple currency system. He says that such an arrangement will consist of a hard ecu as a common currency, with all existing currencies used alongside it. However, he knows that the hard ecu, being almost incapable of devaluation, would render just about every other existing currency as redundant as the farthing and about as attractive as bent washers.
The Chancellor might have bamboozled the Prime Minister with his hard ecu. He might even enjoy being patronised by others in the European Community.

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Nevertheless, if the hard ecu is ever adopted, the single currency that the Prime Minister so abhors would arrive not in the long term, as the Chancellor promises, but very quickly.
Some members of the Government know that. Right hon. and hon. Members may have read in the Financial Times this morning a report quoting the Financial Secretary to the Treasury, who remarked in relation to the hard ecu:
"I would argue personally that the next stage of having a single currency could actually happen more quickly going down this path."
I wonder whether the Prime Minister would say the same, or whether that is again a tale of two Governments.
As there is a strong and developing consensus in several other Community countries in favour of currency union, I repeat now what I have told many colleagues in the Community and in the Commission for some years. That community of democracies should never support the creation of a so-called independent central bank. It is no more appropriate for a democratic country or a group of democratic countries to allow monetary policy to be handed over to an independent, unaccountable bank than it would be for fiscal, public expenditure and taxation policies to be given over to such a bank.
If the Community seeks to achieve currency union between member states, then, whatever the implications for Britain, it will have to make arrangements for joint growth strategies, fiscal co-ordination and regional policies on an unprecedented scale. The regional policies would, by the very nature of currency union, require transfers between regions of the Community, just as transfers are made now between the German Lander, French departments and Italian regione, within their own national currency units. That is the dimension of the change that would need to occur if monetary union is to work to the advantage of the peoples of the Community. Even the most enthusiastic monetary unionist would recognise the truth of that.
Our country has been taken into the exchange rate mechanism by a Government who have been in power 11 years, and who found themselves cornered by the approach of two crucial European summits and boxed in by the expectation that the Government themselves have created that entry into the ERN would occur this autumn. They were a Government trapped by the approach of the Tory party conference, which needed pleasing, and by a looming recession, resulting largely from their own policies. They are a Government who were besieged, and who are besieged, by their own political and economic errors and failures. They are a Government who sought to use a 1 per cent. interest rate cut and ERM entry as a political escape.
They have failed in all of that. The interest rate cut is regarded with cynicism even by those people who yearn for relief from the crushing burdens of mortgage payments and business loans. The gush of City euphoria that greeted ERM entry went flat as quickly as the bubbles in the champagne that celebrated it. The Government's decision and the Government's timing are accurately seen as being determined by political expediency and concern for their own status and not by economic judgment made for the sake of the economy or the national welfare.
They are a Government who have been found out and, as soon as the British people get the chance, they will be a Government who have been put out.
5 pm
Mr. Nigel Lawson: At the beginning of his speech and on a number of other occasions, the Leader of the Opposition said that we were debating a momentous decision. I entirely agree with him. It is sad, therefore, that his speech could not live up to that momentous decision. When the House is asked to debate what, in the right hon. Gentleman's own words, is a momentous decision, all we get from him is second-rate political knockabout.
This is only the third occasion in the past year on which I have sought to intervene in a debate. The first occasion was when I made my resignation speech. As many hon. Members will recall, I devoted a considerable part of that speech—although not all of it—to arguing the case for British membership of the exchange rate mechanism of the European monetary system. Incidentally, I warned on that occasion that, although I was strongly in favour of entry, and although I believed it to be strongly in the interests of this country, it was certainly no soft option and no panacea. I mention that because others have subsequently seemed to be seeking to take a copyright on the phrase.
The second occasion during the past year on which you have been kind enough to call me, Mr. Speaker, was during the Budget debate. Perhaps with a certain monotony, I again devoted a significant part of my speech to arguing that we should join the exchange rate mechanism of the European monetary system sooner rather than later. It is with particular pleasure, therefore, that on this, the third occasion, I can wholeheartedly and most warmly endorse the decision that the Government took to enter the exchange rate mechanism.
On the reasons for doing so and the advantages of doing so, I entirely agree with what my right hon. Friend the Chancellor of the Exchequer said in his speech. He set out the advantages and reasons very clearly. I have to say, however, that those reasons and those advantages have been valid for years. They are not reasons and advantages that have suddenly appeared relatively recently. The great thing is, however, that the pound is now in the exchange rate mechanism of the EMS or, as some might put it, we are committed to shadowing the deutschmark at a rate not very far from DM3 to the pound—[Interruption.] In response to hon. Members' sedentary reaction, perhaps I may say a little about that previous occasion, when we were living in sin, as it were, with the ERM, within the overall framework of the Louvre agreement. That period lasted from March 1987 to March 1988—a period, incidentally, during which inflation fell from 4½ to 3½ per cent. The claim that that was the cause of our current inflation is very difficult to sustain. If that were so, it would be difficult to see why we are repeating the arrangement now, albeit in more formal and thus improved circumstances. I know that some people felt that interest rates were reduced too much during that period. That is one of the myths that has been put about. In fact, at the end of that period, interest rates were precisely 1 per cent. below their level at the beginning of that period. That reduction of 1 per cent. was a result of the response to the stock market crash of October 1987—a time, I may say, when, as Chancellor, I was being urged by Opposition Members to cut interest rates far more and to increase public expenditure as well.
While on the subject of public expenditure, let me say this. I hope and trust that there will be no slackening whatever in the policy of firm control of public

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expenditure that the Government have been pursuing year in, year out. The abolition of the public sector borrowing requirement was a most important achievement and it is not something lightly to be thrown away. We have only to look at the United States to see what can happen when public borrowing gets out of hand. By-elections or no by-elections, the firm control of public expenditure remains as vital now as it has ever been.
My right hon. Friend the Chancellor referred to the timing of the interest rate cut. In my judgment, he made a completely conclusive argument about why it would have been wholly wrong to have reduced interest rates in advance of the decision to join the ERM. For reasons best known to himself—one could guess at them—my right hon. Friend did not address the other possibility, of joining the ERM before reducing interest rates. I was interested to see the Governor of the Bank of England reported in the Financial Times as saying that he would have been happier had the interest rate cut followed entry into the ERM. I agree with him. This is not a small point because, sadly, the conjunction of the two has led to a degree of cynicism in the financial markets for which we shall have to pay a price. That price will be that the next reduction in interest rates will have to be deferred for longer than would otherwise have been the case.
Mr. Quentin Davies: My right hon. Friend will recall that the immediate impact on the markets of our entry into the mechanism pushed the parity of sterling up towards the top of the permissible band under the new system. Had we not reduced interest rates, might it have been impossible to hold sterling within the new bands?
Mr. Lawson: No. My hon. Friend knows perfectly well what happened to sterling shortly after that. There was an initial upward surge which never reached the top of the band. Had it been closer to the top of the band and interest rates had been brought down as a response to that, that would have created conviction in the market place; while what has happened, sadly, has not done that. That conviction will have to be earned. I am sure that it will be earned, but it will have to be earned.
I am quite sure that my right hon. Friend the Chancellor was right initially to join with the wider margins. However, I hope that it will not be very long before we get to the narrower margins to which we are in any case committed under stage 1 of the so-called EMU. I hope that that will be a matter of months, and that when my right hon. Friend the Chancellor introduces his next Budget he will be able to announce that we are moving to the narrower margins.
Perhaps more importantly, I believe that it was right to choose a rate of DM2·95. Many people, including Opposition Members, have said that that rate is far too high. However, that is the voice of the perpetual devaluationlists who always find any rate too high, who espouse policies which would lead to rising inflation, and who cannot accept the discipline which membership of the exchange rate mechanism must produce.
There is, of course, no such thing as "the right rate". However, there is a range of plausible rates. The economy must adjust to the rate that is chosen. If the chosen rate is
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somewhat on the high side, although not too high, the economy will adjust to the discipline which is absolutely essential for getting inflation down.
Mr. Tam Dalyell: What is the right hon. Gentleman's view of the rising monetary aggregates at a time when it might have been sensible to join?
Mr. Lawson: I do not know what particular time the hon. Gentleman is referring to. However, I will return to that point shortly.
A tough discipline is essential. Sadly, the inflexibility of the labour market in this country means that it is all too likely that the reduction in the rate of growth of unit labour costs, which is essential, will be achieved not, certainly initially, by a reduction in wage increases, but by more and more men being laid off. We will see unemployment rising. That is a fault of the rigidity of the labour market in this country and, in particular, because the trade union leaders are far more concerned about those who are in work than about those who are out of work.
Mr. Skinner: As the right hon. Gentleman is talking about wage cuts, when is he expected to take a wage cut in his various jobs? As it seems to be a good idea for the workers, and as he has three or four jobs, when is he going to take a wage cut which he believes everyone else should take?
Mr. Lawson: That is the kind of intervention I might have expected from the hon. Gentleman. I can assure him that I do just as much to earn my pay as he does to earn his.
The real tragedy is that we did not join the exchange rate mechanism of the EMS at least five years ago. That was not for want of trying, as a number of my then Cabinet colleagues can testify.
In reply to the intervention from the hon. Member for Linlithgow (Mr. Dalyell), let me say that at that time the monetary aggregates were moving in the right direction, inflation was coming down and it was very close to the Community average. If we had joined then, we would not have seen the sharp fall in sterling that occurred in 1986 which then led to the subsequent rise in inflation.
Mr. Morgan: Will the right hon. Gentleman give way?
Mr. John Smith: Will the right hon. Gentleman give way to me?
Mr. Lawson: I believe that the right hon. and learned Member for Monklands, East (Mr. Smith) will be replying for the Opposition, so he will have his opportunity to speak then.
Mr. John Smith rose——
Mr. Lawson: There is another reason why it is a tragedy that we did not join five years ago. [HON. MEMBERS: "Why didn't we join then?"] Not only would it have been economically beneficial, but had we joined five years ago there would have been no danger of confusing the ERM and the EMS with EMU because at that time EMU did not exist; it had died with the Werner plan and the Delors proposals had not even been put on the table.
I entirely agree with my right hon. Friend the Chancellor that there is a world of difference between EMS, which is an aspect of economic management, and EMU, which is essentially political.
Mr. Rooker: On a point of order, Mr. Deputy Speaker. I put to you the constitutional point that people outside this place, when listening to an ex-Chancellor of the Exchequer who was the longest serving Chancellor, will wonder why he tells us what did not happen but will not tell us why it did not happen. People will be utterly bewildered.
Mr. Deputy Speaker (Mr. Harold Walker): That is neither a constitutional point nor a point of order.
Mr. Lawson: The ultimate objective of EMU is, as has been mentioned in the debate, a single currency managed by a single central bank. A single currency is inseparable from the idea of a single nation. A single currency means a federal Europe. The House should be aware that that is the case. Some hon. Members are aware of that and they welcome it, although many other hon. Members do not. I do not welcome it. It is important that that connection is recognised by everyone in this place and elsewhere in the country.
Some hon. Members may have been in Washington recently to hear Mr. Paul Volcker, who is a distinguished figure in the monetary field and who has no particular axe to grind in the European context. When he gave the Per Jacobsson lecture in September he was asked whether he could conceive of a number of countries having a single currency without there being a single Government. He said that perhaps that could exist for a very short time, but it would be totally unsustainable and within a fairly short time there would have to be a single Government. I believe that that is right.
But there is a danger of some of my hon. Friends getting a little too worked up about the issue, important though it is. Even if a date is agreed for stage 2, I foresee no possibility of a date being agreed for stage 3, which is the single currency. Indeed, it is possible that what is agreed by the other 11 on stage 2 will involve conditions, but there will be no date agreed, I am quite sure, for stage 3. As for stage 2, which is not a single currency, what stage 2 involves is not entirely clear. That is the vaguest part of the whole of the Delors report.
But one thing I believe is the essence of stage 2, or certainly could be interpreted as the essence of stage 2. It is something which I would thoroughly endorse and welcome, but it is quite clear that it would be anathema to the Leader of the Opposition and Members on the Opposition Benches who agree with his approach. Stage 2 would involve the national central banks becoming independent—independent national central banks cooperating closely together. That would be the essence of stage 2. That is something. which I would welcome. The House knows that I mentioned in my resignation speech how I had made this proposal at an earlier stage so far as the Bank of England was concerned.
Mr. Budgen: Will my right hon. Friend give way?
Mr. Lawson: To suggest that independent central banks are not compatible with democracy, as the Leader of the Opposition did, is absolute nonsense. It is to suggest that Germany is not a democracy, that the United States is not a democracy and that Switzerland is not a democracy. All those three countries have independent central banks. That is stage 2. That is something that should be acceptable to my right hon. and hon. Friends.
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But stage 3, which is the single currency and for which no date will be set at all, is something that is so far down the road that, if it ever happens at all, we do not need to be concerned about it now. There is no need for divisions on this side of the House about that—no need whatever. The whole idea of a two-speed Europe cannot possibly arise unless there is this stage 3 development, which is many years further along the road.
It is dangerous when my party, the party of which I have the honour to be a member, begins to get so hung up on something which is really as remote as the idea of a single currency for the whole of Europe. Of course we will be asked whether we agree in principle. We say no. It is as simple as that. But that is not the immediate issue on the agenda. If that is to come about at all—and everyone in the Community knows that—it is a long, long way ahead, and we have to complete stage 1 first and then we have to have stage 2 of indeterminate length.
Mr. Budgen: My right hon. Friend is carrying on about his idea of independent central banks. Whereas those banks would be independent of the political process within their member states, surely they would have to be acting together, and they would be not independent of each other but operating as a co-ordinated European bank.
Mr. Lawson: No. My hon. Friend is mistaken. They would be acting together rather in the way in which the independent central banks acted together at the time of the classical gold standard, and they co-operated very closely in that context—independent national central banks working closely together. The European central bank would also have to be independent. There is no argument about that, except on the Opposition side of the House. The European central bank, if it came about, would indeed be part of the common currency, the single currency, and that is stage 3, but it is not the stage 2 situation about which I was talking a moment ago.
Finally, let me refer again to the position in the United Kingdom where, as a result of the tight monetary policy which I put in place and which my right hon. Friend has maintained, we are undoubtedly on track for lowering inflation, and very markedly lowering inflation. We are seeing now, of course, the downturn of the economic cycle. That should be of no surprise, particularly after such a long upturn. Very few propositions in economics can be advanced with total confidence, but one that can is that there always have been economic cycles and there always will be economic cycles.
What we are seeing now is the downturn of the economic cycle after a very long upturn. But I have no doubt whatever that the upturn will resume in due course, that the downturn this time will be very much less severe than it was last time, and that, when we resume the upturn, it will be on the basis of an underlying economy which, during the 1980s, has been transformed.
We have heard claptrap from the Leader of the Opposition about the supply side. Real supply side improvements do not occur under socialist strangulation and trade union domination. They occur as a result of the policies of freedom and deregulation which have been put in place by this Government. That is why there was a transformation of the underlying economy in this country during the 1980s, and every single leader of every single

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important business knows that to be true and will readily admit it. That is the reality on which our confidence for the future is based, and it is soundly based.
5.25 pm
Mr. A. J. Beith: When I heard the former Chancellor announce last night that he would retire from politics at the next general election, I had to admire his timing. However, the timing over which he had no control was when Britain joined the exchange rate mechanism. He made it clear today—when he lifted the covers—that five years ago he would have advocated, and presumably was advocating inside the Government, British membership, and in the whole of those five years he was unable to induce the Prime Minister to take that step.
The stage 2 which the right hon. Gentleman has described accurately today, a stage that naturally involves independent central banks in the member countries, is even more unwelcome to the Prime Minister than was entry to the exchange mechanism about which he talked earlier. The various views that the right hon. Gentleman correctly attributed to the Leader of the Opposition are shared in full measure by the Prime Minister, who, at the Dispatch Box, has said that an independent central bank contravenes the democratic and parliamentary traditions of this country. Yet the independent central bank is a mechanism which is proven to work in controlling inflation and which, as the right hon. Gentleman says, operates in democracies such as Germany and the United States of America. That is a view with which I agree. But it will take as many years, and probably more, to persuade this Prime Minister of the merits of that view as it has taken to persuade her of the merits of joining the exchange rate mechanism. Persuading her, of course, involved the great watering down of conditions.
It had to be entertaining to watch the change of condition, from a condition that we would get our inflation down to the level of that of our European partners to a condition that we would get it proximate to that of our European partners. When that was not attainable, it became a condition that inflation had to be falling towards the level of that of our European partners; then it became apparent that inflation was not even falling towards the level of that of our European partners, so it had to be forecast to fall to the level of that of our European partners.
I must tell the Chancellor that, year after year, the Treasury has been publishing Red Books that faithfully forecast that our inflation would fall to the level of that of our European partners. On that basis we could indeed have joined the exchange rate mechanism five, four or three years ago and would have greatly benefited in terms of our interest rates and the health of our economy. Of course, as the Labour party has proved, conditions are generally devised to get round the situation——
Mr. Ian Taylor: Does the hon. Gentleman accept that the conditions to which we were referring after Madrid had many other aspects which were realised only subsequently to the periods to which he referred as possible for entry? Any Government, if they have accepted, as this Government have accepted, that entry to the ERM can help inflation to come down—it is an anti-inflationary weapon—would be sensible to look at
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factors such as tightening monetary aggregates. The Chancellor took this country in the first time he was convinced that those monetary aggregates were on a declining trend.
Mr. Beith: But there were earlier stages before the right hon. Gentleman became Chancellor when some of the conditions could have been satisfied. We might even have accelerated the process of liberalisation of capital movements in the rest of Europe had we made it a condition four or five years ago.
I was saying that conditions are generally devised to get round the situation in which a political party has one set of people in favour of something and others who are totally against it. It therefore sets conditions which appear to appease all the various factions but which will, of course, be overlooked when a decision has to be taken.
The same is true of the Labour party's conditions for entry into the exchange rate mechanism, which included the idea of general reflation as part of the process. Similarly, the Labour party is beginning to suggest that there are conditions under which it would accept a single currency, monetary union and a European central bank, but the bank would have to be democratically controlled and have a commitment to growth as well as to price stability. That is rather like asking a referee to take a few shots at goal from time to time. The Labour party has misunderstood the whole nature of the bank's operations. It is another case of a series of conditions being set so that, for example, the hon. Member for Great Grimsby (Mr. Mitchell) can say—as he did—that he is satisfied that Labour's conditions would never be met. He was content with the policy then being pursued because he did not want to join the exchange rate mechanism. He cannot be quite so happy now.
Many Conservative and Labour Members take entry to the EMS to mean different things. There is a range of opinions spattered over the Order Paper. Some hon. Members believe that it should be "thus far and no further"; others believe that we should review whether to remain in the exchange rate mechanism; and still others express total opposition. The "thus far and no further" group clearly see the exchange rate mechanism as a stage beyond which the country must not go. That group is significant within the Government. Indeed, the Chancellor's Parliamentary Private Secretary resigned so that he could express that "thus far and no further" view. How on earth can the Government go on with a Prime Minister and probably other members of the Government who clearly hold that view when the Chancellor appears to be making apparently genuine and sincere efforts to proceed along the road to a single currency?
The result of the division of opinion is that it is not clear to the rest of Europe whether the Chancellor's single currency plan is a device to bring us to a single currency or a means of thwarting a single currency at any time in the future. Conservative Members must take one or other of those positions. They cannot both be true. The pretence cannot be kept up for long, and I suspect that, as the debate proceeds, the fact that that is so will become even more apparent.
There is another view of the exchange rate mechanism. There are those who believe that it is a renewal of our country membership of the club and that we can keep our options open as long as we appear to talk with some willingness about the future and have taken at least one

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step in the European process. However, that will not do either, because these decisions cannot be put off for long. They must be discussed in December at the intergovernmental conference and will be back on the agenda time and again. The other member countries involved are keen to proceed—and they will proceed. The question is whether we are with them in that enterprise, whether we take a leading part in it or whether we stay aloof and try to retain some kind of country membership or second division status when they achieve a degree of union in which we do not share.
There are those who argue that there is a "soft" EMS membership in which we do not have to take the tough decisions but can continue to look for a reflationary approach. That is not on. It is not an option. We are in for a period in which it will not be made easier—as would be the case by devaluation—for British industry to absorb its costs and to ignore the inflationary consequences. We are in for a period of considerable difficulty, which is likely to lead to increased unemployment and which, if that sacrifice is to be justified in any way, must lead to the effective control of inflation. Unless we set in place more measures to accompany the exchange rate mechanism and to bring about that control of inflation, that sacrifice of others—it is always a sacrifice of others—will be wasted. People will be out of work, yet the country will not be in a better position as a result and the prospects for those people will not have improved either.
The Government need to tell us what they will do now that we are in the exchange rate mechanism. The benefit of having a debate on this subject is that we should be enabled to know what we shall do now. I submit that we should have a clear commitment to enter the narrow hand as early as possible. If we are to have an exchange rate mechanism and to go along the road to exchange rate parity, let us show that we are serious about it and that there is no let out. We shall not suddenly have a significant devaluation, taking advantage of the broad band status.
We must also make it clear what will be done about fiscal policy. The Chancellor mentioned that, but did not talk about the whole of it. Public expenditure is one part of fiscal policy; the other part is taxation. The Chancellor has a Prime Minister who is anxious to say, "Don't worry, tax cuts are still around the corner," but tax cuts cannot be around the corner if we have not solved our inflation problem. The Chancellor may have to contemplate personal tax increases if he has no other weapon at his disposal with which to take demand out of the economy. However, the right hon. Gentleman still refuses to admit that, which suggests that he is not taking seriously the fiscal policy implications of fighting inflation.
If the Chancellor is not prepared to put aside the tax cuts strategy for the time being, he is effectively saying that he will have to be much tougher about public expenditure than the Chief Secretary has been in the current round. The Chief Secretary will be lucky if he gets away with the Government's forecast levels of public expenditure. If the Chancellor has no access to inflation as a means of controlling demand, in the early part of next year he will be inviting the Chief Secretary to contemplate much bigger public expenditure cuts. That will mean that the investment that industry needs if it is to become more competitive in the exchange rate mechanism cannot be made.
The ERM will not make industry more competitive. Industry must do that job itself to some extent, but it needs
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some help with, for example, getting better access to markets, better transport, and having a skilled work force, through investment in education and training. But those things will be impossible if public expenditure has to take the brunt of a tighter fiscal policy that is designed to deal with inflation.
The Government must come clean and tell us the end goal of all this. Are we genuinely heading for a single currency, monetary union and an independent central bank, or are we not? The present signs suggest that most of those objectives are not the Government's objectives. Indeed, the Government have set aside the obvious advantages to fighting inflation of having a rnore independent central bank because of the now wholly bogus argument about the control that Parliament is supposed to be able to exercise over monetary policy. Anybody who believes that the House of Commons is in control of monetary policy seriously misunderstands the way in which the British system of government works.
Therefore, for the health of the economy, we need to know where we go from here. We should be seeking to enter the narrow band and to end the talk of tax cuts We should recognise that fiscal policy will be more important now that exchange rate policy is taking up interest rates to such a large extent. We should know what our end goal is and whether it includes measures that are designed to defeat inflation. In addition, we should be taking the lead. Britain should be the leading country. The City should be the financial heart of any monetary union of Europe. However, we shall forgo that place if we continue to hang back.
To ask anyone who believes that Europe offers tremendous opportunities to Britain and that we should be taking the lead to contemplate the two parties, the disunity of which is so widely scattered across today's Order Paper, is like asking someone who is fond of the classic serial and costume drama to choose between "Neighbours" and "Home and Away" for their television viewing. We showed at Eastbourne that there is another choice.
5.37 pm
Sir Peter Hordern: For a long time I have felt it right that we should join the exchange rate mechanism. I am, therefore, glad to follow my right hon. Friend the Member for Blaby (Mr. Lawson) in speaking from the Conservative Benches, because he played such a signal part in putting the supply side of the economy to rights by establishing the conditions under which the supply side could be improved.
I should like to be the first to congratulate my right hon. Friend on his distinguished career as Chancellor of the Exchequer. I wish that he had been successful in joining the exchange rate mechanism much earlier than has now proved to be the case. I have thought for some time that monetary instruments alone are not sufficient to exert the necessary discipline.
Controlling inflation is the ultimate economic responsibility of a Conservative Government. That responsibility has not been carried out successfully for a long time. I do not necessarily mean from one year to another, but for long cycles our rate of inflation has been consistently higher than that in other comparable countries. Indeed, it has been much too high for several decades, which has had unfortunate consequences. It has

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now become accepted that it is almost always right to borrow, because the value of assets will always grow with inflation faster than the nominal value of the loan.
For many years saving has been a mug's game. But since borrowing must always match savings, the rate of interest demanded to achieve that equilibrium has steadily risen. Unlike under all previous post-war Governments, that has not come about during the past year or two because of excessive Government borrowing. Indeed, it is very much the reverse. The extraordinary increase in personal borrowing and spending which took place two years ago happened because interest rates were reduced to 7·5 per cent. in May 1988. If that reduction had been coupled with the announcement that we were joining the ERM, it would have been perfectly justified, but, in isolation, that reduction in interest rates gave the wrong signal.
Not only the personal sector increased borrowing. The company sector vastly increased its borrowing, too. However, the difference was that companies borrowed to invest. The Labour party is wrong not to pay attention to the level of investment of the past few years. It was £32 billion in 1987 and rose to £46 billion in 1989. More important still is the high level of investment overseas. It rose from £108 billion in 1987 to £177 billion in 1989. Clearly, that level of investment, financed by bank borrowing, will slow down, but the existing investment will prove very worth while.
As my right hon. Friend the Chancellor of the Exchequer said earlier, the savings ratio is now rising fast. So there has been substantial investment and substantial growth. But there has also been substantial inflation. Some say that it is not possible to control inflation through interest rates alone. We have tried credit controls, or rationing credit, and prices and incomes policies. None of them worked or could work without causing far more damage than they were worth. But it is not only long experience and expectation of inflation that has led to higher interest rates. It is also the long expectation and experience that, no matter how much a manufacturer may increase his pay and his prices, he will always be bailed out in the end by a falling exchange rate.
We now do most of our trade with the European Community. The pound has fallen against the ecu. There were 1·69 ecu to the pound in 1985. In 1990 there are 1·39 ecu to the pound. The pound has also fallen against the deutschmark. There were DM3·7 to the pound in 1985. In 1990 there are DM2·9. The same is true if one measures the pound against the French franc, the Belgian franc, the guilder or even the peseta. For far too long it has been the normal expectation that sterling will slide against all European currencies. That is why wages are rising so fast and why directors' salaries are rising absurdly high, too.
I see no reason why the Government should allow business and industries to feel that they may always pay themselves more because the Government will always bail them out through a depreciating pound. I see no reason why our people should not benefit from cheaper prices brought about by competition. So I warmly welcome the decision to join the ERM.
There are some who criticise our entry because they say that we are making ourselves subject to the deutschmark and losing our sovereignty. I suppose that the time of our
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greatest economic prosperity was when we were on the gold standard during the last century and at the beginning of this century. Gold was a recognised store of value, and it still is for that matter. The pound was freely convertible into it. The pound represents no store of value on its own. Indeed, it has become increasingly exposed and isolated, requiring an ever-higher rate of interest to attract foreign support. There is nothing to be said for sovereignty if it means economic isolation and a gentle slide against all other currencies. Nor is there any point in being rude about the Germans. They will not become less powerful through our remaining alone and isolated, sniffing contemptuously at them. All that we do by standing alone is to hurt ourselves by having to maintain much higher interest rates than we otherwise would.
What has sovereignty meant all these years? It has meant the inalienable right to depreciate our currency and to pay ourselves more than we earn either at home or abroad. Not only is joining the ERM no short cut to easier times, but it imposes a discipline which has long been missing and has long been necessary. There is something else. Controlling inflation, or, even better, eradicating it, is the highest economic priority. It is often said that inflation is the thief of all savings, and so it is. Pensioners' savings are eroded, if not destroyed. But there is more to it than that. There are those whose earnings can generally be relied upon to rise faster than inflation, but there are many, especially among the lower paid, who can look for no such protection.
The huge increase in social security payments which inflation brings about is compensation. How much better would it have been to spend that money on health, education or other public expenditure programmes? If we can bring inflation under control, we can afford a much higher-quality public expenditure programme.
With regard to the next stage of ERM membership, I see that some time has been won. It is just as well. What are we to make of the German attitude to the common agricultural policy? The general agreement on tariffs and trade negotiations are now under threat. New Zealand farmers are impoverished. It is at once the most selfish and self-defeating action possible, for it makes the European Community a combination in restraint of trade. That is just what we have always warned against.
It is in our interests and the interests of Europe to extend our frontiers to include all the countries of eastern Europe. If a single currency makes that more difficult, or impossible, to achieve, there is something wrong with the idea of a single currency. It seems that M. Delors has become so fascinated with the idea and the mechanics of a single currency that he ignores the practical effect of creating a powerful, exclusive trading block in western Europe, increasingly oblivious to the rest of the world and our own interests. There is much to be said, therefore, for the hard ecu, particularly if it is to be gained through an evolutionary approach. There is nothing to be said for a politically controlled European central bank, which is what the Labour party appears to want. I wish my right hon. Friend the Chancellor of the Exchequer every possible success.
5.46 pm
Mr. Peter Shore: I agree with hon. Members who have said that we are debating a momentous decision today, but beyond that I do not find

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myself in agreement with the five hon. Members who have spoken so far about the basic proposition of membership of the ERM. I am not in favour of joining the ERM. Even if the ERM were simply a European version of the old International Monetary Fund, I would counsel against joining it now. Like some other hon. Members, I have had experience of restraints on economic policy, the stop-go, erratic growth of the 1960s and early 1970s and the exhausted reserves of currency, created by the effort to keep up the rate of exchange, and the inevitable requirement for prices and incomes policies.
Another reason why I am against joining the ERM is the actual experience of member countries who joined the mechanism in 1979. Over the 10 years or more which have passed since then, their experience has been anything but happy. With the exception of Germany, which does well under all the indices, those countries have experienced low growth—even lower than we have achieved in the United Kingdom—and higher unemployment than we have in Britain today.
The latest figures that I have for countries across the Community are for June 1990. In Britain our rate of unemployment was 6·1 per cent. France, which has a broadly similar working population, had an unemployment rate of 9·4 per cent. Italy had 11·3 per cent., the Netherlands had 8·7 per cent., Belgium had 8·7 per cent. and Spain—which joined the ERM only a year before—had a rate of over 15 per cent.
I belong to that group of Members of Parliament who attach importance to multiple objectives of economic policy. Of course, I am worried about inflation. But to me it is not the be-all and end-all of economic policy. We should seek to achieve certain other major objectives. One is growth of the production, output and wealth of our society. A second important one is to maintain a high level of employment for all our citizens, because their dignity and the welfare of our society depend on their having employment.
Today, before our very eyes, the Chancellor tore up the post-war White Paper agreement by which we should seek, jointly, to try to maintain full employment. I am not prepared to abandon that great agreement. The right hon. Gentleman said that in future no action taken by a British Government or as a result of the exercise of choice by the British electorate will determine employment in this country. It will depend entirely upon the market and the exchange rate. I reject that. It is the counsel of despair and I believe that we can do far better than that.
I have another objection to joining the ERM as it is far more stringent than the IMF, to which I referred earlier. If the nation needs to change its exchange rate it can do so only with the agreement of its partners——
Mr. Nigel Spearing: Its competitors.
Mr. Shore: Yes, competitors and partners. It is true that there were many changes in the exchange rate system in the early years of the mechanism after 1979, but since then there has been a decline in the number of such changes—only two since 1985 and none at all since 1 January 1987.
Furthermore, we now know that under the Delors plan the ERM is only the first stage of a plan that is destined to end in economic and monetary union. When that is achieved there will be permanently locked exchange rates, probably a common currency and a European central bank.
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There are three major questions that we should ask ourselves today. First, have we gone in at the right rate? That is a crucial question. Is DM2·95 to the pound the rate that the Chancellor should have chosen? It is my strong view that the Government have entered the ERM at an unsustainable rate.
The Chancellor based his decision on three different analyses provided for him by respected merchant bankers and on figures released by the IMF. I have already commented on those figures and pointed out that the rate of DM2·95 stands 20 per cent. above the same rates published just three years ago—the last time that we were competitive in terms of our balance of payment current account position. In the past three years, the value of sterling has appreciated by 20 per cent. against the deutschmark, yet it is at that higher rate that the Chancellor has chosen to peg the pound.
I do not accept that the so-called purchasing power parity—the rate suggested by the other analysts who advised the Chancellor—is a helpful guide to what the present rate should be. It takes no account of such vital matters as the current trade deficit and the rate of inflation.
The Chancellor will know that there is grave concern in industry about the rate he has chosen. Independent studies, in particular one conducted by Professor Simon Wren Lewis when he was with the National Institute of Economic and Social Research a few months ago, suggested a rate of just over DM2·40 to the pound. That is based not on simple purchasing power parity, but on calculations of the rate required for Britain to maintain its balance on current account in the medium term. Many other independent forecasters have reached similar conclusions.
If the DM2·95 rate turns out to be the right one, how long can it be sustained? That depends on two crucial issues—average earnings and the growth of productivity, influenced most heavily by industrial investment. There is no argument about the figures so far. In the past decade, increased earnings in the German manufacturing industry have averaged just over 4 per cent. a year, but in Britian thay have averaged more than 10 per cent. a year. There is no convergence. The latest figure for Britain stood at 10·25 per cent. and in Germany at just on 4 per cent. I should like to know what the House thinks about the convergence of those two different rates. How will it be done? Has the Chancellor any proposals to spell this out to NEDC—the National Economic and Development Council—and to discuss it with trade union leaders? Have the trade union leaders any proposals to discuss this with their members? Are we to have any kind of consultation on the question of voluntary restraint or on the more difficult question of some form of genuine incomes and prices policy?
It came as no surprise to me when the Chancellor used the occasion of his first post-entry speech at Mansion house to seek cuts in pay rises and to warn that unless that is achieved it will
"lead to only one result: lost markets, redundancies, plant closures and ultimately company failures."
That is an accurate description. Then the Chancellor had the gall to ask the chairmen and leaders of British industry to set a good example. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) was right to say on radio the following morning that the Chancellor had left it rather late in the day to make such an appeal.

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I regret to say, however, that on that occasion my right hon. and learned Friend did not address the central issue of pay restraint.
Pay restraint is implicit in a fixed rate system—British wage and salary rates will have to be cut. If our exchange rate is linked to the deutschmark, so are our wage rates. What prospects do any of us see of British wage rates being reduced from their present level of 10·5 per cent. to the German level of 4 per cent.? Are we to take the view that only the harsh discipline of rising unemployment will do the job? I know that that is the Chancellor's opinion, as that was behind the threat that he issued a short time ago. I should also like to know the view of my right hon. and learned Friend and our Front-Bench colleagues.
In an interview that my right hon. and learned Friend gave to the Independent on Sunday on 6 May, he was asked:
"Are you prepared to see unemployment rise?"
He answered:
"I don't want to see unemployment rise. I would like to take steps to deal with unemployment at the regional level … but if companies make mistakes and they are beaten in the competition of the Single Market, I can't do very much about it."
The interviewer went on:
"What you are telling the trades unions in the private sector is that if they push their pay bargaining too hard, they will cause unemployment."
My right hon. and learned Friend answered:
"They can cause unemployment. They might. They must judge that. They constantly do. If we can help to make the wage bargaining more sophisticated, fine, but I think they have to stand by the results of their own decisions."
Even when we had 3 million unemployed at the peak of the 1982 recession, brought about, above all, by an over-high exchange rate when the rest of the world thought we were a petro-currency, earnings in the United Kingdom were still rising at a level of 11 per cent. The discipline did not work then when we had that level of unemployment. What level of unemployment must we contemplate in the future to get down to German levels of inflation? Three million people, 4 million, or 5 million? Do we then wash our hands and say that it is between the companies and the workers—it is their affair? Will we say that we play no part in it all? Will we wash our hands of all responsibility? That is not the approach to politics that I expect from my party, and I am sure that it will not agree to accept such an approach in the end.
It is not just earnings which decide competitiveness, but productivity, which is greatly influenced by investment. We know how much the Germans have invested in recent decades compared with our level of investment—a great pity. Looking to the immediate future, what are the prospects and trends? The figures are available in the IMF. It is estimated that manufacturing investment in British industry in 1989 increased by just 2·9 per cent. over the figure achieved in 1988. It is estimated that that level of investment for 1990 will be minus 6·2 per cent. and back again to just 4 per cent. in 1991. The German figures for the same period are plus 13·1 per cent. in 1989 plus 5 per cent. in 1990 and plus 4·2 per cent. in 1991. The trend is clear.
The knowledge that we shall face the great pressures of a far more efficient, as I regret it is, German economy gives me difficulty with the Opposition amendment. During the Thatcher years we have lagged behind and my hon.
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Friends are right to maintain that the Conservatives have neglected education and the need to put money into research.
It is for those reasons that we are not able today to enter a fixed exchange rate figure with the deutschmark. If our criticism is correct, and it is, then all the stronger is the reason why we should not join and imprison ourselves with the German economy and the German exchange rate.
Presumably those very fears—of the consequences of unconditional membership of the ERM at the wrong rate—led my right hon. and hon. Friends to state firmly in the party policy document "Meet the Challenge—Make the Change" in October 1989:
"substantial changes would therefore be required before the next Labour Government could enter into the exchange rate mechanism."
They went on to specify the many conditions and changes that would be required. The document referred to
"entry at a competitive exchange rate."
Is it a competitive exchange rate? It specified
"the ability to make further changes in the rate so that we remain competitive."
Can that condition be secured? It referred to
"adequate central bank swap arrangements to control speculative movements."
There has been no change in the arrangements. It went on to speak of
"symmetrical obligations on creditors and debtors."
It all remains as asymmetrical as the IMF, and it always has been.
In addition to those conditions, the European Community countries, according to the Labour party's own policy statement, had to agree on eliminating the largest inter-Community deficits and surpluses and co-ordinate European Communitywide growth rate and trade policies. Finally, there had to be effective regional and industrial policies. None of those conditions has been broached or even thought of by the Government, who have joined without conditions. As the Chancellor said in a written reply to me yesterday:
"No conditions of entry were sought or agreed to".—[Official Report, 23 October 1990; Vol. 178, c. 9.]
other than the central rate and the 6 per cent. margins. To adapt a well-known phrase, I do not want Britain to go naked into the ERM.
Loss of control over our exchange rate and interest rates must be seen against the background of the other measures to which the Government have agreed in the Single European Act. Under the treaty, we shall have no control over the location of industry, over capital movements or over major mergers affecting British firms, and we shall have no ability to use public purchasing power to foster specifically United Kingdom industry. We also face the growing harmonisation of indirect taxes, including VAT, excise duties and corporation taxes.
The loss of those powers, which have been available to all post-war Labour Governments, will make economic management difficult enough. To abandon exchange rate policy and interest rate policy as well will render us impotent in the management of our economic affairs.
Can we change the exchange rate under the ERM now that we have entered it? I said that there had been no changes in exchange rates since 1 January 1987. I also pointed out that we should need the agreement of our fellow members and competitors in the ERM. If the ERM remains as it is, it will be difficult, though not impossible, to change the exchange rate. But if we move to economic and monetary union, it will become impossible.

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I wish to hear not just qualifications about EMU. I want a categorical assertion tonight from both Front Benches that we will not accept permanently locked exchange rates. That is the heart of the matter. Joining the EMU under such conditions would be the worst decision we have ever made, dwarfing even the readmission of Britain's pound sterling to the gold standard in 1925.
Apart from being economically disastrous, the effect of joining the EMU would be to transfer effective powers of self-government from this Parliament to the European authorities and to put our future prosperity in the hands of a committee of central bankers dominated by the Bundesbank.
Several Hon. Members rose——
Mr. Deputy Speaker: Order. I remind the House that Mr. Speaker has determined that speeches between 6 and 8 o'clock shall be limited to 10 minutes.
6.5 pm
Mr. John Biffen: My right hon. Friend the Member for Blaby (Mr. Lawson), whose impending departure from the House I much regret, commented on how significant an occasion this was. The right hon. Member for Blaenau Gwent (Mr. Foot) must have reflected on that time in December 1945 when he attended the great debate here on the American loan, Bretton Woods. He was one of the handful of Labour Members enticed into a Lobby that was manned by Christopher Hollis and Robert Boothby. He has rarely kept such excellent company thereafter.
That incident reminds us that on these great occasions the House does not divide neatly along party lines, and I doubt that it will this evening. Some of my hon. Friends and I have tabled a modest amendment·it is less than one tenth the length of the amendment tabled by the official Opposition, and a good deal more clear·which has as its central proposition the need to maintain a flexible approach to the European Community so that it can become a wider partnership of nation states. I was encouraged in that view by the right hon. Member for Plymouth, Devonport (Dr. Owen), who on 15 October, speaking about monetary union, asked:
"Is not such flexibility over monetary union essential if we are to enlarge, as I think we must, to include Czechoslovakia, Hungary and Poland?"—[Official Report, 15 October 1990; Vol. 177, c. 936.]
The point that he made about monetary union is also valid in respect of our exchange rate system, for the great beauty of flexible, free-moving exchange rates is that they are able to relate and communicate in a variety of national economies in different stages of development with different social backgrounds.
As we are having—it is the most laudable objective—a wider Europe, including the countries of the east, that system is all the more valid because the alternative would be to bring about some uniformity by the movement of resources. As my right hon. Friend the Member for Chingford (Mr. Tebbit) observed, almost certainly that would mean German resources. To begin with, that might be flattering to the German role in the Community, but in the long run I believe that it would be undesirable. Those who are pleased to pin on our lapels faith in a wider Europe, this evening, are required to vote against the Government motion and therefore against the Government.
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In considering domestic policy, I have sat in the House for sufficient years to become agnostic about the virtues of economic philosophy. In many ways I regard it as the incomprehensible in pursuit of the unattainable. If I had to identify the area where I place my affection, it would be the period in the early 1980s when the Government sought, on their own account, to control public spending, revenue and borrowing in such a way that they balanced to provide a monetary discipline that could then reduce inflation. A flexible exchange rate was inherent in that situation. The great virtue was that the Government took responsibility for the control of those three components and, whether subcontracted to banks, experts or foreigners, at the end of the day the matter was argued in the Chamber.
My right hon. Friend the Chancellor of the Exchequer has said, I am sure in good faith, that the control of inflation is at the heart of the new economic strategy that he has elaborated around the system of fixed exchange rates. Of course, I accept that, but in contrast to the policy pursued in the early years of this Government, the reintroduction of fixed exchange rates brings about an element of inflexibility in the economy. Everything else has to be so arranged that it can accommodate and make a reality of that inflexibility. Ever the Peter Pan in this world, the hon. Member for Berwick-upon-Tweed (Mr. Beith) is already anxious to narrow even further the modest flexibility contained in the proposed arrangements. I am sure that he will be followed by politicians from all parties.
Whatever exchanges there may be between Front-Bench spokesmen, the truth is that we are providing a signpost to a planned economy in which first Government exhortation and ultimately and increasingly Government intervention will be used to bring about economic behaviour that accommodates the politically chosen exchange rate. I say to my right hon. Friend the Chancellor, for whom I have a genuine affection, that I have already seen the first signs of the storm cloud. They were contained in his sentence about industry having to pay more attention to its cost increases. What the devil does my right hon. Friend imagine most industrialists do for most of the time? It is ridiculous for us to sit here in Westminster or Whitehall constantly berating the inability of business men to attend to their cost increases or the selfishness of trade unionists wanting to secure pay claims to match what they read about in the newspapers. We have trodden that path before. It is no surprise that some hon. Members have already begun to talk about reintroducing an incomes policy.
I have a great affection for the hon. Member for Bolsover (Mr. Skinner), who sits like the Duke of Devonshire's gamekeeper uttering the odd earthy comments about the likely future. I thought that he got it absolutely right when he talked about the inherent challenges of an incomes policy. The person who is most delighted about that development is the right hon. and learned Member for Monklands, East (Mr. Smith). He may have broken the news to the Leader of the Opposition—I know not. I have watched the right hon. and learned Member, who is a man of great sophistication. He treads the City with a skill that is the envy of practically every Conservative. He is increasingly in the mould of those elitist Labour politicians who formed the Government in 1964 and 1966, cheerfully fashioned the prices and incomes legislation of 1964, 1965 and 1966, and who never wasted a moment without they were always planning or exhorting. Now, we are moving towards a Euro incomes policy. On

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that basis, the right hon. and learned Gentleman may be able to sell it to the Leader of the Opposition, who may have uneasy twinges about the days when he was the Parliamentary Private Secretary to the right hon. Member for Blaenau Gwent. If it can be said that Jacques has approved and it is new-style socialism, it will be something to which the Labour party will respond.
As this debate proceeds, not just tonight but in the weeks, months and years ahead, the devotees of the planned economy and the incomes policy will resurface and be reinforced by the workings of the fixed exchange rate. I shall look back and be proud to have argued and voted as I intend to tonight.
6.15 pm
Mr. William Ross: I am following two hon. Members, the right hon. Members for Bethnal Green and Stepney (Mr. Shore) and for Shropshire, North (Mr. Biffen), with whom I find myself in general agreement whenever we talk about Europe and all its works.
On 15 October my right hon. Friend the Member for Lagan Valley (Mr. Molyneaux) said in a question to the Chancellor of the Exchequer:
"As Parliament—both sides of the House of Commons—have rendered themselves impotent on these matters, is it not imperative that there should be no further erosion of Britain's position until the electorate have been consulted at a general election?"—[Official Report, 15 October 1990; Vol. 177, c. 932.]
In that brief question he set out the belief of the Ulster Unionist party that we must constantly be against any dilution of the powers of the House with regard to Europe or anywhere else.
I learned long ago, when I first entered this place, that whenever the occupants of both Front Benches are in agreement, it is time for honest men to take stock of where they stand. I am prepared to stand with my party against the Government this evening. When the spokesmen of both Front Benches agree, they usually agree to mislead the nation in one form or another. I am glad to see from the Order Paper that there are individuals in both parties who share my view and that of my party, that membership of the ERM has costs far beyond those that appear on the surface. It is clear from what appears on the Order Paper, what we read in the newspapers and have listened to this afternoon that divisions within the two major parties are both deep and wide. The real division in this country seems to be moving from that between the left and right to pro and anti the EC to an extent that has not been the case for many years.
The proponents of the decision to join the ERM seem to believe that they can peg the currency and buck the market, which at one time was almost anathema to Conservative Ministers. The proponents allege that they can create a stable exchange rate against other ERM currencies. Be that as it may, there are currencies in the world other than those of Europe. What about the rest of the world? What about the dollar-pound exchange rate and the pound-yen exchange rate? Do those not matter? Do not we also export to those countries and are not the pound sterling and the basket of EC currencies to be floating in some form or another against them?
In 1983, a former Chancellor of the Exchequer said:
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"I am well aware that many in industry call not for devaluation but for exchange rate stability. And I fully understand why. But it's easier said than done. There is no magic way to influence the exchange rate."
There is more to his speech, but I am limited by the 10-minute rule and cannot read it all to the House. No doubt these who are interested will go to the Library and look it up. The truth is that the idea of a shelter from the economic storm is not new, but the trouble is that all such shelters develop leaky roofs and somebody pays a high price.
Discipline is the "in" word in this debate, not only in the House but outside. We have heard a lot about it recently and we have heard references to France and the benefits that the discipline of the ERM has had there. France and Ireland both got into trouble because they lived beyond their means, which is a far more accurate cause of our problems than anything else. Those countries used the discipline of the ERM to get back on the rails. I presume that the Government, and the Opposition if they were in office, would also hide behind the ERM, just as in days past they had IMF demands behind which to hide.
If France had taken the necessary steps to correct its problems, it would not have needed ERM. But it is nice to be able to blame someone else on occasions. Whenever one makes a mistake, it is terribly nice to be able to blame someone else. I have some sympathy with the previous Chancellor, the right hon. Member for Blaby (Mr. Lawson), who referred to that problem when speaking to us about 1987 and was urged to expand the economy because of the position on that dark day in October of that year. He expanded to the acclaim of everyone, except the right hon. Member for Shropshire, North. Not only he, but everyone else got it wrong and as a result of his actions—perhaps not wholly, but to a large degree—we find ourselves once more faced with continuing and increasing inflation. I noted the right hon. Member for Blaby's comment that inflation was 5 per cent. and falling in 1985. Of course it was lower than that in subsequent years. But that is a tribute to the prudence of the Government in the earlier years of their rule. Frankly, if the Chancellor's job in 1985 was to get inflation down—that was then the first pillar of Government policy—it was up to him and to his colleagues in Cabinet to take the policy decisions, unpopular though they might have been, to achieve that, and not hide behind decisions imposed by outsiders.
According to press reports—quite frankly, own impressions confirm them—the Prime Minister believed that entry was an "admission of failure", and that it meant that Britain was incapable of conquering inflation alone. The Government believed that they could not carry out the policies necessary to reduce inflation at this stage.
The deutschmark is the pivotal point in the mechanism simply because it is the strongest currency. Human nature being what it is, one must expect the Germans to defend their currency and its pivotal position with all their strength, and they have the financial and economic strength to do so.
Of course, we are a petro-currency—albeit a minor one—and that is a factor that tends to be overlooked too often and is not given weight to the extent that it should be. In future, we shall have to abide by the disciplines of German bankers, despite the difficulties that the petro-currency effect may have on our economy. What a reflection it is on the ability of the Government and their Treasury team to admit by their actions that they are incapable of

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controlling inflation within our economy. That is what it is—an admission of incapacity to do the job that they were elected to do. For that matter, it is an admission by the Opposition Front-Bench spokesmen, when they are setting themselves up for an election, because by supporting entry to the ERM they are saying that they do not have the ability to control inflation either. A plague on both their houses.
Joining the ERM is not the end of the matter, but simply a further disastrous step down the slippery road to the narrow band, stage 2, a full common currency and a united states of Europe. The former Chancellor said today that the common currency is a long way away, but that is not what troubles me or those hon. Members who oppose the motion; it is the fact that it is the end objective. Whether the House likes it or not, we shall be pummelled and shoved down that path to that conclusion.
In addition, the costs of German reunification could well make a dent in German prudence. Then, instead of the deutschmark supporting sterling, we may find that sterling is called upon to support the deutschmark. If that is so, we shall pay for German reunification, and we shall not derive any industrial benefit from it because those benefits will go to the German nation and to others closer to the centre of reunification than ourselves.
The developing situation in eastern Europe will also have consequences, which are as yet unknown, but vast. I believe that it was the wrong time for us to join—besides the fact that I do not think we should ever have joined anyway. We should accept responsibility for our own nation and currency. Any Government must number among their primary duties the defence of the nation and the provision of sound currency. No matter what we may think of the Government's success in regard to the first, we can only say that they have funked their responsibility and run for shelter in regard to the second. I believe that this decision will end in bitter tears for many years.
6.23 pm
Mr. William Cash: I think that it was Ernest Bevin who once asked, "Why read the crystal ball, when you can read the book?" Listening to the remarks of my right hon. Friend the Member for Blaby (Mr. Lawson), we might imagine that the final stages of economic and monetary union are a good deal further away than they are in reality. I say that for this reason: the conclusions of the presidency in June 1990 clearly stipulate that
"In these circumstances the European Council decided that the Intergovernmental Conference will open on 13th December 1990 with a view to establishing the final stages of Economic and Monetary union in the perspective of the completion of the Internal Market".
Add that to the Christophersen papers discussed at Ashford Castle in April, the speeches of those who are most in the know on the subject and the remarks that are made about the single currency and the date set for it; all the indicators are that we should be anything but relaxed about the speed with which the whole process is being driven forward. It is for that reason that for years I have continuously warned about the dangers of creeping federalism, because I believe that the evidence shows that those matters are being driven hard and fast into the heart of Parliament. What does that involve? It can be summed up simply in two words, or one question, "Who governs?" The question is who governs Britain. The reality is that this whole movement, devised for perfectly understandable
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reasons in the 1950s to deal with wholly different circumstances, is now being applied as an ideology to get us to do something in the 1990s that is no longer appropriate.
I voted for the Single European Act. During its passage I tabled an amendment saying that nothing in the Act should derogate from the sovereignty of this Parliament, and I said that for a good reason. We have to maintain ultimate control over the economic and social priorities of people in this country by virtue of the democratic process by which we are elected as Members of Parliament. We simply cannot turn our backs on that.
If the time scale to which I am referring is as speedy as I suggest, and as I believe the Prime Minister knows it is, it would not be right for us to make any assumptions about where we shall be in the next two or three years, give or take an election.
Conservative Members believe in co-operating within Europe, but at present co-operation is not very good. It is not very communautaire of the French and Germans to get together as they did in April before the Dublin summit and again this week and to start issuing ultimatums on the date by which everything has to be done, according to a prescribed timetable. The reality is that if the Community is to work effectively, in the interest of all its members, it has to operate on a level playing field and on a basis whereby all those who are members work together.
What about the people of eastern Europe? Do we not face the prospect of a hard core federal Europe, devised by the 12 member states, which could create the very rivalries and tensions that we were supposed to have escaped from in the cold war? Is not it likely that if eastern Europe is regarded as a cheap labour market for a German investment programme, and is excluded from the benefits available to the other people of Europe, it will become resentful? Jealousies have already built up. About 60 per cent. of foreign investment in Hungary is either German of Austrian.
I do not say this with any disrespect to the German people, but we are faced with a dominant central economy, with a cluster of alliances around it, operating through the Single European Act and majority voting, and creating what could well turn out to be a black hole into which we are being sucked by our decisions. When I hear people say, "We shall not have this imposed upon us," I ask myself whether we are being asked to agree to it. I then ask upon what basis we should agree to this proposal. Is it to deny that this, the mother of Parliaments, should continue to make the major decisions about the economic and social priorities of our people? We are talking not about some romantic fantasy but about the reality of people's daily lives. This is about people in Stafford, Monklands, and north Shropshire. It is our responsibility to answer those questions.
I urge hon. Members to look at the papers such as the Christophersen papers, because those are the clues to the truth about what is happening. I give 100 per cent. support to the Prime Minister and to those members of the Cabinet who have sent strong signals to our people. Some Opposition Members are equally aware of that truth, and I mention in particular the right hon. Member for Bethnal Green and Stepney (Mr. Shore), who has constantly told our people the truth. Let us look at the proposed constitution for the central bank. We are told that it will be independent. Why on earth should we hand over what Herr Otto Pal has called the golden monopoly of money

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creation to a panel of central bankers? It would confer no material, defence, education or other benefit. Downing street would have nothing to say.
Mr. Budgen: Where does that lead my hon. Friend?
Mr. Cash: It leads me to say that we must not allow ourselves to move into the next phase of treaty amendments because they will take us into the black hole to which I referred.
This is not a matter of historical necessity because the historical necessity that faces the House is the necessity to maintain the reason for our being here. The European Parliament cannot fulfil the democratic requirements of our people. Those are fulfilled by virtue of our membership of the House and our election on a manifesto with a prescribed timetable and programme. We must maintain those at all costs.
I said the other day, "Thus far and no further." We must draw a thick blue line—or perhaps a thick red one—under the ERM. We ought not to rely upon the so-called German motor as an anchor. Only yesterday the five institutions in Germany predicted a sharp fall in the growth of the German GNP. Those institutions are worried. What is the point of hitching ourselves to a devil's bandwagon that could draw us into an economy that could be under severe strain in a short time? We do not know the outcome and it is not in the interests of the House to move to the next stages.
6.33 pm
Mr. Denzil Davies: The hon. Member for Stafford (Mr. Cash) ranged rather widely and I shall not follow him. Instead, I shall concentrate on the Government's decision, which was political and nothing else, fully to join the European monetary system by joining the ERM. It has little to do with controlling inflation or the money supply or with eliminating our horrendous balance of payments deficit, certainly on manufactured goods, with our partners in the Community.
The Chancellor boasts that he is a political Chancellor, and when I say that I do not imply any criticism. When he was Chief Whip he operated from No. 12 Downing street but he has now moved to No. 11. However, the ethos and spirit are still those of No. 12. We are told that his eye is on No. 10 Downing street, but, in view of his blatant and cynical actions over the past few weeks, I fear that he will never fulful that ambition.
Things were all meant to be so different. Membership of the ERM was to produce what has been described as a golden scenario—for the Tory party, but not for the country. With the aid of continental and Japanese forces the pound was to be marched to the top of the hill and interest rates were to be gradually marched down the other side. The reduction in interest rates would benefit what the Tory party sees as its natural constituents—the owner-occupiers in the south of England who have borrowed up to the hilt against their houses in order to purchase consumer goods, most of which are imported. They are the people in the property sector and the financial sector, which has doubled over the past 10 years, and generally people in the whole of the service sector. That
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means that most consumers will benefit from this golden scenario of keeping the pound high and bringing down interest rates.
Over the past 10 years, the Tory party has become the party of the consumer and not the party of the producer. The producers, mainly in manufacturing, were to be thrown to the wolves. They would suffer from the pound being marched up the hill. Of course, they would benefit from the reduction in interest rates, but the higher level of the pound would negate that benefit. Nobody cared about them, because producers have very few votes. The votes are with the consumers who are not worried about the high value of the pound and who benefit from a reduction in interest rates.
Crime has not paid and will not pay. After initial hysteria the market spotted the confidence trick. The Prime Minister's conversion to the ERM on the tarmac outside No. 10 Downing street and the simultaneous reduction in interest rates two days before the Tory party conference enabled the gnomes of Frankfurt, Paris and Tokyo to spot the confidence trick and they did not put into the pound the money that the Chancellor had hoped they would. As a result, the pound is ignominiously bumping along at the bottom of the ERM currency league. It went up a little today, but tomorrow it will be down again. The Spaniards are at the top of the league. They have high inflation and high interest rates. We have the highest interest rates in Europe, but the pound is at the bottom of the league. The question is not whether the interest rate will come down but whether the next stage should be to put it up to lift the pound and stop it being relegated to the Vauxhall Conference league, or whatever it is called.
There is a case for the ERM. It can be argued that fixed exchange rates, provided that they are ultimately adjustable—as they are—are more beneficial than floating exchange rates. That argument has been going on for years. It can also be argued that a country which is a member of a regional economic bloc such as the EC and which has 60 per cent. of its trade with that bloc should have some kind of fixed exchange rate with that bloc. The Euro-fanatics, of whom I am not one, argue that the EMS is part of the long march towards European monetary and economic union. They are right. Chancellor Schmidt, President Giscard d'Estaing and Lord Jenkins of Hillhead invented the exchange rate mechanism in 1978–79 because it was part of the fight to secure a common western European currency and a common, federal, western European state. If we believe in that, we must believe in the exchange rate mechanism and the European monetary system.
Let us not make the ridiculous claim that the EMS is some kind of substitute for a monetary policy that the Government have not got and a fiscal policy that they have never had—and now, apparently, part of an incomes policy that they said for 10 years they did not like or want. It will be remembered that in 1979 they brought down the Labour Government by voting against the 17 per cent. pay rise for Ford workers.
I do not believe that French inflation and German inflation are running at 3 per cent. because of the EMS. The French and the Germans have kept their inflation rates low for all kinds of reasons, but the main reason is institutional: their institutions do not create their credit base, as British institutions tend to do.

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We are now told absurdly—that our inflation can be brought down because the ERM will produce an incomes policy for the manufacturing sector. The argument goes something like this: those involved in manufacturing trade with Europe will settle for wage increases on the basis of German rather than British inflation—they will settle for 3 per cent. rather than 10 per cent.—and, apparently, the same approach will permeate the rest of the economy.
I find that argument extraordinary. The fallacy lies not only in the fact that the workers will not settle for 3 per cent., but in the fact that only 22 per cent. of them are employed in the trading sector: all the others work in finance, property and shops and stores. They are involved in consumption rather than manufacturing, and are affected neither by the ERM nor by the exchange rate in general. Even if we accept the proposition that manufacturing industry will settle for 3 per cent.—and I dispute it—why on earth should anyone else do so? What has happened to the market? The market has failed, and now the Government are trying to adduce the ERM as some kind of incomes policy.
With our inflation rate almost three times as high as the rates in France and Germany, our balance of payments deficit in manufacturing goods far the worst in Europe and our service and manufacturing industries economically so out of kilter, ERM entry has been merely a financial wheeze. I think that the former Chancellor used that phrase, and we all know what it means: Governments who are in a desperate economic and political state always resort to such wheezes. Most of them do not work, as this one will not.
I suspect that the irony of ironies for the Prime Minister, following her conversion, will be the fact that this latest financial wheeze will constitute the final nail in the coffin of her fourth term.
6.43 pm
Sir William Clark: We have heard some very good speeches. I am sure that everyone enjoyed that of my right hon. Friend the Member for Blaby (Mr. Lawson). Like other Conservative Members, and, probably, Opposition Members, I am sorry that he is to leave politics at the end of the current Session.
The right hon. Member for Bethnal Green and Stepney (Mr. Shore) castigated his Front Benchers with great aplomb. His argument was very persuasive, but, as he has always made clear his opposition to the Common Market, the ERM was for him a purely incidental element. My right hon. Friend the Member for Shropshire, North (Mr. Biffen) entertained the House with an excellent fighting speech, although I am bound to say that I did not agree with any of it.
Some time ago the Government made a commitment to enter the ERM when the conditions were right. Three conditions were cited: exchange control, the value of sterling, and, of course, inflation. The other Common Market countries have effectively abolished exchange control; the value of sterling has been fixed at DM2·95. As for inflation, we must remember that, while our current inflation rate is 10·9 per cent., the underlying rate—according to the formula used by our Common Market partners—is 8·3 per cent. The latest average Common Market rate is between 5 per cent. and 5·5 per cent. Surely it is wrong for us to compare our 10·9 per cent. only with the German inflation rate.
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Presumably all hon. Members accept that, as a result of the Government's economic strategy under both the present Chancellor and his predecessor—the imposition of tight monetary control—inflation has shown a downward trend. If we refer to the money aggregates, whether we take sterling M0 or sterling M4, we must recognise the fall that has taken place over the past seven months. I am convinced that the Governnment's policy is working. Although the inflation rate may rise next month because of the rise in oil prices caused by the Gulf crisis, I am certain that it will start to fall rapidly next year, and will soon reach the Common Market average. It should not be forgotten that the other Common Market countries are also suffering from the oil price rise, and that their retail price indices are also affected.
Having accepted the premise that our inflation policy is working, we should consider what our position will be now that we are members of the ERM. There is still a good deal of work to be done. There is a certain amount of flexibility in the 6 per cent. band, which I hope will come down to 2·5 per cent. in due course; but we shall continue to suffer from the lack of competitiveness from which we have been suffering for some time.
I did not entirely understand the attitude of the right hon. Member for Bethnal Green and Stepney towards full employment. No one owes each and every other person a job; we must live in the real world. It was, I feel, rather churlish of the right hon. Gentleman not to mention that, although we still do not have full employment, more people are in work today than were in work 10 or 11 years ago.
Another thing that I find disconcerting is the tendency—particularly noticeable among Opposition Members and in some sections of the press—to talk down the British economy, as though it were bankrupt. Credit is not given for increased production, employment and investment both in this country and overseas. Of the 50 top-performing companies in Europe, 28 are British. That is not a bad record.
What we should worry about is the unit labour cost. Of course, everyone wants the largest possible wage increase, but for some time it has erroneously been thought that the retail prices index—which is, as we know, a false inflation rate when compared with other European rates—is the automatic starting point in wage negotiations. Workers are therefore asking for 10·9 per cent. pay increases.
Clearly the only way in which companies in manufacturing industry—and, indeed, service industry—can stay in business is by being competitive. We have been down that road before, and in many cases we have priced ourselves out of the market and, therefore, out of jobs.
There is much talk about Britain being isolated. I do not object to that; indeed, we have been isolated before. Hon. Members will remember that we were isolated in the war, but we soldiered on. We were isolated in our attitude to the common agricultural policy, but it came right in the end. My right hon. Friend the Chancellor should ignore the criticism about isolation and concentrate on the hard ecu. Graham Bishop, the financial adviser to Salornon Brothers, wrote a good article on 12 October, and I commend it to the House. He says about the hard ecu that, whether one is investing or selling abroad, in order to have stability the component parts of the ecu should be frozen for three, four or five years so that there is some sort of horizon or limit on which business men can depend.

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I do not agree with stages 2 and 3; we must see how stage 1 turns out. We cannot blindly run into stages 2 and 3—that must depend on the evolution of the market over the years. I do not doubt that the right hon. and learned Member for Monklands, East (Mr. Smith) will refer to credit controls in his speech. We have already been down that road. I cannot understand how we could possibly impose credit controls on, for example, Chase Manhattan bank. How do we persuade a Swiss bank to make a deposit ratio change? If we impose that sort of exchange control, businesses will go to foreign banks. We will be cutting off our nose.
As my right hon. Friend the Chancellor said, ERM is not a soft option; it is another weapon in the Treasury's armoury. The prime objective of that economic strategy is to squeeze inflation out of the economy. Inflation is the bugbear of any society, whether third world, western world or any other. It erodes savings and hits hard on the saver. It is especially hard on those with small incomes. Joining the ERM is not a soft option for the Chancellor and we must soldier on. I am sure that I speak for most of my hon. Friends in wishing our right hon. Friend every good fortune in his December meetings.
6.53 pm
Mr. Brian Sedgemore: It would be churlish of Opposition Members not to congratulate the Prime Minister and the Chancellor on having taken the historic step that we are debating today, even though it was taken not from a position of strength, but in a spirit of retreat and solemn ignominy.
Economic issues are, inevitably, boring, which is perhaps why economics is called the dismal science. However, there was one moment of exquisite parody on the day that Britain entered the ERM. The Prime Minister rushed out of her house into the street that she has purloined and there, behind huge electronic gates, she set up a little dais. Speaking as though, for all the world, she were the leader of a country called Ruritania, she said—and I am not kidding—"Today, we have achieved economic Nirvana. That blessed state"—for that is what Nirvana means—"has been attained on the crest of a rising tide of bankruptcies and the fact that inflation in Britain is no less than 327 per cent. higher than inflation in Germany. Miracles like this are not easy to achieve, but we have done it, and so today I can announce to the world that we are going to join our dear, dear friends in Europe in the ERM." Almost overcome with emotion, she was about to add, "Nun sind wir alles Deutsch freundlich", which roughly translated means, "We all love the Germans now." Her words were drowned in her tears of joy.
Of course, it is easy to be snide. If I were honest, I would have to say that my right hon. and learned Friend the shadow Chancellor and my right hon. Friend the Leader of the Opposition were uncharacteristically cruel in criticising the Prime Minister on her volte face on the Madrid conditions. I am not a cruel person, so I shall simply content myself with the observation that, in turning herself inside out and upside down, the right hon. Lady has shown that she is a political figure, not firm and strong, but rather one that was perfectly characterised in Churchill's description of Baldwin as
"decided to be undecided, resolved, to be irresolute, adamant for drift, solid for fluidity, all powerful for impotence."
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That devastating line of attack was taken up yesterday in a full-page article in the Evening Standard by the hon. Member for Wolverhampton, South-West (Mr. Budgen), who is in the Chamber. In a sentence, the one-page article said that the Prime Minister had betrayed her country and could no longer be trusted. I think that that is unfair. Then, plunging the dagger into the right hon. Lady's heart, her hon. Friend asked the rhetorical question,
"if she is prepared to give in over the ERM, what else is she prepared to give in over?"
I do not intend to attack the Chancellor, but if I had any criticism of him, it would be that he had joined the ERM at the wrong rate. He did that because he took the concept of purchasing power parity rather than the concept of the fundamental equilibrium exchange rate. He should have used the concept of the fundamental equilibrium exchange rate, because of the fall in the warranted rate of growth in Britain during the past 10 years.
When I asked the right hon. Gentleman about that in this House some months ago, he did not appear to know what it was. If he was carefully to study trends in the warranted rate of growth and do the proper regression analyses, he would quickly understand that I am right and he is wrong. Indeed, he has it so wrong that it is only a matter of time before every currency speculator in the world makes him and us pay the price in devaluation.
Of course, it may be that the Chancellor is a closet Keynesian and that he is going for the record—double digit devaluation inside the ERM. Since the ERM was formed in 1979, there have been 38 changes in the central rates of currencies, 16 of which have been devaluations. Hitherto, the largest devaluation was 8·5 per cent. in the Belgian and Luxembourg franc in 1982, and then the 8 per cent. devaluation in the Irish pound in 1986. For the Chancellor, it may be starters for 10 or even 15 per cent. There will be a painful price to pay.
In that regard—and this shows that I am an even-handed person—I think that the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was right to say
"In the ERM the market dominates; with a single currency the market is overridden."
Every hon. Member knows that, although there is strength in the pooling of central reserves, the market can force Governments to devalue, even inside the ERM. I am not a devaluationist, and I believe that the way to avoid devaluation is to move from the ERM to the creation of a single European currency. The market cannot dominate inside a single European currency because the market is wiped out.
Instead of a pricing mechanism for adjusting differences in economic performance in different countries, we would have to correct the imbalances that occur under a single currency regime through new European regional policies backed by enhanced new European regional funds. In effect, as the right hon. Member for Cirencester and Tewkesbury has realised, we would replace a market mechanism with a planning mechanism. When the Prime Minister describes that as socialism through the back door she exaggerates, but there is a germ of truth in what she says.
What I cannot understand is why Opposition Members want the market mechanism and despise the new planning mechanism. Perhaps some of them will address their minds to that. The critics of the creation of a single European

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currency, from whom we have heard a lot today, say that they are worried that Britain may be dragged, kicking and screaming, into the 21st century by foreigners. Of course, they are too polite; they do not put it quite like that. They say that they are worried about problems of identity, sovereignty and political accountability.
We can dismiss immediately what they say about identity and sovereignty. Identity is what the Scots have retained inside an economic arid political union with the English. Sovereignty is a 17th century concept, shrouded in romantic historicism, on the part of those who look to the past because they cannot see the future.
Political accountability is a relevant concept. That is important. But the right hon. Member for Blaby (Mr. Lawson) got it right. Many of the arguments about the political accountability of a central European bank running a single European currency are misplaced. Like the right hon. Gentleman, I believe that all central banks, including the Bundesbank and the Federal Reserve bank in America, are ultimately politically accountable.
I have three reasons for saying that about the Bundesbank. First, a bank that is set up by a Government can be removed by a Government. Secondly, although the Bundesbank is committed to creating stable prices, it is also pledged under its charter to act in a fashion that is consistent with Government policy. In practical terms, that simply means that it must create a monetary policy that will allow for economic growth, and what is wrong with that?
Thirdly, there is one example of the triumph of political accountability in Germany and that is the ferocious row that broke out over German monetary union between the politician Chancellor Kohl and the banker Karl Otto Pöhl. The politician won and the banker lost, because, as the banker told us when we questioned him in Frankfurt, in such rows the politicians always win because they control the democratic process.
I end with one comment on what my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) said. I do not want to criticise him; we do not do that in public, although he did rather attack the Opposition Front Bench. His Churchillian rhetoric seemed to rest on two serious economic mistakes and one lapse of memory. First, he seemed to be arguing that exchange rates are driven by current account balance of payment surpluses and deficits, as they used to be in the old days. That simply is not true. Secondly, he argued that countries which devalue avoid unemployment. That is nonsense. Thirdly, he seems to have forgotten that the last statutory prices and incomes policy in Britain was introduced by a Government not inside the ERM but one of which he was a member outside the ERM.
I am pleased that my right hon. Friends on the Opposition Front Bench have a new, invigorating and fresh approach to those ideas. We cannot live in a time warp.
7.3 pm
Mr. Terence L. Higgins: I had intended to be in my place at the opening of the debate and I apologise to the House for the fact that a massive blockage on the motorway prevented me from being so.
This is a debate in which passions run high, but I should stress that I in no way blame that event on the exchange rate mechanism. No one's passions run higher on this issue
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than those of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore), who has all the zeal of the newly converted.
The Chancellor was right to join the ERM. He was right to join it when he did, and I even go so far as to say that the rate at which he joined was not at all inappropriate, because the economic situation as it was developing, where we had undoubtedly had an increase in inflationary pressures as a result of the reaction to the 1987 stock exchange crash and so on, had clearly reached a point where the interest rate that my right hon. Friends had rightly applied would have had an impact and made the economy turn.
As the Treasury and Civil Service Select Committee pointed out, official Government forecasts invariably underestimate the size of a turning point, and in every successive cycle they have done so even more. There was a real danger—there may still be one—of recession. The Chancellor was therefore faced with a clear dilemma. If he had reacted to that possibility by cutting interest rates, the exchange rate would have collapsed and the effect on inflation would have been disastrous. The combination that he developed—of reducing the interest rate while at the same time taking us into the ERM—has got us out of the dilemma that he was facing. That is an important point which needs to be stressed.
The decision was the right one and it has not only a tactical advantage but a considerable strategic advantage. I believe profoundly that it is right to join the ERM but that it would be a massive mistake to go along the Delors road towards a single currency, and I shall say why in a moment.
We have joined the ERM and that increases our credibility in Europe. Mr. Delors sought to say that we were joining in order to prevent the making of any further progress, but I do not believe that that is so. However, it increases our credibility, and that is important in the negotiations that are about to take place in the context of the further development of monetary union.
As I have said at Question Time, the Chancellor of the Exchequer described Mr. Delors' idea that we were joining to stop things as rather rum. That was an apposite description—or perhaps "mot juste" would be the expression to apply to Mr. Delors. None the less, it is not right. We are clearly far better Europeans in many respects than the other members of the EC. However, there are some considerable dangers in joining the ERM.
I believe that the downward trend in inflation will be perpetuated, as the Chancellor has said, but once we are using interest rates to keep within the ERM we must give up any idea that we will establish a clear downward trend on interest rates. All kinds of random events may affect the exchange rate and require us to alter interest rates. That is a necessary consequence of the fact that we have joined the ERM. From a political point of view, that is a real problem.
A further problem is that it is possible that those in international markets will not view the Opposition's rather uncosted programmes in as favourable a light as those of the Government. Therefore, if there seems to be any real possibility of a Labour Government—there was not at the time of the last election—that in itself will exert a downward pressure on the exchange rate and an upward pressure on interest rates, unless the threat of a Labour

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Government is such that we are forced to change the parity within the ERM. That is a danger which should be brought out.
In addition, we have the problem of inflationary pressures from wage settlements. There are already substantial downward pressures of that kind. But we must remember, I am almost inclined to say, dear old Harold Wilson's remark about one man's wage increase being another man's job. Like many of his cliches, it was a relevant and important statement of fact which, without using those exact words, we need to get over.
My other main point arises from the Chancellor's Mansion house speech. In the context of the ERM, my right hon. Friend remarked:
"Some commentators have suggested that interest rates are, in some sense, allocated to maintaining the exchange rate and are therefore not available to help achieve other objectives. They argue therefore that in consequence membership will require more active fiscal policy."
That is profoundly true. If one uses interest rates to control the exchange rate, it is necessary to have an alternative means of operating domestic policy. On many occasions, the two operate in the same direction. One may need both high interest rates and a tight fiscal policy. But sometimes one might need to use the interest rate to affect the exchange rate when the domestic economy requires something rather different.
The Treasury and Civil Service Committee's report on last year's Budget remarked:
"The Chancellor pointed out that, if inflationary pressures were reflected by the position of sterling in the mechanism, interest rates will be used to sustain an attack on inflation. But this would only be possible at a time when the inflationary pressures had become sufficiently clear to be reflected in the exchange rate. There may be times, as happened in 1987, when interest rates were lowered to keep the level of sterling down when they might have been raised to prevent the development of inflationary pressure."
It is not always the case that the needs of the exchange rate are the same as those of the domestic economy.
My right hon. Friend the Chancellor said also in his Mansion house speech:
"I have no doubt that it would be a huge mistake to return to frequent mini-budgets and fiscal fine-tuning. It is not necessary, its effects are not wholly predictable, and, in my limited experience, one Autumn Statement and one Budget a year are quite sufficient!"
I am sure that we would all say, "Hear, hear" to that. Nevertheless, if the interest rate is allocated to fixing the exchange rate, fiscal policy may be needed to manage the domestic economy.
It is not only a question of fine tuning. One cannot avoid fine tuning by having an annual Budget. If there were a need for fiscal measures in October of any year, for example, it would be foolish to wait until the next Budget before introducing them.
Some years ago the Procedure Committee suggested an annual tax management Bill and a separate Bill concerned with managing the economy. In that context, I have almost come to the reverse conclusion. Perhaps there should be an annual tax management Bill at the time of the Budget, and another Budget as may be necessary for economic management at whatever time of the year may be appropriate. However, I agree entirely with my right hon. Friend the Chancellor that there should not necessarily be more than one a year.
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My final point arises from the speech of the hon. Member for Hackney, South and Shoreditch in relation to a single currency. We simply have not got over the fundamental argument against a single currency. Many members of the public think that it is an attractive idea, and would avoid having to switch from one currency to another as one travelled around Europe. However, if we go for a single currency ahead of a high degree of economic integration in Europe, we shall be giving up the most important means of adjusting for differential changes over its geographical area—whether they relate to labour, capital, fuel, or other costs. The effect on unemployment in various regions of the European economy could be very serious.
I do not believe, as the hon. Member for Hackney, South and Shoreditch suggested, that a massive European fund would be the answer. Our own experience in this country, over a much smaller geographical area, does not suggest that such funds are effective. Moreover, there is no guarantee that the money would be transferred. We might enter into a single currency system and then find that, as a result of increased costs in Spain, there was a consequential effect on unemployment. There is no guarantee that everyone else in Europe would cough up to bail out the Spanish. Such a situation would give rise to enormous political pressures. For proof of that, we have only to remember what happened on a small but disastrous scale in relation to the CAP negotiations.
I believe that my right hon. Friend the Chancellor of the Exchequer is right to take Britain into the exchange rate mechanism, and I shall support him in the Lobby this evening.
7.13 pm
Mr. Robert Sheldon: The right hon. Member for Worthing (Mr. Higgins) is right in saying that, under the exchange rate mechanism, fiscal policy will once again come into its own. The right hon. Member for Blaby (Mr. Lawson) called Britain's entry to the ERM a momentous decision, and of course it is. I am in favour of exchange rate stability where it can be obtained, and the attempts made by the right hon. Member for Blaby to shadow the deutschmark were not unworthy. What I had against him was that the rate that he chose was wrong. It should have been much lower.
My awareness of all such matters draws on my background knowledge that many of our problems were caused by an overvalued exchange rate, and that fundamental mistakes were made in trying to deal with them.
In the post-war years, there were two important decisions to devalue, in 1949 and 1967. In both cases, the rate was maintained largely in response to American pressure—in 1949 because of the American loan, and in 1967 because of a personal commitment by Harold Wilson to Lyndon Johnson.
The first devaluation, from $4 to $2·40, was very successful, and led to the benefits that we obtained through the 1950s—so that when the Community was born, we considered ourselves too successful to take part even in the Messina talks.
Our success ended with the level of spending that was reached in the "never had it so good" years of Harold Macmillan. By 1964, we again faced an acute balance of payments crisis. I entered Parliament that year convinced

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of the need to devalue. I was impressed by de Gaulle's devaluation, which was accompanied by deflation—a combination that I always thought made a great deal of sense. Devaluation opened opportunities abroad and restricted imports, while deflation released goods for export. I looked for a similar course of action to be followed in Britain, but our parliamentary majority was small, and I realised that devaluation might have to be postponed until we had a working majority.
It was with something approaching horror that I realised in the spring of 1966 that there was to be no devaluation. In the following months, I and Joel Barnett, now Lord Barnett, with whom I shared the chairmanship of the parliamentary Labour party's economic and finance group, called on Cabinet Ministers, urging on them the case for devaluation. Unfortunately, the response was slow. By 1967, devaluation from $2·80 to $2·40 was forced on the Government. It was not enough in my view, but it did give industry some help, and by 1969 we achieved a balance of payments surplus.
It will be seen that fundamental adjustments were required before both devaluations. In the first instance, we had to adjust from dealing with the problems of the war years. In the second, it was a case of adjusting to the aftermath of the boom created by Harold Macmillian. As we all know, devaluation helps exports and reduces imports. It helps all industry, and manufacturing industry in particular. It can have inflationary consequences, but there is a time lag before they manifest themselves, and one can use it to limit their effects.
The City does not like devaluation. It wants a strong pound not for the reasons one might think, but because of the better investment opportunities that it offers. In deciding between manufacturing industry and the City, Governments are sometimes neutral. Occasionally they favour the City, as did the present Government initially, before realising that our balance of payments depends mainly on manufacturing industry providing tradeable goods—the largest part of our exports.
Other Governments favoured industry. Like all post-war Governments, they worried about inflation, and in the end always chose the easy way of reducing it, by operating a high exchange rate. But the price for that has to be paid in the form of lost exports and yet another decline in Britain's manufacturing processes. We are again left with exhortations to reduce pay demands and so maintain an overvalued exchange rate.
We have seen time and again a high level of optimism about our prospects, but we are entering the ERM against a background of economic failure. We have suffered nothing less than an economic failure despite the enormous advantages of North sea oil. We squandered our oil revenues, time has run out, so we have returned to the exchange rate mechanism.
In The Sunday Times of 25 February this year, the Prime Minister said that
"As the right policies"—
she was still very optimistic at that stage—
"were kept going"—
that is, throughout the whole period of this Government—
"economic growth and productivity would start to rise again."
The article continued:
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"Then, watch out, France and West Germany. 'My ambition is that we catch up with France … And then we catch up with Germany.' That is the kind of nonsense that we hear from time to time, but rarely to quite such an extent."
The Government have gone through three phases. The first was the phase during which they said, "Pay demands don't matter; the money supply will be the master." When that nonsense subsided, after ruining 20 per cent. of our industry—in my constituency, I am sorry to say that it ruined 30 per cent. of well-run small businesses between 1979 and 1981—and when that policy failed, the Government resorted to the second standby, which was exhortation. I have nothing against exhortation, but it is not a policy in itself. Eventually, it is seen to be inadequate and other policies are looked for.
The third phase involved the ERM. There are two ways of looking at the ERM. One can look at it as a way of obtaining some stability in currency markets. I am not against that—I am in favour of it—but the Government want more than stability. They want to use the mechanism to discipline industry and to punish workers with threats of unemployment and factory closures. The right hon. Member for Blaby dealt with that. If ERM will not do that, European monetary union will be even less forgiving.
Some hope that enthusiasm for EMU will lead to a continuing strong role for the City of London. I fear that Frankfurt is likely to follow Tokyo in the fulfilment of the principle that markets follow money—and I believe that, eventually, markets do, indeed, follow money. The City was born on the back of the greatest industrial centre in the world. New York followed suit. If there is a case for EMU, it is not that it will help us to retain London as the European financial centre. We need to bear in mind Winston Churchill's comment that we should make finance less proud and industry more content. That is more needed than ever before. Of course, we must help the City of London as a revenue earner but not at the expense of our industry.
What are the prospects for a European central bank? I read with interest the article by my hon. Friend the Member for Durham, North (Mr. Radice). He suggested that Britain would have a representative and that the bank might have to report to the European Parliament and the Council of Ministers. Controlling a central bank in one country is difficult enough. I saw the day-to-day tussles here, where the central bank is nationalised. As we know, it is even more difficult in Germany. Our problems with regional policy and our problems in obtaining agreement because of language difficulties are underrated. To think in terms of other countries paying for our regional policy when we cannot even pay for a proper regional policy ourselves is to live in a dreamland.
Why did we nationalise the Bank of England? We nationalised it because it had too much economic power. We have forgotten all of that. Why did the move have the support of prominent Conservatives such as Bob Boothby? An international bank will have immense powers, although it will supposedly be controlled by different people from different countries with different views and different languages. How can one achieve such control? Since when have politicians—let alone the Labour party—been such friends of the bankers that they have wanted to hand over to them authority in the day-to-day running of monetary policy for the whole of

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Europe? We cannot be sure that our Prime Minister will be as powerful as the chairman of such a central bank. What an abrogation of power.
It is arguable that Montague Norman, formerly Governor of the Bank of England, did more to create a picture of Britain between the wars than Ramsay MacDonald or Baldwin. Can we really suggest that such a powerful figure could be controlled by the European Parliament? Such a figure will run rings around it and around the divisions in it. In day-to-day operations, even the Council of Ministers will find itself outranked.
When we look at the limited powers of the Bank of England and the Fed in Washington, we find powers far less extensive than those that some of us are prepared to accept. I used to consider that I had an obligation to explain the motives of bankers to my hon. Friends and say that they were not the cruel people so many thought them to be. I now find myself having to question my hon. Friends' admiration. Why have we come to love the bankers whom we used to criticise so harshly? The reason seems to be that we are looking for a panacea—a way out of difficulties of our own making. There is no panacea: we shall rise by our own efforts or not at all.
7.24 pm
Mr. Henry Bellingham: The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) has taken us on an intriguing historical tour. I am sure that he was as amazed as I was to hear an hon. Member on the left wing of the Labour party advocating a single European currency. I wonder why the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) did that. Is it because he knows that the reforms introduced by the Government—the entrenchment of the free market and the complete reform of the trade unions—cannot be overturned by an incoming Labour Government but could be overturned by centralisation through Europe? That is why the hon. Gentleman has done a complete about-turn. His speech provided us with a fascinating insight into the thinking of some on the left wing of the Labour party.
I support the Chancellor's policy of entry into the ERM. I feel that we should have entered the mechanism somewhat earlier, and we heard a fascinating speech from my right hon. Friend the Member for Blaby (Mr. Lawson) in that regard. I have a feeling that much of my right hon. Friend's policy depended critically on earlier entry into the ERM. Perhaps if we had entered earlier inflation would not have taken off as it did and perhaps we should not have the very high interest rates that we have at the moment. That is all speculation. I welcome entry, with certain reservations.
The firms in my constituency also appear to welcome entry into the ERM. Many of them are light industrial businesses, some of them small—and many of them now export their products to Europe. They are very pleased that they can now have much more firm ideas about the position of our currency. In the past, far too much management time was taken up in playing the currency markets and in hedging the currency. Firms now know where they stand, and that will enable them to compete better with their European counterparts. They are feeling the pressure of high interest rates, and they certainly welcome the recent 1 per cent. cut in interest rates.
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Some firms in haulage, construction and retailing are feeling the pinch especially badly. Haulage firms are extremely worried about rising fuel costs, although the position was ameliorated somewhat by the fall of a few days ago. The Treasury must be rubbing its hands with glee in view of the increase in revenues from taxation on fuel oil. Could not some of that extra money be forgone? Could not the Treasury ensure that the Government continued to take what they were taking before while reducing taxation on fuel oils? That would help many firms in Norfolk. I know that my hon. Friend the Paymaster General is listening carefully because he has similar firms in his constituency, and they are also concerned about the rise in fuel costs.
We are at an important crossroads and this debate brings into sharp focus the question of where we go from here. We could follow the Jacques Delors route towards an integrated federal states of Europe, but I believe that it is riddled with pitfalls and has serious disadvantages. For a start, there would undoubtedly be a major derogation of sovereignty. I am in favour of derogating sovereignty over certain matters. The environment is a case in point because pollution knows no frontiers or boundaries. But the derogation of political control and contol in foreign policy matters that would undoubtedly flow from economic integration would be a grave disadvantage. Moreover, it would emasculate the sovereignty of the Queen in Parliament. That matter has not been touched on today except by my hon. Friend the Member for Stafford (Mr. Cash).
If we follow the Delors route, we shall have a centralised bureaucratic power. We shall have a form of market socialist control. Of course Jacques Delors wants that; he is a market socialist. Of course he wants power at the centre. If we follow his route, we shall have a close-knit, inward-looking club that will not want new members coming in from outside. It will be far more difficult for countries such as Hungary, Poland, Czechoslovakia—the newly emerging democracies—to come into Europe.
Advocates of a federal European solution have already said that they do not want Europe to expand too quickly. Indeed, my right hon. Friend the Member for Henley (Mr. Heseltine) spoke in those terms the other day. Furthermore, if we follow the Delors route, our relations with America and the advanced Commonwealth countries would also be jeopardised and any idea that we could form closer trade links with those countries would be imperilled.
Many people have no idea what all this means and there is a danger that we will sleepwalk into a federal states of Europe. Jacques Delors has already said that he wants a federal Europe by stealth, and that worries me. People should know what is happening and that this Government advocate an alternative route to the Delors route. They advocate entering ERM and drawing lines under it stating that there should be not one single step beyond it.
I could certainly go along with a hard ecu. I do not want to go any further than that because a loose grouping of sovereign states have control over their own destinies. Their traditions and characters can be seen at their best. That is the way forward. Today we have heard nothing about the single market. It is crazy to begin to talk about going further forward until we get the single market to work. The United Kingdom is at the forefront in implementing the 230-odd measures for the single market.

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In fact, we are well ahead of many of our European counterparts in that regard. However, until we get that process moving, even to consider stage 2 is ludicrous.
We should advocate the alternative course. We would have control over our foreign policy and over so many other aspects of domestic policy which would disappear out the window if we were to opt for the federal solution. Consider the current mess in the CAP and the discussions intended to sort out farm prices. It is clear that there is a complete shambles there.
If we are considering seriously derogating our foreign policy to a group of countries whose response to the Gulf crisis was supine and pathetic, we should think again and consider the consequences of the policies advocated by the so-called federalists.
We are at a very important crossroads. There should be far more opportunities for the people of this country to decide their future. The House must decide where we go from here and there should perhaps be a referendum. In today's debate some political hatchets have been buried, and that is very comforting. ERM membership is a momentous step forward, but the steps that are likely to be taken after entry will be far more momentous. This is indeed a time to bury political and party-political hatchets. Anyone who, like me, believes passionately that we should not go a single step further should vote for the future generations of this country.
7.32 pm
Mr. Alex Salmond: There has been some criticism tonight of the Government about the timing of ERM entry. The real issue is not whether the timing was a week before or a week after the Conservative party conference. The Government are vulnerable on the question of timing because the decision was taken without any policy preparation for the consequences of entry. It was a bit rich for the Chancellor to go to the Mansion house and explain to the City and to prominent industrialists afterwards the implications of his policy. That should surely have been done beforehand and preparation made.
The Scottish National party supports the decision to enter ERM. We are extremely aware of the difficulties that entry will produce for the exchange rate mechanism, for our European partners, for sterling and for the United Kingdom. The euphoria generated by the initial decision to enter was unjustified. Indeed, many of today's speeches sounded very much like the morning after the night before.
There are two basic problems with sterling's entry into the ERM. The first is the problem that it creates for our European partners; it is significant that no one in this debate so far has considered entry from the point of view of the rest of the Community.
Basically, the ERM has worked because the deutschmark has been the dominant currency and the other currencies have revolved around it like planets revolving around the sun in the solar system. Taking sterling into the ERM introduces a major international investment currency, 90 per cent. of the value of which is dominated and determined not by trade flows, but by capital movements. It is not like introducing another planet into the solar system. Rather, it is like introducing an alternative sun. A great tension will develop in the polarity between the two major currencies within the ERM. There is at least as much chance of sterling's entry
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destabilising the ERM as there is of ERM stabilising sterling. The Chancellor actually claimed a virtue of the fact that he had not consulted our European partners before taking his decision on entry and thus did riot display the kind of attitude that will be necessary if we are to make a success of entry into the ERM.
The second problem about ERM entry is traditional for the United Kingdom; it is the problem of having an overvalued currency and a weak economy, a strong pound and weak industry.
The "economic consequences of Mr. Churchill" have already been referred to. We should remember that on reflection in later years Churchill wrote:
"I was called the worst Chancellor in British history and looking back I am inclined to agree".
He wrote that about the 1925 decision on the gold standard. I do not believe that such a consequence will befall the present Chancellor, if only because he faces strong competition for the title of the worst Chancellor in British history from his two immediate predecessors.
On consideration, I believe that the right hon. Member for Blaby (Mr. Lawson) is somewhat protected from that title because he simply generated an unsustainable boom. However, the present Leader of the House stands accused of having generated an unnecessary slump in the early 1980s.
I can understand the chagrin with which the right hon. Member for Blaby described the present policies on the exchange rate mechanism. After all, it is only a year since he was forced to resign for pursuing exactly the same policy that is now pursued by the entire Cabinet. However, he can at least take some satisfaction from the fact that the consequences of the present policy will have to be faced up to by the present Chancellor and not everything that goes wrong with Government economic policy can be blamed for ever on the mistakes of the right hon. Member for Blaby.
When the consequences are confronted, it will be obvious that pious exhortations to the bosses in the City and elsewhere to pay their workers less to make the policy a success will simply not do. When sterling starts to bump along the bottom of its banding, some very hard choices will have to be faced. It will not be good enough to commit reserves, because sterling is such a major currency that even the reserves of the whole of Europe would be used up quickly in trying to defend an unsustainable position. The hard choice will be between interest rate rises and deep cuts in the Government's fiscal policy.
To borrow a phrase, the cost of "bucking the market" will be very high indeed. When the pressure is felt, the Government and the Opposition Front Bench will have to answer a question that they have dodged throughout this debate: when the pressure is on, will they move forward to further monetary integration or backwards and break the system of which they wanted to be a member?
To claim that the hard ecu is the solution to the dilemma is not good enough. If it is treated as anything more than a diversion by the other European countries, we must realise that a hard ecu, if not monetary union or a single currency by transition, is a single currency by stealth in much the same way as shadowing the deutschmark was entry into the exchange rate mechanism by stealth. For the political health of the present Chancellor of the Exchequer, I only hope that the Prime Minister does not

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rumble this device in the way that she eventually rumbled the right hon. Member for Blaby. If that happens, the present Chancellor will also become "unassailable".
Our difficulty, from a Scottish point of view, is the realisation that these hard choices are not really relevant to Scotland's economic position. Over the past year, we in Scotland have faced penal interest rates in an economy which is nowhere near overheated. I do not think that even the Chancellor would claim that the Scottish economy is in a state of overheating, so great are the underused resources in the economy. Yet we have had to suffer the interest rate regime designed to tackle economic overheating in the south-east of England.
The Secretary of State for Scotland says that we should be grateful because that measure is doing less damage to the Scottish economy than it is doing to the economy of the south-east of England. He is apparently oblivious to the fact that Scottish industry is probably more dependent on interest rates and the interest rate regime than industry elsewhere in the country. It is bad enough having to suffer high interest rates when one is suffering from the overheating disease, but it adds insult to injury to have to swallow the medicine without having the condition in the first place.
The exchange rate mechanism offers a sensible option for smaller currencies. Certainly, an independent Scottish currency would fit comfortably into the exchange rate mechanism in the same way in which other small currencies of Europe currently fit. We would not have the same hard choices which confront sterling and from which the two Front Benches are currently running away.
My last point is about attitudes, and it is a plea for a change of attitudes as we face monetary union. When I looked at the unfortunate and unpleasant article in The Spectator recently, it struck me that the former Secretary of State for Trade and Industry was not really talking about the Germans, the French, the Irish or other nations whom he disparaged; he was actually talking about England. The Spectator was absolutely right to head the article "Speaking for England". The underlying message was that, having lost an empire, England is now frightened of losing a currency and yet more self-determination over her own affairs. Albeit more elegantly, the right hon. Member for Shropshire, North (Mr. Biffen) touched the same chord when he said that he was frightened of "foreigners"—I think that I have quoted him exactly—controlling the economic destiny of England.
There are real issues to be faced in monetary union—for example, productivity throughout the Community to stop high productivity regions sucking in capital and labour from lower productivity regions. There is also the question whether it is compatible with the expansion of the Community to include eastern European nations. That is another real question which must be faced. If there is valid tension between broadening the Community and deepening the Community, it will have to be addressed. However, unless these questions are addressed in a genuinely positive fashion by people who are anxious to make a success of the EC our partners in the rest of Europe will understandably say, "These are not real arguments or real issues presented by the United Kingdom; it is merely more blocking and tackling from a country that is refusing to grow up and to drive forward.
"7.42 pm
Mr. Julian AmeryI should like at once to congratulate the Government on their decision to join the exchange rate mechanism. I do not think that it will do much to help our inflation, but it is of great importance in a broader sense. Unless we had joined, we could not really have had a seat at the table and discussed the future of the monetary evolution of the European Community. That matter is immensely important to us and will be before us next month. We could not really have gone to the December talks and made any sense unless we had been in the ERM, nor could we really talk seriously about the reconstruction of Germany and eastern Europe. That will require more than German effort; it will require European and, I dare say, American effort as well, bearing in mind all the difficulties that our American friends have and the extent to which they can afford to help.
We must not underrate the impact on the existing ERM of the burden that will have to be taken up in the reconstruction of Germany and eastern Europe. I do not think that even in Bonn people yet have the foggiest idea of how much it will cost them and, in turn, how much it will cost us.
We now belong to a deutschmark zone, as foreseen by my hon. Friend the Member for Horsham (Sir P. Hordern) in a pregnant article in The Spectator quite a long time ago. That brings us to what we might call the German peril. My right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), in his famous interview in The Spectator, and my hon. Friend the Member for Stockport (Mr. Favell) have drawn attention to their views on that matter. All hon. Members have been aware of the problem. The question is how we are to meet it. Do we meet it best from being inside the Community, where we may find allies if need be, or do we meet it better from being outside and alone, or almost alone? If the Americans have a penchant for any other special relationship, it is indeed with Germany. We must ask ourselves a simple question: would we prefer to have our financial affairs dictated by the Bundesbank or by some agency over which we have some influence, limited though it may be?
The German Chancellor, for whom I have the greatest regard, has been setting the pace, both in respect of the common agricultural policy and now the timetable for the agenda of the forthcoming meeting in Rome. He has said that the second stage of the approach to European monetary union should be in 1994. I ventured to interrupt my right hon. Friend the Chancellor of the Exchequer to ask whether, instead of just saying that we did not like the idea or that we had good grounds for not liking it, we could say, "Okay, 1994, if you accept the hard ecu proposal." It is perhaps an opportunity.
May I now say a word about the problem of sovereignty? There is a widespread feeling in the House that, if we are not careful, we shall go down a road that will turn the House into something that is not much more than a glorified county council. What is sovereignty? It is total freedom to do whatever we wish. It existed, I suppose, in Britain in the days of Palmerston. General de Gaulle tried to achieve it for France, with his policy of defence against all horizons. But what does sovereignty mean today?
One or two distinguished speeches—for example, by the right hon. Member for Bethnal Green and Stepney (Mr.

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Shore)—were about seeking the right to inflate or devalue. There is here a very respectable case—I am not joking about it. William Jennings Bryan said:
"you should not crucify mankind upon a cross of gold."
Keynes said that, in certain circumstances, it might be desirable to reflect the economy. That could happen again, but it does not seem likely at the moment.
I wish to relate all that to something. For several generations we were on the gold standard. The gold standard worked extremely well for a long time, but it produced industrial and social disadvantages that were so serious that, in 1931, we opted out. The moral that I am trying to draw is that the House of Commons does not surrender sovereignty. Nothing that we decide today can bind another Parliament, and nothing that we do can bind another Parliament. Another Parliament can make other decisions, just as happened in 1931 when Parliament decided to abandon the gold standard and we moved to the sterling area. That committed us to certain obligations, as well as conferring certain advantages. When in the 1970s the obligations became heavier than the advantages, we and some of our partners decided that we had had enough.
Nothing that we decide here is irrevocable. If we do not like what is put before us at the next stage of European monetary union, we need not sign it. If we do sign it and it does not work, we can pull out. We did that with the gold standard, with sterling and with the empire preferences. The French did it with NATO. No Parliament can bind another unless the latter is occupied by enemy troops. If anybody thinks that our present Secretary of State for Defence or our Home Secretary are shock troops for Delors, he or she had better think again.
When considering the next stage of European monetary union, the test that we must apply is whether there is a better road or an alternative policy that would suit us better. Is there a "better 'ole?" That is what we must examine in some detail. I agree with my right hon. Friend the Member for Blaby (Mr. Lawson) that we are a long way from any sort of federal arrangement in Europe. We need only look at the response of the different members of the Community to the crisis in the Gulf where there was no sign of federal co-operation.
Much has happened since the Paris-Bonn axis was first created in the days of de Gaulle and Adenauer when the French were convinced that they would be the jockey riding the German horse. There have been enormous changes: German union, the liberation of eastern Europe, the disintegration of the Soviet Union and the recession in the United States, to say nothing of the middle eastern crisis. Today, everything is in flux and no blueprint that has been produced by Delors or anybody else is acceptable. I do not know whether there will be a single currency unit. Whose image or whose superscription will it bear? As to a single bank, we shall be lucky if we get a single reserve bank. However, with our experience of the sterling area and the world economy, we would do better if we were in on the act and able to contribute as much wisdom as we can and as we have both to our advantage and to the general advantage.
7.52 pm
Mr. Ken Livingstone: I wish to make several points about a decision with which I disagree. I do not disagree with it in principle because I am not anti-European and I look forward to a united Europe.
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I reject completely the arguments that have been made by many hon. Members—I know that they were made with complete conviction—concerning the sovereignty of Parliament. On any comparison of this Parliament with those of the other European nations, we can be seen to be lacking in virtually every measure, whether it be control of the Executive, the way in which we carry out our business, or the lack of a proper committee system—although we have the rudiments of that now. We cannot therefore hold up the sovereignty of Parliament as something that may be lost because nothing in our parliamentary structure is superior to anything in the structures of our major European partners in the Common Market.
My objection to entry is that the rate at which we have entered the ERM is profoundly wrong. It will add 750,000 people to the ranks of the unemployed as a permanent structural feature of our economy. It will lock us into years of massive industrial struggles over wages. It will be a disaster. Irrespective of which party sits on which Bench in the next Parliament, I predict that the next Government will devalue the pound within the exchange rate mechanism and the ERM will most probably lock us into a series of further devaluations in the years to come.
Many hon. Members of all parties have formed the impression that the strength of the more dynamic European economies in the past 20 or 30 years was created by the exchange rate mechanism. That is nonsense. The ERM came about because the major European countries within the Common Market had achieved roughly similar rates of growth and roughly similar increases in productivity and were thus much more able to link their currencies. To tie the British economy, with its much lower rate of productivity increases, into the economies of our major European competitors will be to lock us into something that can best be characterised by the relationship between the Scottish and English economies following the Union.
As I have said, I am not opposed to ERM entry in principle. If the Government had entered the ERM at DM2·40 and had created a series of other measures to shift our economy into major export-led growth, I believe that it would have worked, but this is a gimmick to get the Government through the next election. Irrespective of the outcome of that election, there will be massive pain for the British people at virtually every level of society as a result. Again, I must emphasise that I am not anti-European or anti-entry into the exchange rate mechanism in principle.
Many of my hon. Friends have been unduly influenced by the Prime Minister's reluctance. They have assumed that the Prime Minister's reluctance means that there was something to be said in favour of ERM entry now. However, it will be our constituents who will bear the burden of unemployment that will flow from this. Hon. Members who have a rabid enthusiasm for entry into the exchange rate mechanism at this level will have to explain it to their constituents as unemployment mounts relentlessly in the weeks and months to come.
After 11 years in office, the Government have created a major economic crisis. There is a lot of crowing about the most recent trade figures, but the underlying pattern is devastatingly bad for Britain. It is easy to construct any argument by picking out a particular year or the shift in exports from manufactures to services. However, when one looks at the proportion of our GDP given to imports as opposed to exports, and compares the beginning of the Government's period in office with now, one sees that the

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picture is stark. Compared with when the Government came into office 11 years ago, there has been only a slight increase in imports as a proportion of GDP. The figure is 0·1 per cent. However, we have lost exports amounting to 3·5 per cent. Anyone who thinks that those figures do not matter should remember that each percentage point of GDP represents £5 billion. That is devastatingly bad news. Whichever party governs Britain in the 1990s must turn that problem around if it is to make any sense of the economy.
This is the same old problem that we have seen before. That is why I was somewhat less than enthused when I heard the reaction of my own Front Bench to the decision to enter the exchange rate mechanism. In response to the questions, "Would you reduce the exchange rate under the system?" and "Are you happy at the rate at which we have gone in?", I heard my very good friend the right hon. and learned Member for Monklands, East (Mr. Smith) say, "That is the rate that we shall have to defend as a point of honour." If my right hon. and learned Friend really believes that, he is setting himself up to be the Harold Wilson of the 1990s, defending a completely unrealistic exchange rate.
As my hon. Friends—on both the left and the right of my party—have said in this debate, our exchange rate is about 20 per cent. over-valued if we are serious about being a manufacturing and exporting nation. However, the Government are not interested in that. Their primary concern has been the defence of City interests. The Government faced a simple choice when deciding the level at which to set our entry into the exchange rate mechanism. They could set a level to benefit the City, which they did, or a level that could benefit British manufacturing. Once again, the City won and British manufacturing lost and it will be locked into further decline in the years to come.
It is not just a question of entering the exchange rate mechanism. The reality is that we have been locked into a relative economic decline for over a century. Government after Government—of all colours—have presided over a decline, each year being prepared to accept an increase in the rate of inflation of 1, 2 or even more percentage points worse than those of our major competitors. Each year, the Government were prepared to see 1, 2, 3 or 4 per cent. less investment in our economy than was made by our major competitors. The consequence has been a loss of productivity compared to our major competitors who have achieved greater increases in their productivity year by year. All that it has taken to turn the most powerful industrial economy in the world into the 29th or 30th-ranking economy was the attitude that we should decline gracefully. Nothing about the decision to enter the ERM will break us out of that continuing graceful decline.
We are locking ourselves into a position of weakness. We could have entered in a position of strength, prepared to defend our manufacturing sector by entering at a more realistic rate or even a rate that was under-valued. Let us remember that in their reconstruction after the war Japan and West Germany made damned certain that they started a pattern of growth by having an under-valued exchange rate. They set out to create a solid manufacturing base.
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Therefore, I should have been happy to support entry into the ERM at DM2·40 or DM2·50, but I am not happy with the level at which we have entered.
The Government ignore the other issues which arise out of our entry, irrespective of the level set. If we are to reverse the crippling decline in manufacturing in Britain, which has led to a crippling decline in exports as a proportion of our national wealth, various other measures must be taken. If we had entered at a more realistic rate, we should have seen a much more rapid and dramatic cut in interest rates. We could have seen a rapid reduction of perhaps 2 or 3 per cent. in the rate of interest if we had entered the ERM at a rate which was more realistic for manufacturing.
The Government would also have had to find ways to protect the poorest elements in society. A reduction in the exchange rate and a devaluation along the lines that I and many of my colleagues would want—my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) argued for it—would need to be balanced by measures to protect the poorest members of society from the impact of the inflation that would feed into the system. Devaluation would have to be tied into a reduction in the basic rate of value added tax. I recognise that it would be unrealistic, given the state of the economy, to allow a major increase in consumer spending, so I should have been happy to balance it by restoring the top rate of tax. To create a growing and dynamic export-led expansion, we should have been prepared to defend the weakest sections in the community, who have done so badly in the past decade at the expense of those who have done so well.
Every economist tells us that the more the Government pump money into the poorest sections of the community, the more those people are likely to spend it on domestically produced goods. A redistribution of wealth from the rich to the poor helps the basic structure of our balance of payments and the construction of a solid manufacturing base.
I do not accept the arguments of my hon. Friends who say that we have declined because we entered the Common Market or that we are about to decline because we have entered the ERM. We are declining because we failed to take the firm measures required to shift the whole balance of the British economy. Entry into the ERM has not resolved that problem, and it will not resolve it for the next Labour Government. We must take other measures to solve our problems.
8.2 pm
Mr. Nicholas Budgen: The hon. Member for Brent, East (Mr. Livingstone) may be surprised to know that I agreed with some of his points about devaluation. As I listened to the debate I realised that I could not contribute much that was distinctive to it other than by considering the subject from a practical point of view. Many people from outside observing the debate might remark that an employer in manufacturing industry, for example, was under-represented in the debate. They might remark on how much theoretical talk there was and how little the practical implications as they might affect someone with a manufacturing concern in Wolverhampton were discussed.
If I had had the privilege of catching your eye earlier, Mr. Deputy Speaker, I should have attempted to speak with the passion and eloquence of my right hon. Friend the

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Member for Shropshire, North (Mr. Biffen). He is an earlier and more distinguished pupil of the Powell academy. He and I share most of the Powell prejudices. We are in favour of floating exchange rates. We are against foreign domination and on the whole we are in favour of some hypocrisy, but not too much.
A manufacturing employer from Wolverhampton might think as he listened to the debate that the arguments of my right hon. Friend the Chancellor of the Exchequer in favour of stability were attractive. "Stability," he would say "how much I want that." He would have been like the hypochondriac lady who would be much attracted to the doctor who could suggest to her the mystery of eternal life and no illness. He would have said, "Ah, stability, that is what the Chancellor is promising us." He would also have been much attracted by the argument that inflation is mainly caused by the working class. After all, that is what he would have preached to his foreman day in and day out. When he heard that disagreeable exchange between my right hon. Friend the Member for Blaby (Mr. Lawson) and the Duke of Devonshire's gamekeeper, he would have hoped that there was no such impertinent person in his work force when he was lecturing his employees on the need to keep down inflationary wage claims.
The manufacturer would have been attracted by the argument about stability. He would have thought about the inconvenience of needing to insure and hedge against exchange rate changes. He would have thought with gratifying pleasure that that great man the Chancellor of the Exchequer had told him that there could in no circumstances be devaluation. How dangerous that illusion would be. How wickedly dangerous.
We were fortunate that the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) reminded us that there have already been many important devaluations within the ERM. For instance, let us look forward even to the next general election. For the sake of argument, let us assume that there is downward pressure on the exchange rate and that it drops towards DM2·88 or whatever the bottom figure is.
Mr. Anthony Beaumont-Dark: DM2·95.
Mr. Budgen: DM2·95 is the centre figure. DM2·88 is the lower figure. Whatever the lower figure, it is a market figure and market figures are affected by wholly irrational factors. For the sake of argument, the market may want a Labour Government after the next election. It may want a left-wing Conservative Government or a right-wing Conservative Government. People may be punting on the pound because of their view about who will win the next football match. None of us knows about the work of the unknown hand of the market.
If it is necessary just before the next election to increase interest rates by 3 per cent. or, for the sake of argument, to raise the rate of taxation by 10p, are the Government likely to do so? Is it not likely that, however humiliating a conversation the Chancellor is forced to have with Herr Pohl or whoever is our dominator in Europe, he would prefer to suffer that than risk being absolutely certain to lose the next general election? Yet this very day my right hon. Friend the Chancellor in effect said to the business man in Wolverhampton, "Do not worry about the possibility of a fluctuating exchange rate. Do not hedge against the risk that the pound may alter against the
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deutschmark. I tell you that there will be no devaluation." As I said, those of us who were brought up in the Powell school like a little hypocrisy. We do not believe in telling people too much of the unvarnished truth, but that is taking it a bit far. Is it not a little dangerous to start by saying in a macho way that there will certainly be no devaluation?
Let us consider the medium term. Can we be satisfied that we can keep going on the basis of some form of co-ordination between European banks, some intervention from time to time from European banks and perhaps from time to time the occasional devaluation? Can we have anything approaching stability without going towards irrevocably locked exchange rates? If that happens, it will, as the right hon. Member for Bethnal Green and Stepney (Mr. Shore) has already suggested, be a short step to a single currency.
Surely Sir Alan Walters was right when he said that there was a case for a floating exchange rate. If one was not worried about the sovereignty arguments there might be a case for a single currency of Europe. There is nothing to be said, however, for this half-baked system of the ERM.
Whatever else we do tonight we should reject the cruel illusion that ERM is a great magic system that can give people the stability they desire—in real life we can promise that to no one. If we pretend that that system will bring stability, and if people make commercial judgments in that belief, we will condemn them to bankruptcy, illusion and disappointment.
8.10 pm
Mr. Ron Leighton: The Government, having pushed the country into a dangerous recession, were under pressure to reduce interest rates. Once they did that, however, they were frightened of the effect on the pound and inflation and thus collapsed into the ERM. We may well have further interest rate cuts and things may look good for the country for about nine months or perhaps a year—presumably by that time the Government hope that there will have been an election. Whichever party is in power after that election, however, it will face pressure on the pound and a major economic crisis.
I believe that entry into the ERM is a grave error and is a major blunder that will cause great damage to our national interest. In preparation for this debate I refreshed my memory of the policy of the Labour party. I studied the policy review document "Meet the Challenge: Make the Change", which says:
"We believe that the European monetary system., as present constituted, suffers from too great an emphasis on deflationary measures … we oppose moves towards European monetary union which would further impede progress in this area. Substantial changes would therefore be required before the next Labour Government could take sterling into the exchange rate mechanism."
The document spells out that four conditions would have to be met for such entry. It states that we would need a European Community-wide trade policy to contribute to balance of trade stability for individual members. Given that we have a deficit of £16 billion with the European Community, we certainly do not have that. The document also states that we need a co-ordinated Community-wide growth policy, but we certainly do not have that. It also states that the pound would have to enter at a rate and on conditions which would ensure that British goods became and remained competitive. Given that the exchange rate is

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nearly DM3 to the pound, we are certainly far from achieving the necessary conditions. The House will note therefore that my remarks follow the main thrust of Labour party policy as decided by our conferences.
The ERM means that we shall peg the parity of the pound not to the dollar—the dollar is going down and it would be helpful if the pound came down with the dollar as many things are priced in dollars—or to the yen, but to the deutschmark because the ERM is a deutschmark zone. We are therefore going to peg the pound to the currency of the country with which we have an enormous deficit. That is crazy economics. If we are to prosper, we must reverse that deficit, and to imagine that we can do so by linking the pound to the deutschmark is stretching credulity too far. We are being locked to an exchange rate which will ensure that that trade deficit will continue in perpetuity.
Pegging the pound to the deutschmark is the new, fashionable, fanciful theory. It is the latest nostrum and magic to solve our problems, but in effect it subordinates reality to theory. It subordinates the real economy to abstract notions. It subordinates people—flesh and blood—to the so-called iron laws of mistaken economics. We are doing things the wrong way round. Money should fit the real economy rather than the economy fit the money. Money should be our servant, not our master.
The concept of pegging the pound to the deutschmark is an arid dogma similar to putting the pound on the gold standard, and we know what that led to. The last strange dogma we encountered was the monetarism of the 1980s. That dogma led to an overvalued pound, we lost a quarter of British industry and the unemployment rate was pushed up to more than 2 million people. I did not become a Labour Member to support a huge increase in unemployment, but entry to the ERM will cause just that.
The new fanciful theory says that we should aim at convergence, which means that we should have the same productivity level as West Germany. I cite West Germany as it is the key country and I make no criticism of it as I have great admiration for that country. That convergence means that we should have the same productivity, growth, rate of investment, inflation rate and interest rates as Germany. It is a lovely theory, but can it work? Can anyone guarantee that, as a result of entry to ERM, such convergence will be achieved this year? I should happily give way to anyone who could guarantee that.
What comes first—convergence or pegging the parity of the pound? Has anyone noticed what is happening in the real world? The level of German growth has been recorded at 4 per cent. for the past two years while ours has been less than 1 per cent. Compare the massive investment in the German economy with our negative investment. Compare their investment in training and education with that of our own. German interest rates stand at 8 per cent. while our own, even after the latest cut, stand at 14 per cent. The German inflation rate is recorded at less than 3 per cent., but our own is three times higher at more than 10 per cent.
Can anyone guarantee that our inflation rate will soon be the same as that of Germany? Experience suggests otherwise. One of the simple facts of economic life is that if the economic performance and inflation rates of
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countries vary, the value or price of the respective currencies—in other words, the exchange rates—will vary. That is an economic fact, not an opinion.
If British inflation is higher than that of Germany and we have fixed parities, we shall witness a continuous overvaluation of the pound and an undervaluation of the deutschmark. British exports will become dearer, foreign imports will become cheaper, the trade deficit will be huge and unemployment will increase. If we buy goods from foreign factories as opposed to British factories, it means unemployment. It will become too expensive to manufacture in this country and unemployment will rise. If we have fixed parities, all it means is that we shall pretend that the pound is worth DM3.
German monetary union is a good example of what happens when one pretends that one's currency is worth more than its true rate. The West Germans pretended that the ostmark was worth the same as the deutschmark—that was good politics. Chancellor Kohl went to East Germany and said, "Vote for me and I'll change your money one for one". They all voted for that, but as a result East Germany's industry has collapsed completely and it is facing massive unemployment. The same will happen here if we continue with such pretence.
Fixed exchange rates help the strong and reinforce their dominance. They make the rich richer and the poor poorer. If we maintain the pound at an artificially high level, it is another way of saying that we shall keep the value of the mark down—we shall keep it super competitive.
If we cannot adjust our economies by changing the exchange rate, how are we expected to make the desired adjustments? The Delors committee is quite clear on that: it advocates wage flexibility and labour mobility. That means that the wages of all workers must come down, as we heard from the right hon. Member for Blaby (Mr. Lawson). The Secretary of State for Employment does not pause for breath as he talks ceaselessly about the need for workers to have wage increases less than the rate of inflation. We are told that if that does not happen quick enough there will be mass unemployment. It is obvious that we shall end up with lower wages as well as mass unemployment.
Not only wages but profit, investment, research and development and training will be squeezed. The entire economy will be put through the wringer. That will mean lower wages, more unemployment, slower growth and less wealth. In other words, the real economy will be sacrificed to a theory. Employment, growth, wealth and everything else will be subordinated to the idea of pegging the exchange rate.
If we take that step, we shall be making the mistake that we made in 1964. The Harold Wilson Government, having come to power, wasted three years shackling the Government to maintaining the rate of the pound. I recently replayed a video of Harold Wilson being interviewed by a professor of politics. He was asked why he had made the terrible mistake, which ruined that Government, of trying to peg the pound. He replied, regarding the parity of the pound:
"There was an air of sanctity about it."
He went on:
"It was considered a sin against the Holy Ghost."
He now says that it is no longer a problem, but my fear is that we shall make it a problem again. We are not learning

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from what happened over the gold standard or from what happened on that occasion to the Government of Harold Wilson. We shall be repeating the mistake all over again.
Some of my hon. Friends say that we shall have an industrial policy, and that is important. Indeed, the main difference between the two sides of the House is that my hon. Friends and I want an industrial policy whereas most Conservative Members simply want market forces to operate.
Exchange rate policy is an important part of industrial policy. We used to have what was known as the alternative economic strategy, and that was our industrial policy. We do not hear much about the alternative economic strategy these days, simply because it is unlawful under the treaty of Rome. The European Commission would not allow us to have the alternative economic strategy. So if we give up exchange rate policy, what will be left for the next Labour Government when we take office?
It is argued that we shall have the strength of the central banks wrapped around us. I have never heard anything so naive. The amount of money under that type of arrangement is limited and, in any event, the money one gets is by way of loans and must be repaid. That money will not be in any way different from money from the IMF. It will not accrue without conditions. Those concerned will be able to tell us to change our policy from whatever got us into the position of having to ask for a loan. President Mitterrand found that in 1983.
Alternatively, it is suggested that we might have a regional policy. It would take a regional policy on an heroic scale to make up for the damage that would have been caused. Indeed, we have at present a reverse regional policy because, as a poorer member country of the Community, we are paying in £2·3 billion to subsidise the richer countries. Each family of four in Britain is paying £16 a week more for its food than it need to pay. The regional policy is Britain subsidising the rest, so what nonsense it all is.
The exchange rate should not be elevated into a sort of sacred totem to he worshipped at the cost of production, trade and employment. We need a vigorous industrial policy which will combine full employment, a sustainable rate of growth and balance of payments equilibrium, and to achieve that we need a Government who can determine their own policy. We want democratic self government in this House. If our policies are to be determined not here but by people at some continental central bank, it will not matter for whom the British people vote because they will have the same policies whoever they elect. In other words, their votes will be devalued, and that cannot be advantageous.
It is always dangerous to prophesy, but I guarantee that the policy will fail. It will not be possible to sustain the exchange rate of the pound at DM2·95.
8.24 pm
Mr. Ian Stewart:: Not surprisingly, much of the debate has focused on potential future steps towards monetary convergence and monetary union, rather than on the decision that the Chancellor took a fortnight ago. That is understandable because the debate takes place against the background of proposals from the European Commission to the effect that stage 1
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of the so-called Delors plan is only a staging post on a road that leads to monetary union, a subject to which I shall return.
The Chancellor has been much maligned from a number of quarters, not only from Labour Members, who have a political axe to grind, but from others who are perhaps less to be excused in suggesting that to reduce interest rates by 1 per cent. two weeks ago was somehow irresponsible. I should have thought that there was at least sufficient evidence that the economy was slowing down, that the monetary aggregates were coming down, that there were conditions in the motor and building industries and in other areas of industry to suggest that the economic pace was slowing, and that it would be wrong to maintain exceptionally high interest rates under those circumstances.
Not only was the Chancellor justified in taking the decision that that was the time for interest rates to start coming down, but, having taken it, it was natural for him to link it with the decision to enter the exchange rate mechanism. I feel sure that the cause and effect was that way round rather than the way round that some have tried to suggest.
I have never been a tremendous enthusiast for European institutions. Equally, I have never been a great opponent of them. Anyone who has had the responsibility of attending the Budget Council of the European Community on behalf of this country and its Government would inevitably be aware not only of the advantages of Britain being a member of the EC, but of the difficulties that are encountered by the activities of European institutions.
It is against that background that I have gradually come to the conclusion—more by a process of elimination than by enthusiasm for the EMS—that it is a sensible framework in which to conduct our economic and monetary policy. The Chancellor's handling of our entry was skilful. But the real question that will next face him and the nation will be about the further steps towards economic and monetary convergence, and the first of those will be the move from a 6 per cent. to a 2 per cent. band. That step will be more significant in its effect on economic and monetary management than entry itself in the wider 6 per cent. band, which allows considerable flexibility around the central rate that has been chosen.
When the Chancellor comes to consider that next step, I hope that he will ponder long and carefully on the potential difficulties of having an exchange rate mechanism that includes two major international currencies, the deutschmark and sterling. So far, the history of the EMS has involved a group of countries revolving around the deutschmark. As soon as sterling comes into the narrow band, we shall have something that goes by the technical name of bipolarity, which means having two separate potential focuses of attention in the exchange market, not necessarily pulling in the same direction at the same time.
I shall not speak at length about that because time is short, but for those interested in the debates on the subject, I made a remarkably boring speech four or five years ago, particularly boring even by my standards, because I was specifically asked by my right hon. Friend the Member for Blaby (Mr. Lawson) to make it as dull as possible. At that time, as now, the exchange rate mechanism was an extraordinarily sensitive economic and political subject and it was thought inadvisable that I should try to arouse

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any expectations in one direction or another. The speech that I made from the Dispatch Box in that debate was so exceptionally boring that no one was able to pick up any significant comment that I had made in all of it. I was proud of that achievement because it is not easy to talk about the subject without rapidly getting into contentious areas.
The first contentious subject that I want to mention is that of the narrower band. It does not go without question that it would be right for sterling to get into the narrower band in the near future, because we have not yet resolved a problem that has been with us in this country for many years, that over the years we have needed, relatively speaking, higher interest rates in sterling to achieve the same tightness of monetary conditions to counter inflation than other European countries. That is partly because our financial institutions and markets are much more highly developed. They are not quite as developed as those of the United States but we generally have more flexible financial markets. For one reason or another, that has tended to mean that we need a higher interest rate in this country to deliver the same counter inflationary pressure.
Before entering the narrower bracket we should have to be satisfied that we could, over a considerable period, retain the same counter inflationary pressure, with interest rates that were, if not exactly the same as those of Germany and other ERM countries, at least much closer than they have been historically. If we did not do that, all we should have would be a switch of borrowing and lending; people would lend in sterling and borrow in other currencies at a cheaper rate of interest. That would frustrate the whole of our monetary policy and we should be unable to maintain the ERM for any length of time once those currency movements had been generated on any substantial scale.
The second stage of the exercise—joining the narrower band—will be challenging, and I ask my right hon. Friend the Chancellor and the Government to think carefully before they take that step. It is only a lesser version of the major step that would be taken if we were eventually to move towards monetary union.
It has been explained in the House this afternoon many times by hon. Members on both sides that monetary union inevitably carries with it either economic or political union, or both. The dangers of that are self-evident. Such union has been achieved in Europe twice in the past 2,000 years—first by Diocletian and Constantine, who had the might of the Roman army to enforce their policies, and latterly by Charlemagne, who did not manage to extend the policy to the United Kingdom, but managed to do so quite effectively through most of western Europe, again with a vigorous army at his back. The only more recent experiment was one in the post-Napoleonic period in the 19th century, which did not last long.
I hope that I shall be excused for claiming that I have been thinking about this subject for longer than other hon. Members. Nearly 40 years ago I was writing a book about Scottish coinage and towards the end of it I came across a remarkable fact, which was that after the death of Queen Elizabeth in 1603, King James of Scotland became the first King James of England and the United Kingdom, and immediately implemented monetary union between the two. The rest of the 17th century was spent grappling with
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the problems that that created. There were endless changes of valuation of Scottish coins at that time because a parity with the English currency could not be sustained in those circumstances. The problem was resolved only in 1707 by political union. Economic convergence had not been achieved by that time, but political union had, which enabled monetary union and, in due course, a degree of convergence of economic affairs to be carried through.
Although that is an arcane historical parallel, it contains important lessons for us. If we were to try to move to monetary union in Europe, where different countries and parts of different countries diverge so greatly in their economic performance, we should not, by means of monetary union, achieve greater cohesion in the European Community, but probably blow it apart.
During the recess I read a most interesting book by Professor Hawking, called "A Brief History of Time". As far as I could work it out—my physics is not very good—he was trying to say that if one starts with a big bang, one ends up in a black hole. If we tried to implement monetary union by a sort of monetary big bang and forcing that on many divergent economies and markets in a sudden move, we would be likely to blow the whole thing asunder and would have nothing left at the end.
I should have thought that the accession, in recent years, of Portugal, Spain and Greece, not to mention the addition by a side wind of East Germany, has put off the day when the countries of the European Community are likely to reach the degree of convergence where monetary union is even conceivable.
The arguments generally raised about monetary union—certainly many of those deployed in the House today—have tended to concentrate on the issue of sovereignty, which quite naturally appeals to politicians and is our stock in trade. But it is not the only part of the argument. There is an important part of the argument that should be deployed more thoroughly, and I hope that the Government, through my right hon. Friends the Prime Minister and the Chancellor at their international gatherings, will not hesitate to make plain to our fellow member states in Europe the potential implications of trying to achieve monetary convergence without economic convergence or centralised political control. That argument will demonstrate to other countries' Parliaments the dangers inherent in such a step.
The evidence that we already have of European institutions is not entirely encouraging. When I was at the Treasury I spent much time trying to negotiate our way out of the financial consequences of the original structure of the common agricultural policy, and it was a painful process. A great European system had been put in place and its problems were allowed to work themselves out with painful consequences for this and other countries at various times throughout the following years. We ran straight into the financial problems because of our substantial contribution. Latterly, there have been production problems. The French liked the CAP while they were getting a decent subsidy from other countries for their farmers, but did not like it at all once they found that it was producing severe competition for their domestic output.
I fear that the European enthusiasm for notions such as monetary union will run far ahead of the practical considerations that must be taken into account before such measures can be seriously contemplated. It is unlikely that conditions suitable for monetary union will come about

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within the next 10 or 20 years. If they did, I should reconsider the issue from the standpoint of that time, but until we are much closer to economic convergence, it would be playing with fire to put monetary union firmly on the agenda, particularly if that meant that other steps would be taken in the interim designed to achieve monetary union when that was still a distant and impractical dream.
While I welcome the step of my right hon. Friend the Chancellor in taking sterling into the ERM, I believe that we must be aware not only of the long-term problems, but that the second stage of going to the narrower band is a significant step that requires a great deal of thought before being undertaken.
8.38 pm
Mr. Win Griffiths: Today's debate has been widely drawn, although the motion and amendments clearly focus on the exchange rate mechanism. We see that the Government are expecting the House to congratulate them on going into the exchange rate mechanism when they did and at the rate they did. It seems that the Government are using what might now be described as the Baker gambit—when they have to say something that is ludicrous, they make their claim as preposterous as possible in the hope that everybody will be diverted from what is really happening.
Entry into the exchange rate mechanism had nothing whatsoever to do with the long-term economic future of this country, with the prosperity of most of the population and with the ability of most of the adult population who want work to get that work. Entry had everything to do with the Government's desire to create economic conditions for between six and nine months which would enable them to go to the country with a faint prospect of winning an election.
There is no doubt that the Madrid conditions were well and truly ditched by the Cabinet. I do not know about the Prime Minister herself. From her inability to speak today, it seems that she was probably dragged, kicking and screaming, into this agreement, and only acceded to it with the promise of a 1 per cent. cut in interest rates to dangle before the Conservative party conference. Perhaps the Government were and are hoping that, as a result of entry into the exchange rate mechanism, they will be able to cut interest rates further and that inflation will take a dramatic downward turn.
The whole basis of entry into the mechanism at this time was Treasury forecasts. I do not know how many forecasts the Treasury have made, but the one chosen by the Chancellor predicts a significant decline in interest rates, to a point where they will be roughly in line with the Community average of 4 or 5 per cent., at some time next year I assume, although that is not entirely clear.
If we study the Chancellor's forecasting record in the past few years at Budget time and compare his forecasts with the rate of inflation at the end of the year, we find that it overran the estimate by 65 per cent. in 1988, by 36 per cent. in 1989 and this year it will probably be about 40 per cent. above the forecast rate. What confidence can we have about such a momentous decision as entry into the exchange rate mechanism if it is based on a predicted rate of inflation which, judging by the record of the past few years, will still leave us about 45 or 50 per cent. above the Community average, which is considered desirable?
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The truth is that the teasing had to stop in October. Throughout 1990 the Government relied on dangling the possibility of entry into the exchange rate mechanism before the financial markets to keep the pound high without having further to increase interest rates which were already at a record high. This decision was the last desperate throw of the gambler's dice by the Government to try to win the next election—not to try to strengthen the economy.
What is the state of the economy? It is such that a balance of trade deficit of £845 million can be heralded as a triumph by the Government.
Today the British chambers of commerce quarterly survey reveals that, apart from a minor but welcome exception in the north-east, manufacturing industry throughout the country is forecasting a decline in orders. More companies are forecasting a decline than an increase, and the decline averages 11 per cent. in the country as a whole.
Even more important is the fact that companies employing more than 500 people are forecasting that employment prospects next year are likely to go down by 20 per cent. The service sector is forecasting an increase of only 3 per cent. whereas last winter it was forecasting a 14 per cent. increase.
The economy is undoubtedly in deep difficulties. Our high interest rates are a commentary on the weakness of the British economy when compared with that of most other countries. Now we have been reduced to saying that the main purpose behind joining the exchange rate mechanism was to try to bear down on wage costs in the economy to make our industry more competitive. Those fair words from the Chancellor and the Secretary of State for Employment must be seen against the background of company directors getting salary increases 3 and 4 per cent. above the average that most workers are receiving. Almost without exception, salary increases for the highest paid directors are in the stratosphere compared with what their workers are getting. For example, the top directors of Barclays bank got more than a 47 per cent. increase in their pay, but the lowest paid staff got a 10 per cent. increase—these figures are from the September 1990 bargaining report.
Blue Circle's directors got a 17·3 per cent. increase, whereas their lowest paid workers got 8·5 per cent. There are one or two honourable exceptions, including two companies that operate successfully in my constituency. The directors of Sony, the television manufacturer, took a 6·8 per cent. increase in pay—if only the rest of British industry had followed that lead—and their lowest paid workers got a 9 per cent. increase. The same can be said about Ford, where the top directors got 8·2 per cent., and the lowest-paid workers got 10·2 per cent. However, the general picture is that highly paid directors get large increases, but the rest of the work force generally gets an increase below the rate of inflation.
My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) rightly expressed his anxiety about employment prospects in Britain as a result of entry into the ERM at such an exchange rate. In a perfect world we would not like to start from this position. Given Government policies, there can be no comfort for unemployed people now, because they are not likely to get jobs, and, under these conditions for entry, many people who are employed are likely to become unemployed.

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It was most unkind and unfair of my right hon. Friend to undermine the argument put forward by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), which formed the basis of our amendment to the motion. Yes, we want to be in the exchange rate mechanism, but it is essential that other policies are tied in to help Britain become more competitive. We need more investment in research and in skill training. We need a better educated work force and an improved infrastructure because, without improved infrastructure and better regional policy, peripheral regions will suffer. That is why it is desirable to follow our policies now that we are in the ERM.
Some hon. Members spoke about dangers of the sovereignty of Parliament. For the last decade and at any time when there is a large Government majority, the concept of the sovereignty of Parliament is meaningless. We can talk about the sovereignty of the Government but certainly not about the sovereignty of Parliament. Hon. Members were also worried about getting tied into a single currency, independent central banks and economic and monetary union. Sovereignty is not totally independent and free standing. It is indivisible across the European Community and even there it cannot stand on its own because world events, such as the Gulf crisis, can undermine the sovereignty of nations to do as they will. They must respond to new situations.
The problem can also be solved by making the institutions of the Community more democratic. That can be done by giving up the practice of the only law-making institution in the democratic world being allowed to hold its meetings in secret. I am talking about the Council of Ministers becoming open to the public. We can take steps to ensure that the European Parliament has more of a role in the Community's legislative process. We can also ensure that the House has more of a role. In this case, as in many others, the House was not consulted and not allowed to vote. Britain joined the ERM during the recess and immediately before the Conservative party conference, and the Government joined it in order to allow embarrassed Cabinet Ministers off the hook.
Doubts were expressed about the concept of an independent central bank for Europe. Those are misplaced doubts because, as my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) said, in the last resort the bank is not independent. He cited the example of the one-for-one rate between the deutschmark and the ostmark on the unification of Germany. Herr Pal did not want that to happen, but Herr Kohl told him about the urgent political necessity for it. The Bundesbank may now have to reshape some of its policies, but it will still attempt to make sure that inflation in Germany does not run away.
Some hon. Members have looked into a future of economic and monetary union but that is not the purpose of the debate. There is no point in wringing our hands and saying that we do not want to be a part of this process when we are members of the club in which the process is evolving. We have to play a positive role by setting out what we believe are the necessary conditions as the process gets under way and is undoubtedly achieved.
We enter the ERM when the exchange rate was DM2·95. I shall not speculate about what might have been
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a better rate, but I shall deal with the relationship between the exchange rate and inflation and our export performance. At this time last year I asked the House of Commons research department to look into the relationship between the exchange rate and inflation. It looked at the period from 1975 to 1989. In a letter I was told:
"I found no significant evidence of the expected relationship between a change in the exchange rate and the retail price index in any of the following five months."
That is, the five months during which there was a change in the value of the pound on the foreign exchange markets. The letter goes on:
"Within this five month period less than 6 per cent. of the variation in the inflation rate was attributable to the change in the exchange rate index."
The evidence seems to show that, on the whole, manufacturers and the economy absorb much of the impact of a change in the exchange rate. I also asked about competitiveness and changes in the exchange rate and was told:
"However, for the small exchange rate falls that have taken place there is evidence of a gain to competitives for a year or two. Certainly there is overwhelming evidence of a considerable loss to competitiveness after the pound rose so high for 1979–82."
The message is that we should have gone in at a slightly lower rate. That would not have had a great impact on inflation and would have helped our competitiveness. If the Government were to follow the policies in our amendment, we would have a much healthier and a more prosperous economy rather than the disaster for which we are heading.
8.56 pm
Mr. Ian Taylor: I am grateful for four minutes in which to save the world.
One of the interesting by-products of the debate has been the fissures revealed in the Opposition between those who still crave for the fully centrally controlled economy and those who do not. Industrial policies were warmly welcomed and many of the policies that were seen to fail in the 1960s and 1970s were eagerly sought after. However, Opposition Front-Bench speakers clearly would wish to introduce the discipline of the ERM if they were ever to get into power. However, they do not like the current central rate because they feel that they could not resist the sort of inflationary wage pressures that have always bedevilled Labour Governments. Therefore, they would not find the ERM providing the anti-inflationary pressure which those of us who have been advocating it for some time have always thought to be the case.
There is no doubt that the Treasury has consistently urged that there should be three golf clubs in the bag, even if that is an over-used analogy. That has been the case under the present Chancellor and the former Chancellor. Those clubs are fiscal and monetary policy, both of which are reinforced by exchange rate policy. The three reinforce each other. That is why it is so essential, if we are determined to squeeze inflation out of the economy, to use all three methods. They will work together to bear down on inflation.
The Chancellor was absolutely right to enter the ERM at this time. Regardless of the arguments for entry that I and others have been urging on the Government since 1985, the conjunction of events on this occasion not only meant that the Madrid conditions on the wider basis of

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what was going on in the Community in competition policy and liberalisation of capital movements had been met, but that the United Kingdom monetary aggregates were giving the right signals about a declining trend in inflation. Both sterling M0 and sterling M4 were giving those signals, which induced a feeling of confidence that we would be moving in at the right time and that the discipline imposed by the exchange rate would reinforce the downward inflationary curve. That strikes me as right and proper, and, in my view, disposes of the Opposition's attempt to launch a bogus dispute about whether the Madrid conditions had been fulfilled.
For those who do not support ERM entry, the real question is, what would have happened if we had not joined? In fact, most of the horrors with which they have taxed us now that we are in the system would have existed in considerably greater magnitude had we stayed outside. Strangely enough, the loss of sovereignty that is generally considered to be a consequence of ERM membership is far greater if rates are allowed to float freely: in those circumstances, the Government's domestic fiscal and monetary policies would be constantly undermined. We should do better to accept that a firm discipline provides better guidelines.
What are the next steps? Without question, we must continue to urge on our European partners the Government's plan for a hard ecu. There is far too much divergence within the Community for any single currency system to be imposed. The hard ecu, reinforced by the European monetary fund, will provide member Governments with a benchmark discipline; economies may then converge and we shall have a chance to establish whether the ultimate use of the ecu will provide a common currency—one day, perhaps, a single currency.
We must not allow the Delors option to be imposed on us; we must allow the market to impose its own solution, with the widest possible use of a new, hard ecu. I urge the Government to continue to press that argument in all quarters within the Community.
9 pm
Mr. John Smith: We have had a most interesting debate. At times, I reflected that we had heard some of the arguments on other occasions over the past 20 years when we have debated European Community matters: some Conservative Members saw the Community as a model of newfangled socialism come to torment them in the future, while some of my right hon. and hon. Friends detected the brutalities of the market place at their worst, to be reinforced by our own participation.
We have heard a series of interesting speeches about the effect on our industrial economy of ERM membership, and about what is likely to happen in the difficult circumstances in which we find ourselves after 11 years of Conservative Government. Perhaps the most notable feature of the debate, however, was not to be observed in any of the speeches—some of them excellent—that we heard from hon. Members on both sides of the House. What was most notable, surely, was the absence of a speech from one right hon. Member who has signally declined every suggestion, invitation and exhortation to address the House; it was the absence of a speech from a head of Government who was unwilling to account to
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Parliament, in this important debate, for policies in which she had been involved more intimately and more directly than any other member of her Administration.
The right hon. Member for Blaby (Mr. Lawson) is more obviously aware of that than anyone else. The right hon. Gentleman chose not to accept an intervention from me—I do not think that he has ever done that before—but that, perhaps, was just as well, because he must have known what I was going to ask him: I was going to ask who stood in the way of the policies that he advocated for so many years, thinking that they would be advantageous to the country. He knows the answer; the answer is the missing Prime Minister, who will not come to the House to give us her explanation.
My point is not merely that we are discussing what many hon. Members have agreed is a momentous decision, and that it would be appropriate for the head of Government to come and tell us about it. The Prime Minister was so closely involved that she lost not only a Chancellor but a Foreign Secretary, as well as a family friend, as a result of the issue. No doubt the right hon. Member for Blaby is scribbling his account of five years of her Government in his memoirs day by day. I understand that he will not publish them before the next general election, and I expect that that will come as a great relief. It is not my task to act as an advertising agent for the right hon. Gentleman—who seems to be quite good at acquiring jobs for himself without any assistance from my good self—but he mast be able to hear the sounds of enthusiasm emanating from the Benches behind me. My hon. Friends are keen for him to advance the date of publication. Indeed, may I suggest—using a word with which the Chancellor is very familiar—that he publish them in "prospective" serial form, to titillate the nation and, perhaps, inform us a little before the time comes for the next election?
I was very sad when the right hon. Gentleman announced that soon he would no longer be with us. Having been locked in combat with him for so many years, I have almost a feeling of affection for him. Now and again, one must allow one's better instincts to come to the surface. I assure my right hon. and hon. Friends that I do not intend to make that a habit, but I was genuinely sad when I heard that the right hon. Gentleman had decided to leave us. We shall miss him in our deliberations.
Having listened to what the right hon. Gentleman said today—and he has made explosive speeches undermining the Government, from whom he has departed, on more than one occasion—perhaps some of his right hon. and hon. Friends wished that he had applied for the Chiltern Hundreds rather than taken the City thousands—[Interruption.] One hon. Member suggests the right hon. Gentleman should call his new house "Unassailable".
The right hon. Gentleman's main purpose in this debate was to tell the Government something that the markets already knew—that there is cynicism about the reasons behind the Government's actions. In view of the importance of that, would not it have been all the more appropriate for the Prime Minister to come to the debate and settle the question of credibility and, by a stout and resolute performance, settle the worries and the fears about the motives behind Britain's entry into the ERM?
It is felt—and this is not unique to the Opposition as it is felt in all quarters—that the final decision to join the ERM was taken for blatantly political reasons. That was in character with the history of previous Government

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actions. The Prime Minister wanted to reduce the burden on industry before the Conservative party conference. She discovered that that could not be done without joining the ERM because otherwise there would be pressure on Britain's currency, so the deed was done. That is wholly in keeping with the right hon. Lady's confused, irresolute, highly partisan and politically opportunist technique of dealing with affairs of state. Few people have found her explanations convincing. The right hon. Member for Blaby gave it away, and if he is convinced that the operation was cynical, it must have been so. I think that he knows quite a bit about that sort of operation.
At the beginning of his speech the Chancellor sought to throw away the Madrid conditions as though they had never been uttered. Indeed, one Conservative Member suggested that it was almost in bad taste to reiterate them. Let me remind the House of them. They were not forced on the Prime Minister by the other members of the European Community in some late-night haggle in Luxembourg, Strasbourg or somewhere else in Europe. They were not even the subject of negotiation between the Prime Minister and other member states. They were negotiated between the Prime Minister and the members of her Cabinet. The Madrid conditions were, first, that Britain would not enter the ERM until inflation had come down. It was not whether it might come down, whether it would come down or whether it was likely to come down; it was whether it had come down. Right hon. and hon. Members have reminded us of the detail of that and other conditions.
The Prime Minister prescribed other conditions that required action by others. I seem to remember that during the famous Walden interview she invented a new condition as each minute passed, until the programme was littered with new conditions. However, as she said rather disarmingly during Prime Minster's Question Time recently, "We had all these conditions, and they have all been fulfilled except one." The interesting point is that all those other conditions had to be fulfilled by other people, and they were. Only one had to be fulfilled by the right hon. Lady, but it was not. The right hon. Lady thought it to be some sort of victory—a triumph over the conditions that had been set, as a result of which she could boldly go forward into the ERM.
Underlying all that, and at the heart of the credibility question, is the right hon. Lady's well-known aversion to joining the ERM. Why else, during the revealing Walden interview, would she have described it as the
"higgledy-piggledy set of rules."?
I do not profess to know quite what she meant by that, but generally such an expression is not meant to be favourable. It has what might be called a marginally pejorative tone about it. We certainly did not feel that she was straining at the leash to join the ERM. But there we are, strange things happen. Opportunities and pressures are such that the Prime Minister will do almost anything to keep power and to oblige the narrow party political interests of her party. Inflation was to be the major condition.
The Chancellor was not quite as brass-necked as that. He tried to find a way out. I shall be drawing the attention of the House to the way in which the Chancellor uses words. Before the Treasury and Civil Service Select Committee in April, he said that the Government were looking for a proximate rate of inflation between ourselves
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and the Community. I think that he went on to define what he meant by a proximate, saying that Dr. Johnson had described it as meaning "near to".
I do not know whether the members of the Committee needed such education. They seemed pretty educated to me. My hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), who made an extremely skilful speech, did not need such education.
By September the same year, in his speech to the IMF, the Chancellor had further refined his choice of words. He realised that not only would the Government not get anywhere near the rate of inflation; they would not even get proximately near it, so they had to change the time scale. Therefore, he said that what mattered was the prospective movement. The Chancellor, not quite so brazen as the Prime Minister, gradually sought to wriggle out from his commitments; she just threw them aside.
Whatever the Prime Minister did, this was a humiliating u-turn for a Prime Minister who had set her face in another direction. She abandoned commitments and, in the process, displayed an underlying lack of conviction, which has worked its way through into the market place.
The decision having been taken, we are now in the difficulty that the Prime Minister's economic policies have left Britain in a weaker position than other member countries, less well able to face the opportunities and challenges that the single market offers, especially now that it is to be operated within the confines of membership of the ERM.
In this debate, and in debates that we shall have in the months to come, we must consider what has to be done now; what policies should be adopted. The Opposition never believed for one moment that it would be enough to enter the ERM. That has to be accompanied by a strong supply side policy directed to building a strong economy.
Before I consider the matters at the heart of the debate, we need, as the Chancellor did, to look at what is proposed for the next steps in the consideration of European economic and monetary affairs.
Mr. Norman Tebbit: The right hon. and learned Gentleman has been dealing with the conditions set out by the Prime Minister at Madrid some time ago, but he will recollect that this afternoon the right hon. Member for Bethnal Green and Stepney (Mr. Shore) asked how many of the conditions set out by the right hon. and learned Gentleman in his Labour party policy document 12 months ago had been satisfied. Does not he think that he should reply to his right hon. Friend?
Mr. Smith: If the right hon. Gentleman will forgive me, I shall make my speech in my own way. But he must understand one thing. We advocated entry into the ERM and we said that it should be accompanied by Government negotiation on certain conditions. I did not conduct the negotiations; they were conducted by the Government. That point must be evident. It is evident to me, to the right hon. Member for Chingford (Mr. Tebbit) and, I am sure, to my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore)—I made the point last Monday in the House, but I do not know whether the right hon. Member for Chingford was present; he has been here only intermittently today—that the regional policy conditions have not been fulfilled. The Government made no attempt

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to strengthen our European regional policy. I shall go on because what I have to say might interest the right hon. Gentleman and he should pay particular attention to it.
We have not heard much from the Chancellor about the central banking system. My right hon. Friend the Leader of the Opposition argued clearly the need for political accountability. Nor did the Chancellor say much about the single currency and the arguments that there will be about that. No doubt the Chief Secretary will deal with that in his reply. All those matters are brought together conveniently by the Government under the so-called hard ecu proposal. That is the Government's new response. It may help the House to know what the Government have been saying about the hard ecu, how they have moved in respect of the ERM, and the techniques that they have used in the manipulation of language.
Before I do so, I am bound to be asked what the Opposition's view is on a central bank and a single currency. My right hon. Friend the Leader of the Opposition made clear our belief that a system of central banks must be politically accountable. At this time, when the gap between Britain's performance and that of other members of the Community is so wide, it would not be prudent to commit ourselves to an irrevocable exchange rate or to a single currency. We want to play an active, participative role in the European Community. We are already in the single market and have advocated membership of the ERM. We shall now work for a stronger regional policy.
Conservative Members are as foolish about regional policy at home as they are about it within the Community, but such a policy is vital in building a strong Community that operates fairly in respect of all its member states. We shall work to support the social action programme, which is vital to the balance between economic success and social cohesion. The need for that is understood by many countries in the Community, but not by Conservative Members—[Interruption.] Government Members keep asking about. Labour party policy, but they will not listen when I explain what it is.
We shall all the while seek to close the gap between our economic performance and that of the rest of the Community, and between our social standards and those of the rest of the Community.
Mr. Cash: The right hon. and learned Gentleman has not said a thing.
Mr. Smith: The hon. Member for Stafford (Mr. Cash) should listen to what I have to say.
The Chancellor of the Exchequer said that the hard ecu is based on market choice and will evolve into a parallel currency. He said that it was the choice of Governments and of people. However, the "Treasury Bulletin" published yesterday set out the argument in more detail. I remind the House that it is proposed that a European monetary fund be established to act as the monetary authority for a new currency—the hard ecu. The distinguishing characteristic of that new currency is that it will never be allowed to devalue against any other Community currency. The "Treasury Bulletin" explains that
"the hard ecu would always be at least as strong as the strongest currency"—
and we can guess which one that will be, although the bulletin adds disarmingly,
"whatever that happened to be."
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It adds:
"It would be the responsibility of the EMF—a fundamental one enshrined in Community law"—
members of the Bruges group please note—
"to ensure that hard ecu devaluation never occurred."
The hard ecu was first presented by the Chancellor as a form of common or parallel currency that would he useful to exporters and people engaged in foreign trade, but nothing terribly exciting for the rest of us. It was just viewed as a useful device. I understand—and the Chief Secretary can tell me whether this is true—that the concept was sold to the Prime Minister by Sir Michael Butler, a former ambassador and a permanent United Kingdom representative to the Community. He is also chairman of the British Invisible Exports Council. Sir Michael's technique was to argue that the hard ecu was a market-led resolution of the problem. If one says the magic words to the Prime Minister, she just rolls over. The process of ratiocination may have stopped, but the magic words were said, and the right hon. Lady thought that since it was a market solution, it must be all right. The Prime Minister should take a little more care.
The difficulty of judging the hard ecu proposal is knowing whether it is designed to fail or to succeed. A t a cynical level, one could understand the proposal if it were designed to fail. That would take time, which would allow the Government to say something at meetings of the intergovernmental council. However, if we take the proposal at face value and accept that it is meant to succeed, the House should examine it carefully. It was surprising that the Chancellor did not tell us more than he did. The first impression gained was that the hard ecu is an alternative vehicle for exporters, but the way that it has been described by different Ministers puts me on my guard.
There is the belief in the House, and probably in the country, that the Prime Minister is against all this stuff—that she is a resolute defender of sovereignty and an even more resolute defender of parliamentary accountability.[Laughter.] That is her stock in trade. One might think it odd that, at this stage in this debate, one should be reflecting on her habit of constantly mentioning parliamentary accountability. The fact remains that she has said it.
The question that I want to ask the Chief Secretary to the Treasury is this: is the hard ecu an alternative to a single currency which would avoid our having to face questions of sovereignty and accountability? Or is it another route to a single currency—perhaps even a convenient transitionary mechanism through stage 2 of Delors, which unavoidably raises questions of sovereignty and accountability but seeks to keep them suppressed and to move them away from our consideration?
Listeners must have been alerted by the Chancellor's use of words at the Conservative party conference—in the euphoria of those heady days. What a long time ago it seems since the Chancellor was in Bournemouth. He must be reflecting on how one should enjoy the plaudits of the Conservative party while one may. Certainly, the financial markets seem to be a corrective to some of the political feelings that were expressed there. The Chancellor said to the conference:
"Joining the exchange rate mechanism does not mean that we are now on a road leading inexorably to a single currency."
That word "inexorably" flashed up in lights for the benefit of anyone who was paying attention. Why use that word?

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Was it accidental? Did the right hon. Gentleman simply think, "This is the day for being inexorable"? I think that he chose it with some care.
I used to think that the Foreign Office was the Department of weasel words, but the Treasury is getting pretty smart at them too. It has certainly never before had such a willing user of them as the present Chancellor. The right hon. Member for Blaby would scorn that kind of thing. We got it pretty straight from him. It was not very nice when we got it, but we got it fairly straight. One can either do what the right hon. Gentleman did or one can wriggle one's way round the issues with weasel words.
Only a few days ago, in his Mansion house speech, the Chancellor said:
"Joining the exchange rate mechanism did not commit us to adopting, and cannot oblige us to accept, the imposition of a single currency in Europe."
I do not know how one adopts an imposition. The Treasury might care to have a look at that infelicity before it sets out to equip the Chancellor with his next set of words for avoiding answering questions on these matters. But perhaps I fuss too much. That apart, what on earth does it mean that we are not to have a common single currency forced upon us? In what conceivable circumstances would we have it imposed upon us? If we were going to have a single currency, we should have to agree to it. We should have to go along with it. I have no doubt that, if it came to making a decision in the House, there would be fierce arguments about it. No one would be imposing it on anyone, so I do not know quite what the Chancellor meant in that speech.
The right hon. Gentleman went on to say:
"the hard ecu could ultimately evolve towards a single currency if it were the wish of Governments and peoples that it should be used in preference to their own currencies."
That leaves the door open, but the use of the word "ultimately" suggests that there is still some time to go, so the Bruges group should not get too worried just yet.
One is led to wonder what the Prime Minister was thinking about the question when she came back from the Dublin summit, at which the question was aired, and reported to the House on 28 June this year. When asked about the hard ecu, she said:
"I do not believe that that formula could develop into a single currency."—[Official Report, 28 June 1990; Vol. 175, c. 493.]
The Prime Minister tells us that she does not think that the hard ecu could develop into a single currency while the Chancellor tells us that it will, or would, if people decided to follow that route.
What is the latest position? Alerted to the question, I have been examining matters with some care over the past few days. The new addition to the Treasury team, the Financial Secretary, who, I am sorry to say, is not with us tonight, was speaking at the EMU seminar of the British Invisible Exports Council on the 10th of this month. Describing the hard ecu, he said:
"It would be a genuine common currency and one which could easily develop into a single currency as Governments and peoples decided."
Even more interesting is the report in today's Financial Times to which my right hon. Friend the Leader of the Opposition has already referred. I shall quote from the
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Financial Times report of the evidence that the Minister gave to the House of Lords Committee on economic and monetary union:
"Mr. Frances Maude, the minister responsible for European Affairs, put the Treasury's case succinctly in evidence earlier this month to a House of Lords committee. The hard Ecu, he said, offered a direct route to a single European currency."
He added:
"I would argue personally that the next stage of having a single currency could actually happen more quickly going down this path."
We have moved from that potential, useful device for exporters and other curious people to another route by which we could achieve a single currency not only feasibly, but easily and quickly. Things have moved quite a bit.
The Chancellor said that we should consider the next steps and he wanted a careful definition of the Opposition's position. However, in the light of all the contradictory advice to which I have just referred, the Chief Secretary to the Treasury should explain what is happening.
Mr. Tony Marlow: Will the right hon. and learned Gentleman give way?
Mr. Smith: No. The hon. Gentleman is doing well enough listening to me. I am sure that he will find my comments illuminating.
The "Treasury Bulletin" states that if the hard ecu catches on, the circulation of weaker currencies will fall and national monetary authorities will have to take action by pursuing tighter monetary policies. They will be forced to keep up. There is also a requirement to reimburse the EMF against exchange losses on devaluation. That is a strong disincentive to depreciate, as the "Treasury Bulletin" makes clear.
We need to be more clear about the constitution of the European monetary fund. Who is accountable for it? How does it work? To whom does it report? All those issues raise sovereignty and accountability questions. If the Government believe that I am making too much of a fuss about that, I shall quote Mr. Gavyn Davies of Goldman Sachs who examined the hard ecu and concluded:
"All of the problems associated with accountability and independence of the Eurofed, which have so exercised Mr Major, would apply in equal measure to his alternative European Monetary Fund."
I was put even more on the alert by a statement made by Sir Michael Butler, to whom I referred at an earlier stage in this saga. He has been thinking about the issue and how to incorporate the proposal into the treaty. He realises that there must be treaty amendments if the EMF and hard ecu are to be adopted. I know that this is not Government policy yet, but it is an interesting proposal. At a seminar at Hambros bank on 11 October, Sir Michael Butler proposed a treaty amendment that would
"create a European System of Central Banks consisting of the twelve national Central Banks and a European Monetary Fund owned and run by the Central Banks, to be operational from day one of Stage 2".
Clearly the EMF is linked with a system of central banking.
Sir Michael then states that a treaty amendment should
"lay down the aim of price stability for the whole EMU process and of permanently fixed parities leading to a single currency in Stage 3".
Is that Government policy? If the Prime Minister was here, she could clear all this up. If I could get the Prime Minister

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to answer my questions, I should not be quoting Ministers. She could speak on behalf of the whole Government—at least one would hope that she might.
These are important sovereignty and accountability issues and I hope that the Chief Secretary will consider them. The House will not let the matter drop. We have seen how the Government twist and turn, how they say one thing and do another and how they profess principles and then so easily abandon them.
The crucial point about the debate, to which all hon. Members have referred, is what we do from here. After having entered the exchange rate mechanism, we have been left with the weakest economy of the member states. The right hon. Member for Blaby may disagree, but we hear no more from him about the so-called economic miracle under which we were to have overtaken Germany and be pressing hard on Japan. Germany is now well ahead; France is significantly ahead; Italy is overtaking us; and Spain is coming up fast behind—and all of that after this Government have been in power for 11 years with large majorities and huge oil resources.
We have an ailing economy that has been damaged by the Government's policies over the past 11 years. As our amendment states, what we need now is what we have argued for in debate after debate, day after day—we shall do so in the House and in the country. To build a strong economy and a fair society, we need a vigorous regional policy, a new drive to provide British industry with the best of modern technology, a proper infrastructure, good social services, a good transport system, and, above all, an education and training system that gives our people the chance to compete. In the new Europe we have the opportunity to compete. We shall have to compete.
An hon. Member asked whether the other member states were partners or competitors. They are both—they are partners and competitors. We have opportunities and great challenges. We shall be able to realise them only if one thing above all is comprehended—that is that the crucial determinant of success in a modern economy is the way in which we utilise the skills of our people. That is what the next Labour Government will be committed to do. We shall make a success of our economy and our society, even with the difficult inheritance that will be our unfortunate and unhappy lot.
9.30 pm
The Chief Secretary to the Treasury (Mr. Norman Lamont): I agree with the right hon. and learned Member for Monklands, East (Mr. Smith) at least on one thing, and that is that this has been a remarkable debate. We have heard some strong and powerful speeches, many of which have certainly cut across party lines.
The right hon. Member for Bethnal Green and Stepney (Mr. Shore) made a remarkable and passionate speech in which he declared his strong opposition to fixed exchange rates. He said that, when he was a Minister, he had experienced the constraints of fixed exchange rates, which—I hope that I do not sound impertinent by saying this—is one reason why some of us have come round to being in favour of them.
Hon. Members also heard a powerful speech by my right hon. Friend the Member for Blaby (Mr. Lawson). I express my sadness that my right hon. Friend announced his decision yesterday to retire at the next election. His departure will represent a great loss both to the House and
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to my party. The debate is a bitter-sweet moment for my right hon. Friend as a long-standing advocate of the ER. M. He made his views very clear today. Also, the House was interested to hear his comments about EMU. Although he is a strong opponent of EMU, my right hon. Friend urged the Conservative party not to fear too much stage 3 of EMU on which he had doubts, for example, whether it was a real threat and would happen.
Hon. Members also heard an eloquent speech by my right hon. Friend the Member for Shropshire, North (Mr. Biffen). He joined the right hon. Member for Bethnal Green and Stepney in opposition to fixed exchange rates. There was one point on which I sharply disagreed with my right hon. Friend. He referred to entry into the ERM as a sort of European incomes policy. I do not think that that is the effect of the ERM. If it were, I certainly would not be in favour of it. As my right hon. Friend the Member for Blaby explained, it is a monetary framework. Just as the control of monetary aggregates is a framework of which wage bargainers must take account, so will wage bargainers have to take account of the new regime of fixed exchange rates.
My right hon. Friend referred to what the Chancellor said about wage claims. My right hon. Friend the Chancellor was not urging an incomes policy; he was just drawing the attention of wage bargainers to the consequences for employment and for themselves if wage claims were excessive. That is certainly very different from an incomes policy which in the past has been designed to control inflation, but, of course, never has controlled inflation.
My right hon. Friend the Member for Shropshire, North made most of his remarks, however, about his clear preference for floating exchange rates. I remember, as he will remember, the occasion when a former Chancellor of the Exchequer, Lord Barber, came to the House and announced that the pound was to float free. I take a different view from my right hon. Friend. The consequences of that decision have not been as beneficial and as benign as they then appeared to be. The period of floating exchange rates worldwide has been one of higher inflation. Looking back, the period under Bretton Woods and the fixed exchange rate was a period of greater stability and lower inflation.
The temptation to let exchange rates depreciate has always been powerful for Governments. However, that temptation has not brought any benefits because the effects of depreciating the currency have been short lived in terms of promoting output and competitiveness, but have been lasting in terms of inflation. That is one of the reasons why the Government concluded that it would be right to join the ERM.
Another part of the debate has dealt with whether joining the ERM should lead automatically to European monetary union. My hon. Friend the Member for Stafford (Mr. Cash) and my right hon. Friend the Member for Blaby referred to that. It is very much the Government's view that joining the exchange rate mechanism does not mean that we have to go down the road of the Delors plan towards European monetary union. The House was interested to hear the speech of my right hon. Friend the Member for Blaby who has always been strongly in favour of the ERM, but who, as everybody knows, has always been passionately opposed to EMU. It was interesting that my right hon. Friend quoted Mr. Volcker, saying that he did not think that we could have a single currency without

279
also having the full institution of a common Government. That is why we unequivocally and unambiguously are not in favour of the Delors plan.
The Leader of the Opposition made an interesting and important speech in which he seemed to carry forward his party's policies. However, neither after his speech nor after that of his right hon. and learned Friend the Member for Monklands, East is it clear that the Labour party is opposed to the Delors plan. That was not clear from the speeches that we heard today.
Mr. Tebbit: My right hon. Friend knows that, like a number of my right hon. and hon. Friends, I am rather an agnostic about the ERM itself. On balance, I believe that, at the moment, our entry is probably more likely to be helpful than unhelpful——
Mr. Teddy Taylor: In the short term.
Mr. Tebbit: Yes, in the short term. However, what worries me, like many other hon. Members, including the right hon. and learned Member for Monklands, East (Mr. Smith), is whether it will lead to a single currency and, therefore, to a single Government. Will my right hon. Friend be a little more robust in what he says? He has said that the Government are unequivocally opposed to the Delors plan, but will he say that the Government will refuse absolutely, clearly and flatly to go along with any pretence of a single currency?
Mr. Lamont: I have made it clear that the Government are wholly opposed to the Delors plan for a single currency. If my right hon. Friend is asking me whether it is conceivable that the hard ecu could become a single currency, the answer is that a hard ecu could not become a single currency unless Government and Parliament decided on that. We do not believe that that is something which has the support of the House or the people of this country at this time. It may be a decision that future generations or future Governments may wish to make, but it is not the policy of this Government.
Mr. Tebbit: I am grateful to my right hon. Friend because he has come a long way along the road to making this matter clear—[Interruption.] Of course, it is correct that entry into the ERM, the hard ecu or even the fact that today's date is 23 October could lead at some time—if people wanted it to—to a common currency. I am asking my right hon. Friend to confirm that the Government are irrevocably opposed to a common currency, whether it is Mr. Delors' common currency or anybody else's. [HON. MEMBERS: "Single currency."] I beg the House's pardon—I mean a single currency. I want to know whether the Government are irrevocably opposed to a single currency, whether it is Mr. Delors' single currency or anybody else's.
Mr. Lamont: The Government are opposed to a single currency. The hard ecu has tremendous attractions for developing co-operation on an evolutionary basis and on the basis of a parallel which recognises the reality of commerce becoming more integrated in Europe. But that would not become a single currency unless a future Government so desired
Mr. Spearing rose——
Mr. Leighton rose——
Madam Deputy Speaker (Miss Betty Boothroyd): The Chief Secretary is not giving way.
Mr. Lamont: I gave a clear answer to my right hon. Friend's question.
The right hon. Member for Bethnal Green and Stepney attacked the Government's decision on the ground that we had entered the ERM at too low an exchange rate. I have no doubt that the central rate of DM2·95 strikes the right balance between the need to maintain a firm anchor against inflation and the importance of preserving the competitiveness of British goods on world markets.
The right hon. Gentleman chose to quote some figures. He compared the level of the deutschmark today with the level of 1927—[Interruption.] I should say 1987. The right hon. Gentleman made a selective point but it was not so selective as that. He selected a period when sterling's real rate aginst the deutschmark was at its lowest for the whole of the past 10 years. As my right hon. Friend the Chancellor of the Exchequer said, the real rate of exchange at which we have chosen to join the ERM is close to the rate of the recent past and of the past decade.
We have heard some wild speeches about the decision to enter the ERM and about the parity. It was said that our decision was akin to the decision to join the gold standard in 1925 at the pre-war parity. Those speeches were wildly off the mark. When sterling returned to the gold standard in 1925 the rate chosen was not that which prevailed in the markets at the time but that which had prevailed before the war. It is fanciful to compare my right hon. Friend's decision with that decision. To have chosen that sort of parity, he would have had to choose a level of sterling to the deutschmark from many years ago.
Mr. Morgan: Does the Chief Secretary accept that the rate of DM2·95 to the pound may be right for today, but that the British rate of inflation will not fall from 11 per cent. to 3 per cent. overnight? It will fall from 11 per cent. this year to 7 per cent. next year, to 4 per cent. the year after that at best. Yet German inflation will fall from 4 per cent. this year to 3 per cent. and then to 2 per cent. So over two and a half years our competitiveness will decline in relation to the deutschmark by 15 percentage points. That will mean that DM2·95 today will be DM3·40 in two years. How many British industries will be competitive at DM3·40 to the pound? That is where we shall be in two and a half years' time.
Mr. Lamont: The hon. Gentleman illustrates precisely the reason why we have joined the ERM. He puts forward the theory of constant competitiveness and devaluation. It is precisely because other countries' economies inflate at slower rates than ours that we want the discipline of the ERM influenced by the Bundesbank so that we can compete and our costs and productivity can gradually attain the same levels as in Germany. That is precisely the reason why the Government have joined the ERM.
Much of the speech of the right hon. Member for Bethnal Green and Stepney was about the conditions under which the Government have joined the ERM and whether the Government satisfied the conditions that they laid down for themselves. For some time the only issue has been the rate of United Kingdom inflation, but, as my right hon. Friend the Chancellor of the Exchequer said, it is clear from both the monetary indicators and the real indicators that the economy is slowing down. Both the narrow definition of money and the broad definition of

281
money have slowed sharply. We have good reason for feeling confident that we are about to see an early fall in inflation. Given the relationship that existed in the past between monetary aggregates and inflation, we feel confident that, next year, we shall see a fall in inflation.
Given that the evidence was so clear and the economy was slowing down, was there any point in waiting any longer to join the ERM? I believe that it would have been sheer masochism to delay that decision any longer, especially given the uncertainty in the financial markets. They wanted a decision and that decision will reinforce the Government's anti-inflation policies.
Some people, including the Leader of the Opposition, have criticised the 1 per cent. cut in interest rates. That is a bit rich coming from him, considering that all that he has done in the past year has been to call for interest rate cut after interest rate cut. The moment we made that cut, however, he accused us of having done so for political reasons. There were three good reasons for doing so: first, the state of the economy justified it; secondly, at 14 per cent., interest rates remain high; and, thirdly, those high levels of interest rate are reinforced by our membership of the ERM. Nobody could judge the combination of a 1 per cent. cut in interest rates and joining the ERM as a loosening of policy.
It was noticeable that the Leader of the Opposition and the right hon. and learned Member for Monklands, East said little about their own policies except in one respect: we were told that the Labour party wants to introduce credit controls. Now that we have joined the ERM that is the Labour party's one remaining distinctive policy. On the whole, I think that the Opposition would have been better advised not to mention credit controls, as they are widely regarded as outdated, ineffective and irrelevant. Even the right hon. and learned Member for Monklands, East is rather half-hearted in his defence of them.
The right hon. and learned Gentleman spoke about a Walden interview with the Prime Minister, but I enjoyed another Walden interview in which the right hon. and learned Gentleman was taken apart by Mr. Walden on the subject of credit controls. Again and again Mr. Walden pointed out that there is not much point to credit controls if they do not apply to building societies. Mr. Walden pointed out that the main beneficiaries of credit control are likely to be the offshore foreign competitors of the British banking system. Mr. Walden's most telling argument was that if one restricts the supply of credit through controls the likely consequence is to drive the price—interest rates—up. To deny that is to deny the laws of economics and of supply and demand.
If there are unsatisfied borrowers unable to borrow and lenders willing to lend but prevented from doing so by the Government, how can the result be anything other than an increase in interest rates? Does the right hon. and learned Gentleman really believe that lenders will just shrug their shoulders and take a fall in profits? The right hon. and learned Gentleman should know that life just ain't like that. That is why some countries use the mechanism that the right hon. and learned Gentleman and his right hon. Friend the Leader of the Opposition confuse with credit controls. They use that mechanism as a method of regulating interest rates. Mr. Walden tried to make that point clear to the right hon. and learned Gentleman, who was curiously obtuse on that occasion.
Mr. Walden even pointed out to the right hon. and learned Gentleman that, even if he did not intend that
282
credit controls should drive up interest rates, that might still be the consequence. Mr. Walden pointed out that the right hon. and learned Gentleman could not do anything about that unless he passed a law to stop it happening, but the right hon. and learned Gentleman said that he had no intention of passing such a law.
During the interview the right hon. and learned Gentleman muttered and mumbled and spoke about a control in the 1970s known as the "corset" which was a form of credit control that did not drive interest rates up. The right hon. and learned Gentleman's memory is not very good and I believe that it is arguable whether the "corset" put up interest rates. One thing is certain, however: the credit controls that existed under the Labour Government of the 1970s may or may not have kept interest rates down, but they certainly kept inflation up. When we had credit controls in the early 1970s of the kind about which the right hon. and learned Gentleman was talking, we had inflation in excess of 25 per cent. That was the effect of credit controls.
The right hon. and learned Gentleman then gave the game away completely. He threw in the towel and said:
"Having credit controls, there to be used if they are necessary, and that depends on whether demand has already dropped."
Note the words:
"that depends on whether demand has already dropped."
A little later the right hon. and learned Gentleman went on to disagree with the Chancellor of the Exchequer. He thought that the economy was in a recession and added:
"My judgment is that demand is falling very fast in the economy at the moment."
In other words, strip away the rhetoric and the right hon. and learned Gentleman conceded that, if there ever was a case for credit controls, the time had long since passed. Despite that, Labour Members retain credit controls in their amendment and in their policy, although everybody knows that such a policy cannot, and will not, work and is utterly irrelevant.
I find the attitude of Labour Members in the debate utterly astonishing. What are they criticising? About what are they complaining? We have had many petulant tears, as though a child had seen its rounders bat stolen. We have heard cries of, "They have not done it for the right reason" and, "They do not believe it." It all smacks of sour grapes.
For some time, the right hon. and learned Member for Monklands, East has been telling us that we must join the ERM. Indeed, it has been his only policy, other than credit controls. It has been his answer to every question and problem. When asked how he would control inflation, he answered, "We shall join the ERM." When asked how Labour would run the economy without interest rates, he replied, "We shall join the ERM." Asked how he would achieve growth, he replied, "We shall join the ERM." Many of his answers have been contradictory and many have been wrong. They have been the cloak behind which Labour Members have concealed their complete absence of policies. It is a clear case of the right hon. and learned Gentleman and his party suffering——
Mr. Leighton rose——
Mr. Lamont: I will give way later.
Labour Members are suffering from what Christopher Fildes has called bovine spongiform Euromania, or mad bull disease. It is a disease that lodges in holes in the cerebellum and causes erosion of the powers of reasoning. Sufferers come to believe that membership of the ERM has

283
magical powers and will solve all problems. They also suffer from irrational fear and outbreaks of terror about something called the golden scenario. It is a golden scenario in which the Tories engineer a short boom, falling interest rates, a quick election—and my hon. Friend the Member for Crawley (Mr. Soames) is returned in time to go back to Ascot. Rational people know that the ERM has more limited powers, that it is a discipline, but that it is a powerful one which involves hard and difficult choices having to be made.
Labour Members are sore because they believed that the Government never would join the ERM. They were content to go on urging us to join, even though they did not know what the ERM was and what its implications were. They thought that it did not matter when they did not bother to explain it to the public. They were content to urge the Government to join, so long as it was their distinctive policy.
Seventy-two hours before the Chancellor announced his decision to join the ERM, the Leader of the Opposition was telling his party in Blackpool that if he were ever in a position to take decisions, one of the first would be to take sterling into the ERM. When it happened, what did we find? Did the right hon. Gentleman lead the cheers? Did he join the welcome? Did we hear the faintest echo, even a whisper of support, from him? No. It was left to one of the luckless Labour media advisers to provide the definitive reaction, preserved for posterity in the pink pages of the Financial Times. I shall give the quote in full because it bears repeating. The spokesman said:
"This has really screwed up our coverage in the media tomorrow. The conference organisers had laid on a particularly spectacular finale with the Red Flag, Jerusalem and auld lang syne to follow a rousing, rallying cry by Dr. Jack Cunningham, the campaign co-ordinator. All that now goes by the board. They have outsmarted us."
How can we explain the modest reception for the sudden implementation of what we were told was the central plank of the economic strategy of the Labour party? The answer is all too simple: for the Labour party, ERM was not a policy but an excuse. For it, joining the ERM was not a policy for reinforcing the anti-inflation process, but a fig leaf to conceal the absence of its policies. For it, the ERM was not the exchange rate mechanism but a slogan designed to cover up the bankruptcy of its own ideas. Read their lips—for members of the Labour party, ERM spells "everything's a real muddle."
Mr. Leighton: In an answer the Chief Secretary said that the hard ecu was evolutionary—evolutionary towards what?
Mr. Lamont: I have dealt with that question and I see that my right hon. Friend the Member for Chingford (Mr. Tebbit) is well satisfied with my answer.
Mr. John Smith: Will the right hon. Gentleman tell us about the arrangements for accountability for the European monetary fund? Does Sir Michael Butler—[Interruption.] I hear the right hon. Gentleman asking the Chancellor for the answer, and I ask the right hon. Gentleman to give us his own answer. How will the European monetary fund operate and how will it account to the House?
Mr. Lamont: We have made it clear on several occasions that we do not believe in an independent central bank at a European or a national level. The monetary authority would be subject to political control, which would have to be negotiated, but it would not be, in the sense that the right hon. and learned Gentleman describes it, an independent central bank.
The right hon. and learned Gentleman asks me a lot of questions, but he did not give away one detail about his policy on the matter. I should like to ask the right hon. and learned Gentleman why on earth, if he is not in favour of a single currency, he is in favour of a central bank in the first place, which is what he was putting forward.
The right hon. and learned Member for Monklands, East, of all people, has least cause to complain or criticise the Government in their attitude to the ERM. In his famous Walden interview, when he was asked about his economic policy in the current climate, he replied that he would do two things: join the ERM and cut interest rates by 1 per cent. However, his reception and reaction have been strangely muted and his rapture strictly modified, yet he has a profound and lasting influence on my right hon. Friend the Member for Chingford.
The right hon. and learned Member for Monklands, East and all Labour Members who have spoken in the debate have shown that they do not understand what the ERM is about. They do not understand that it is a discipline to lower inflationary expectations, and to give us the benefits of the policies of low inflation countries and that the whole point of the ERM is for inflation to converge towards the level of low inflation countries.
The terms referred to by my right hon. Friend the Member for Chingford add up to the following: first, devalue the currency, then lock into the new inflationary exchange rate and follow that by subverting the monetary discipline that lies at the heart of the ERM. By doing that, the Labour party would remove the very features of the ERM that make it an anchor against inflation. The truth is that the Labour party does not want an anchor against inflation today any more than it did in the past.
Labour has no credible monetary policy. It has no credible policy on the ERM. We believe that an important step has been taken: one which enhances the credibility of our monetary policy, will help us to defeat inflation and will bring lasting benefit to the people of the country. I commend the motion to my right hon. and hon. Friends.
Question put, That the amendment be made:—
The House divided: Ayes 188, Noes 323.

Division No. 331]

[10 pm

AYES

Abbott, Ms Diane

Boyes, Roland

Allen, Graham

Bradley, Keith

Archer, Rt Hon Peter

Bray, Dr Jeremy

Armstrong, Hilary

Brown, Gordon (D'mline E)

Ashley, Rt Hon Jack

Brown, Nicholas (Newcastle E)

Banks, Tony (Newham NW)

Buckley, George J.

Barnes, Harry (Derbyshire NE)

Caborn, Richard

Barron, Kevin

Callaghan, Jim

Battle, John

Campbell, Ron (Blyth Valley)

Beckett, Margaret

Campbell-Savours, D. N.

Beggs, Roy

Clark, Dr David (S Shields)

Bell, Stuart

Clarke, Tom (Monklands W)

Bennett, A. F. (D'nt'n & R'dish)

Clwyd, Mrs Ann

Bermingham, Gerald

Cohen, Harry

Bidwell, Sydney

Coleman, Donald

Blair, Tony

Cook, Robin (Livingston)

Blunkett, David

Corbett, Robin

Boateng, Paul

Cousins, Jim

285

Crowther, Stan

Marshall, Jim (Leicester S)

Cummings, John

Martin, Michael J. (Springburn)

Cunliffe, Lawrence

Maxton, John

Cunningham, Dr John

Meacher, Michael

Dalyell, Tam

Michael, Alun

Darling, Alistair

Michie, Bill (Sheffield Heeley)

Davies, Rt Hon Denzil (Llanelli)

Moonie, Dr Lewis

Davies, Ron (Caerphilly)

Morgan, Rhodri

Davis, Terry (B'ham Hodge H'I)

Morley, Elliot

Dewar, Donald

Morris, Rt Hon J. (Aberavon)

Dixon, Don

Murphy, Paul

Dobson, Frank

Oakes, Rt Hon Gordon

Doran, Frank

O'Brien, William

Douglas, Dick

O'Hara, Edward

Dunnachie, Jimmy

O'Neill, Martin

Eastham, Ken

Orme, Rt Hon Stanley

Evans, John (St Helens N)

Parry, Robert

Ewing, Harry (Falkirk E)

Patchett, Terry

Faulds, Andrew

Pendry, Tom

Fisher, Mark

Pike, Peter L.

Flannery, Martin

Powell, Ray (Ogmore)

Flynn, Paul

Prescott, John

Foot, Rt Hon Michael

Primarolo, Dawn

Foster, Derek

Quin, Ms Joyce

Fraser, John

Radice, Giles

Fyfe, Maria

Randall, Stuart

Galbraith, Sam

Rees, Rt Hon Merlyn

Garrett, John (Norwich South)

Richardson, Jo

George, Bruce

Robertson, George

Gilbert, Rt Hon Dr John

Robinson, Geoffrey

Godman, Dr Norman A.

Rogers, Allan

Gould, Bryan

Rooker, Jeff

Graham, Thomas

Ross, Ernie (Dundee W)

Grant, Bernie (Tottenham)

Ross, William (Londonderry E)

Griffiths, Nigel (Edinburgh S)

Rowlands, Ted

Griffiths, Win (Bridgend)

Ruddock, Joan

Hardy, Peter

Salmond, Alex

Harman, Ms Harriet

Sedgemore, Brian

Hattersley, Rt Hon Roy

Sheerman, Barry

Heal, Mrs Sylvia

Sheldon, Rt Hon Robert

Healey, Rt Hon Denis

Short, Clare

Henderson, Doug

Sillars, Jim

Hinchliffe, David

Smith, Andrew (Oxford E)

Hoey, Ms Kate (Vauxhall)

Smith, C. (Isl'ton & F'bury)

Hogg, N. (C'nauld & Kilsyth)

Smith, Rt Hon J. (Monk'ds E)

Home Robertson, John

Smith, J. P. (Vale of Glam)

Hood, Jimmy

Smyth, Rev Martin (Belfast S)

Howell, Rt Hon D. (S'heath)

Snape, Peter

Howells, Dr. Kim (Pontypridd)

Soley, Clive

Hoyle, Doug

Steinberg, Gerry

Hughes, John (Coventry NE)

Stott, Roger

Hughes, Robert (Aberdeen N)

Strang, Gavin

Illsley, Eric

Straw, Jack

Ingram, Adam

Taylor, Mrs Ann (Dewsbury)

Janner, Greville

Thompson, Jack (Wansbeck)

Jones, Barry (Alyn & Deeside)

Trimble, David

Kaufman, Rt Hon Gerald

Turner, Dennis

Kinnock, Rt Hon Neil

Vaz, Keith

Lambie, David

Walker, A. Cecil (Belfast N)

Lamond, James

Walley, Joan

Leadbitter, Ted

Wardell, Gareth (Gower)

Leighton, Ron

Wareing, Robert N.

Lestor, Joan (Eccles)

Watson, Mike (Glasgow, C)

Lewis, Terry

Welsh, Andrew (Angus E)

Litherland, Robert

Welsh, Michael (Doncaster N)

Lloyd, Tony (Stretford)

Wigley, Dafydd

Lofthouse, Geoffrey

Williams, Rt Hon Alan

McAllion, John

Williams, Alan W. (Carm'then)

McAvoy, Thomas

Wilson, Brian

McCartney, Ian

Winnick, David

McFall, John

Wise, Mrs Audrey

McKelvey, William

Worthington, Tony

McLeish, Henry

Wray, Jimmy

McNamara, Kevin

Young, David (Bolton SE)

McWilliam, John

Mahon, Mrs Alice

Tellers for the Ayes:

Marek, Dr John

Mrs. Llin Golding and Mr. Allen McKay.

Marschall, David (Shettleston)

286

NOES

Adley, Robert

Dover, Den

Aitken, Jonathan

Dunn, Bob

Alison, Rt Hon Michael

Durant, Tony

Amery, Rt Hon Julian

Dykes, Hugh

Amess, David

Eggar, Tim

Arbuthnot, James

Emery, Sir Peter

Arnold, Jacques (Gravesham)

Evans, David (Welwyn Hatf'd)

Arnold, Sir Thomas

Evennett, David

Ashby, David

Fairbairn, Sir Nicholas

Aspinwall, Jack

Fallon, Michael

Atkins, Robert

Fearn, Ronald

Atkinson, David

Field, Barry (Isle of Wight)

Baker, Rt Hon K. (Mole Valley)

Finsberg, Sir Geoffrey

Baker, Nicholas (Dorset N)

Fishburn, John Dudley

Baldry, Tony

Fookes, Dame Janet

Banks, Robert (Harrogate)

Forman, Nigel

Barnes, Mrs Rosie (Greenwich)

Forsyth, Michael (Stirling)

Beaumont-Dark, Anthony

Forth, Eric

Beith, A. J.

Fowler, Rt Hon Sir Norman

Bellingham, Henry

Fox, Sir Marcus

Bendall, Vivian

Freeman, Roger

Bennett, Nicholas (Pembroke)

French, Douglas

Benyon, W.

Fry, Peter

Bevan, David Gilroy

Gale, Roger

Blackburn, Dr John G.

Gardiner, George

Body, Sir Richard

Gilmour, Rt Hon Sir Ian

Bonsor, Sir Nicholas

Glyn, Dr Sir Alan

Boscawen, Hon Robert

Goodlad, Alastair

Boswell, Tim

Goodson-Wickes, Dr Charles

Bottomley, Peter

Gorman, Mrs Teresa

Bottomley, Mrs Virginia

Gorst, John

Bowden, A (Brighton K'pto'n)

Grant, Sir Anthony (CambsSW)

Bowden, Gerald (Dulwich)

Greenway, Harry (Ealing N)

Bowis, John

Greenway, John (Ryedale)

Boyson, Rt Hon Dr Sir Rhodes

Gregory, Conal

Braine, Rt Hon Sir Bernard

Griffiths, Peter (Portsmouth N)

Brazier, Julian

Grist, Ian

Bright, Graham

Grylls, Michael

Brown, Michael (Brigg & CI't's)

Hague, William

Bruce, Ian (Dorset South)

Hamilton, Hon Archie (Epsom)

Bruce, Malcolm (Gordon)

Hamilton, Neil (Tatton)

Buchanan-Smith, Rt Hon Alick

Hampson, Dr Keith

Buck, Sir Antony

Hanley, Jeremy

Burns, Simon

Hannam, John

Burt, Alistair

Hargreaves, A. (B'ham H'll Gr')

Butler, Chris

Hargreaves, Ken (Hyndburn)

Butterfill, John

Harris, David

Carlile, Alex (Mont'g)

Haselhurst, Alan

Carlisle, John, (Luton N)

Hawkins, Christopher

Carlisle, Kenneth (Lincoln)

Hayes, Jerry

Carrington, Matthew

Hayhoe, Rt Hon Sir Barney

Carttiss, Michael

Hayward, Robert

Cartwright, John

Heathcoat-Amory, David

Cash, William

Heseltine, Rt Hon Michael

Channon, Rt Hon Paul

Hicks, Mrs Maureen (Wolv' NE)

Chapman, Sydney

Hicks, Robert (Cornwall SE)

Chope, Christopher

Higgins, Rt Hon Terence L.

Churchill, Mr

Hill, James

Clark, Hon Alan (Plym'th S'n)

Hind, Kenneth

Clark, Dr Michael (Rochford)

Hogg, Hon Douglas (Gr'th'm)

Clark, Sir W. (Croydon S)

Holt, Richard

Clarke, Rt Hon K. (Rushcliffe)

Hordern, Sir Peter

Colvin, Michael

Howarth, Alan (Strat'd-on-A)

Conway, Derek

Howarth, G. (Cannock & B'wd)

Coombs, Anthony (Wyre F'rest)

Howell, Rt Hon David (G'dford)

Coombs, Simon (Swindon)

Howell, Ralph (North Norfolk)

Cormack, Patrick

Howells, Geraint

Couchman, James

Hughes, Robert G. (Harrow W)

Critchley, Julian

Hughes, Simon (Southwark)

Currie, Mrs Edwina

Hunt, David (Wirral W)

Curry, David

Hunt, Sir John (Ravensbourne)

Davies, Q. (Stamf'd & Spald'g)

Hunter, Andrew

Davis, David (Boothferry)

Irvine, Michael

Day, Stephen

Irving, Sir Charles

Devlin, Tim

Jack, Michael

Dickens, Geoffrey

Jackson, Robert

Dicks, Terry

Janman, Tim

Dorrell, Stephen

Johnson Smith, Sir Geoffrey

Douglas-Hamilton, Lord James

Jones, Gwilym (Cardiff N)

287

Jopling, Rt Hon Michael

Powell, William (Corby)

Kellett-Bowman, Dame Elaine

Price, Sir David

Key, Robert

Raffan, Keith

Kilfedder, James

Raison, Rt Hon Timothy

King, Roger (B'ham N'thfield)

Rathbone, Tim

Kirkhope, Timothy

Redwood, John

Kirkwood, Archy

Renton, Rt Hon Tim

Knapman, Roger

Rhodes James, Robert

Knight, Greg (Derby North)

Riddick, Graham

Knight, Dame Jill (Edgbaston)

Ridley, Rt Hon Nicholas

Knowles, Michael

Rifkind, Rt Hon Malcolm

Knox, David

Roberts, Sir Wyn (Conwy)

Lamont, Rt Hon Norman

Roe, Mrs Marion

Lang, Ian

Rost, Peter

Lawrence, Ivan

Rowe, Andrew

Lawson, Rt Hon Nigel

Rumbold, Mrs Angela

Lee, John (Pendle)

Ryder, Richard

Leigh, Edward (Gainsbor'gh)

Sackville, Hon Tom

Lennox-Boyd, Hon Mark

Sainsbury, Hon Tim

Lester, Jim (Broxtowe)

Sayeed, Jonathan

Lilley, Peter

Scott, Rt Hon Nicholas

Livsey, Richard

Shaw, David (Dover)

Lloyd, Sir Ian (Havant)

Shaw, Sir Giles (Pudsey)

Lloyd, Peter (Fareham)

Shaw, Sir Michael (Scarb')

Lord, Michael

Shelton, Sir William

Luce, Rt Hon Richard

Shephard, Mrs G. (Norfolk SW)

Lyell, Rt Hon Sir Nicholas

Shepherd, Colin (Hereford)

Macfarlane, Sir Neil

Shepherd, Richard (Aldridge)

MacGregor, Rt Hon John

Shersby, Michael

MacKay, Andrew (E Berkshire)

Skeet, Sir Trevor

Maclean, David

Smith, Tim (Beaconsfield)

Maclennan, Robert

Soames, Hon Nicholas

McLoughlin, Patrick

Speller, Tony

McNair-Wilson, Sir Michael

Spicer, Sir Jim (Dorset W)

McNair-Wilson, Sir Patrick

Squire, Robin

Madel, David

Stanbrook, Ivor

Major, Rt Hon John

Stanley, Rt Hon Sir John

Malins, Humfrey

Steen, Anthony

Mans, Keith

Stern, Michael

Maples, John

Stevens, Lewis

Marland, Paul

Stewart, Allan (Eastwood)

Marlow, Tony

Stewart, Andy (Sherwood)

Marshall, John (Hendon S)

Stewart, Rt Hon Ian (Herts N)

Martin, David (Portsmouth S)

Stokes, Sir John

Mates, Michael

Sumberg, David

Maxwell-Hyslop, Robin

Summerson, Hugo

Meyer, Sir Anthony

Tapsell, Sir Peter

Michie, Mrs Ray (Arg'l & Bute)

Taylor, Ian (Esher)

Mills, Iain

Taylor, John M (Solihull)

Miscampbell, Norman

Taylor, Matthew (Truro)

Mitchell, Andrew (Gedling)

Taylor, Teddy (S'end E)

Mitchell, Sir David

Tebbit, Rt Hon Norman

Moate, Roger

Thompson, D. (Calder Valley)

Montgomery, Sir Fergus

Thompson, Patrick (Norwich N)

Moore, Rt Hon John

Thornton, Malcolm

Morrison, Sir Charles

Thurnham, Peter

Morrison, Rt Hon P (Chester)

Townsend, Cyril D. (B'heath)

Moss, Malcolm

Tracey, Richard

Moynihan, Hon Colin

Tredinnick, David

Mudd, David

Trippier, David

Neale, Gerrard

Trotter, Neville

Nelson, Anthony

Twinn, Dr Ian

Neubert, Michael

Vaughan, Sir Gerard

Nicholls, Patrick

Viggers, Peter

Nicholson, David (Taunton)

Waddington, Rt Hon David

Nicholson, Emma (Devon West)

Wakeham, Rt Hon John

Norris, Steve

Waldegrave, Rt Hon William

Onslow, Rt Hon Cranley

Walden, George

Oppenheim, Phillip

Wallace, James

Owen, Rt Hon Dr David

Waller, Gary

Page, Richard

Ward, John

Paice, James

Wardle, Charles (Bexhill)

Patnick, Irvine

Warren, Kenneth

Patten, Rt Hon John

Watts, John

Pattie, Rt Hon Sir Geoffrey

Wells, Bowen

Pawsey, James

Wheeler, Sir John

Peacock, Mrs Elizabeth

Whitney, Ray

Porter, Barry (Wirral S)

Widdecombe, Ann

Porter, David (Waveney)

Wilkinson, John

Portillo, Michael

Winterton, Nicholas

288

Wolfson, Mark

Tellers for the Noes:

Wood, Timothy

Sir George Young and Mr. David Lightbown.

Woodcock, Dr. Mike

Yeo, Tim

Younger, Rt Hon George

Question accordingly negatived.
Main Question put:—
The House divided:Ayes 300, Noes 227.

Division No. 332]

[10.15 pm

AYES

Adley, Robert

Curry, David

Aitken, Jonathan

Davies, Q. (Stamf'd & Spald'g)

Alison, Rt Hon Michael

Davis, David (Boothferry)

Amery, Rt Hon Julian

Day, Stephen

Amess, David

Devlin, Tim

Arbuthnot, James

Dickens, Geoffrey

Arnold, Jacques (Gravesham)

Dorrell, Stephen

Arnold, Sir Thomas

Douglas-Hamilton, Lord James

Ashby, David

Dover, Den

Aspinwall, Jack

Dunn, Bob

Atkins, Robert

Durant, Tony

Atkinson, David

Dykes, Hugh

Baker, Rt Hon K. (Mole Valley)

Eggar, Tim

Baker, Nicholas (Dorset N)

Emery, Sir Peter

Baldry, Tony

Evans, David (Welwyn Hatf'd)

Banks, Robert (Harrogate)

Evennett, David

Barnes, Mrs Rosie (Greenwich)

Fairbairn, Sir Nicholas

Beaumont-Dark, Anthony

Fallon, Michael

Bellingham, Henry

Field, Barry (Isle of Wight)

Bendall, Vivian

Finsberg, Sir Geoffrey

Bennett, Nicholas (Pembroke)

Fishburn, John Dudley

Benyon, W.

Fookes, Dame Janet

Bevan, David Gilroy

Forman, Nigel

Blackburn, Dr John G.

Forsyth, Michael (Stirling)

Bonsor, Sir Nicholas

Forth, Eric

Boscawen, Hon Robert

Fowler, Rt Hon Sir Norman

Boswell, Tim

Fox, Sir Marcus

Bottomley, Peter

Freeman, Roger

Bottomley, Mrs Virginia

French, Douglas

Bowden, A (Brighton K'pto'n)

Fry, Peter

Bowden, Gerald (Dulwich)

Gale, Roger

Bowis, John

Gardiner, George

Boyson, Rt Hon Dr Sir Rhodes

Gilmour, Rt Hon Sir Ian

Braine, Rt Hon Sir Bernard

Glyn, Dr Sir Alan

Brazier, Julian

Goodlad, Alastair

Bright, Graham

Goodson-Wickes, Dr Charles

Brown, Michael (Brigg & Cl't's)

Gorst, John

Bruce, Ian (Dorset South)

Grant, Sir Anthony (CambsSW)

Buchanan-Smith, Rt Hon Alick

Greenway, Harry (Ealing N)

Buck, Sir Antony

Greenway, John (Ryedale)

Burns, Simon

Gregory, Conal

Burt, Alistair

Griffiths, Peter (Portsmouth N)

Butler, Chris

Grist, Ian

Butterfill, John

Grylls, Michael

Carlisle, John, (Luton N)

Hague, William

Carlisle, Kenneth (Lincoln)

Hamilton, Hon Archie (Epsom)

Carrington, Matthew

Hamilton, Neil (Tatton)

Carttiss, Michael

Hampson, Dr Keith

Cartwright, John

Hanley, Jeremy

Cash, William

Hannam, John

Channon, Rt Hon Paul

Hargreaves, A. (B'ham H'll Gr')

Chapman, Sydney

Hargreaves, Ken (Hyndburn)

Chope, Christopher

Harris, David

Churchill, Mr

Haselhurst, Alan

Clark, Hon Alan (Plym'th S'n)

Hawkins, Christopher

Clark, Dr Michael (Rochford)

Hayes, Jerry

Clark, Sir W. (Croydon S)

Hayhoe, Rt Hon Sir Barney

Clarke, Rt Hon K. (Rushcliffe)

Hayward, Robert

Colvin, Michael

Heathcoat-Amory, David

Conway, Derek

Heseltine, Rt Hon Michael

Coombs, Anthony (Wyre F'rest)

Hicks, Mrs Maureen (Wolv' NE)

Coombs, Simon (Swindon)

Hicks, Robert (Cornwall SE)

Cormack, Patrick

Higgins, Rt Hon Terence L.

Couchman, James

Hill, James

Critchley, Julian

Hind, Kenneth

Currie, Mrs Edwina

Hogg, Hon Douglas (Gr'th'm)

289

Holt, Richard

Page, Richard

Hordern, Sir Peter

Paice, James

Howarth, Alan (Strat'd-on-A)

Patnick, Irvine

Howarth, G. (Cannock & B'wd)

Patten, Rt Hon John

Howell, Rt Hon David (G'dford)

Pattie, Rt Hon Sir Geoffrey

Howell, Ralph (North Norfolk)

Pawsey, James

Hughes, Robert G. (Harrow W)

Peacock, Mrs Elizabeth

Hunt, David (Wirral W)

Porter, Barry (Wirral S)

Hunt, Sir John (Ravensbourne)

Porter, David (Waveney)

Hunter, Andrew

Portillo, Michael

Irvine, Michael

Powell, William (Corby)

Irving, Sir Charles

Price, Sir David

Jack, Michael

Raffan, Keith

Jackson, Robert

Raison, Rt Hon Timothy

Johnson Smith, Sir Geoffrey

Rathbone, Tim

Jones, Gwilym (Cardiff N)

Redwood, John

Jopling, Rt Hon Michael

Renton, Rt Hon Tim

Kellett-Bowman, Dame Elaine

Rhodes James, Robert

Key, Robert

Ridley, Rt Hon Nicholas

Kilfedder, James

Rifkind, Rt Hon Malcolm

King, Roger (B'ham N'thfield)

Roberts, Sir Wyn (Conwy)

Kirkhope, Timothy

Roe, Mrs Marion

Knapman, Roger

Rost, Peter

Knight, Greg (Derby North)

Rowe, Andrew

Knight, Dame Jill (Edgbaston)

Rumbold, Mrs Angela

Knowles, Michael

Ryder, Richard

Knox, David

Sackville, Hon Tom

Lamont, Rt Hon Norman

Sainsbury, Hon Tim

Lang, Ian

Sayeed, Jonathan

Lawrence, Ivan

Scott, Rt Hon Nicholas

Lawson, Rt Hon Nigel

Shaw, David (Dover)

Lee, John (Pendle)

Shaw, Sir Giles (Pudsey)

Leigh, Edward (Gainsbor'gh)

Shaw, Sir Michael (Scarb')

Lennox-Boyd, Hon Mark

Shelton, Sir William

Lester, Jim (Broxtowe)

Shephard, Mrs G. (Norfolk SW)

Lilley, Peter

Shepherd, Colin (Hereford)

Lloyd, Sir Ian (Havant)

Shersby, Michael

Lloyd, Peter (Fareham)

Skeet, Sir Trevor

Lord, Michael

Smith, Tim (Beaconsfield)

Luce, Rt Hon Richard

Soames, Hon Nicholas

Lyell, Rt Hon Sir Nicholas

Speller, Tony

Macfarlane, Sir Neil

Spicer, Sir Jim (Dorset W)

MacGregor, Rt Hon John

Squire, Robin

MacKay, Andrew (E Berkshire)

Stanbrook, Ivor

Maclean, David

Stanley, Rt Hon Sir John

McLoughlin, Patrick

Steen, Anthony

McNair-Wilson, Sir Michael

Stern, Michael

McNair-Wilson, Sir Patrick

Stevens, Lewis

Madel, David

Stewart, Allan (Eastwood)

Major, Rt Hon John

Stewart, Andy (Sherwood)

Malins, Humfrey

Stewart, Rt Hon Ian (Herts N)

Mans, Keith

Stokes, Sir John

Maples, John

Sumberg, David

Marland, Paul

Summerson, Hugo

Marlow, Tony

Tapsell, Sir Peter

Marshall, John (Hendon S)

Taylor, Ian (Esher)

Martin, David (Portsmouth S)

Taylor, John M (Solihull)

Mates, Michael

Tebbit, Rt Hon Norman

Maxwell-Hyslop, Robin

Thompson, D. (Calder Valley)

Meyer, Sir Anthony

Thompson, Patrick (Norwich N)

Mills, Iain

Thornton, Malcolm

Miscampbell, Norman

Thurnham, Peter

Mitchell, Andrew (Gedling)

Townsend, Cyril D. (B'heath)

Mitchell, Sir David

Tracey, Richard

Montgomery, Sir Fergus

Tredinnick, David

Moore, Rt Hon John

Trippier, David

Morrison, Sir Charles

Trotter, Neville

Morrison, Rt Hon P (Chester)

Twinn, Dr Ian

Moss, Malcolm

Vaughan, Sir Gerard

Moynihan, Hon Colin

Viggers, Peter

Neale, Gerrard

Waddington, Rt Hon David

Nelson, Anthony

Wakeham, Rt Hon John

Neubert, Michael

Waldegrave, Rt Hon William

Nicholls, Patrick

Walden, George

Nicholson, David (Taunton)

Waller, Gary

Nicholson, Emma (Devon West)

Ward, John

Norris, Steve

Wardle, Charles (Bexhill)

Onslow, Rt Hon Cranley

Warren, Kenneth

Oppenheim, Phillip

Wells, Bowen

Owen, Rt Hon Dr David

Wheeler, Sir John

290

Whitney, Ray

Yeo, Tim

Widdecombe, Ann

Younger, Rt Hon George

Wilkinson, John

Wolfson, Mark

Tellers for the Ayes:

Wood, Timothy

Sir George Young and Mr. David Lightbown.

Woodcock, Dr. Mike

NOES

Abbott, Ms Diane

Flannery, Martin

Allen, Graham

Flynn, Paul

Archer, Rt Hon Peter

Foot, Rt Hon Michael

Armstrong, Hilary

Foster, Derek

Ashley, Rt Hon Jack

Fraser, John

Banks, Tony (Newham NW)

Fyfe, Maria

Barnes, Harry (Derbyshire NE)

Galbraith, Sam

Barron, Kevin

Garrett, John (Norwich South)

Battle, John

Garrett, Ted (Wallsend)

Beckett, Margaret

George, Bruce

Beggs, Roy

Gilbert, Rt Hon Dr John

Beith, A. J.

Godman, Dr Norman A.

Bell, Stuart

Gordon, Mildred

Benn, Rt Hon Tony

Gorman, Mrs Teresa

Bennett, A. F. (D'nt'n & R'dish)

Gould, Bryan

Bermingham, Gerald

Graham, Thomas

Bidwell, Sydney

Grant, Bernie (Tottenham)

Biffen, Rt Hon John

Griffiths, Nigel (Edinburgh S)

Blair, Tony

Griffiths, Win (Bridgend)

Blunkett, David

Hardy, Peter

Boateng, Paul

Harman, Ms Harriet

Body, Sir Richard

Hattersley, Rt Hon Roy

Boyes, Roland

Heal, Mrs Sylvia

Bradley, Keith

Healey, Rt Hon Denis

Bray, Dr Jeremy

Henderson, Doug

Brown, Gordon (D'mline E)

Hinchliffe, David

Brown, Nicholas (Newcastle E)

Hoey, Ms Kate (Vauxhall)

Brown, Ron (Edinburgh Leith)

Hogg, N. (C'nauld & Kilsyth)

Browne, John (Winchester)

Home Robertson, John

Bruce, Malcolm (Gordon)

Hood, Jimmy

Buckley, George J.

Howell, Rt Hon D. (S'heath)

Budgen, Nicholas

Howells, Geraint

Caborn, Richard

Howells, Dr. Kim (Pontypridd)

Callaghan, Jim

Hoyle, Doug

Campbell, Ron (Blyth Valley)

Hughes, John (Coventry NE)

Campbell-Savours, D. N.

Hughes, Robert (Aberdeen N)

Canavan, Dennis

Hughes, Simon (Southwark)

Carlile, Alex (Mont'g)

Illsley, Eric

Clark, Dr David (S Shields)

Ingram, Adam

Clarke, Tom (Monklands W)

Janman, Tim

Clwyd, Mrs Ann

Janner, Greville

Cohen, Harry

Jones, Barry (Alyn & Deeside)

Coleman, Donald

Kaufman, Rt Hon Gerald

Cook, Robin (Livingston)

Kinnock, Rt Hon Neil

Corbett, Robin

Kirkwood, Archy

Corbyn, Jeremy

Lambie, David

Cousins, Jim

Lamond, James

Crowther, Stan

Leadbitter, Ted

Cryer, Bob

Leighton, Ron

Cummings, John

Lestor, Joan (Eccles)

Cunningham, Dr John

Lewis, Terry

Dalyell, Tam

Litherland, Robert

Darling, Alistair

Livingstone, Ken

Davies, Rt Hon Denzil (Llanelli)

Livsey, Richard

Davies, Ron (Caerphilly)

Lloyd, Tony (Stretford)

Davis, Terry (B'ham Hodge H'l)

Lofthouse, Geoffrey

Dewar, Donald

McAllion, John

Dicks, Terry

McAvoy, Thomas

Dixon, Don

McCartney, Ian

Dobson, Frank

McFall, John

Doran, Frank

McKelvey, William

Douglas, Dick

McLeish, Henry

Dunnachie, Jimmy

Maclennan, Robert

Dunwoody, Hon Mrs Gwyneth

McNamara, Kevin

Eastham, Ken

McWilliam, John

Evans, John (St Helens N)

Madden, Max

Ewing, Harry (Falkirk E)

Mahon, Mrs Alice

Faulds, Andrew

Marek, Dr John

Fearn, Ronald

Marshall, David (Shettleston)

Field, Frank (Birkenhead)

Marshall, Jim (Leicester S)

Fields, Terry (L'pool B G'n)

Martin, Michael J. (Springburn)

Fisher, Mark

Maxton, John

291

Meacher, Michael

Sillars, Jim

Michael, Alun

Skinner, Dennis

Michie, Bill (Sheffield Heeley)

Smith, Andrew (Oxford E)

Michie, Mrs Ray (Arg'l & Bute)

Smith, C. (Isl'ton & F'bury)

Mitchell, Austin (G't Grimsby)

Smith, Rt Hon J. (Monk'ds E)

Moonie, Dr Lewis

Smith, J. P. (Vale of Glam)

Morgan, Rhodri

Smyth, Rev Martin (Belfast S)

Morley, Elliot

Snape, Peter

Morris, Rt Hon J. (Aberavon)

Soley, Clive

Mudd, David

Spearing, Nigel

Murphy, Paul

Steinberg, Gerry

Nellist, Dave

Stott, Roger

Oakes, Rt Hon Gordon

Strang, Gavin

O'Brien, William

Straw, Jack

O'Hara, Edward

Taylor, Mrs Ann (Dewsbury)

O'Neill, Martin

Taylor, Matthew (Truro)

Orme, Rt Hon Stanley

Taylor, Teddy (S'end E)

Parry, Robert

Thompson, Jack (Wansbeck)

Patchett, Terry

Trimble, David

Pendry, Tom

Turner, Dennis

Pike, Peter L.

Vaz, Keith

Powell, Ray (Ogmore)

Walker, A. Cecil (Belfast N)

Prescott, John

Wallace, James

Primarolo, Dawn

Walley, Joan

Quin, Ms Joyce

Wardell, Gareth (Gower)

Radice, Giles

Wareing, Robert N.

Randall, Stuart

Watson, Mike (Glasgow, C)

Rees, Rt Hon Merlyn

Welsh, Andrew (Angus E)

Richardson, Jo

Welsh, Michael (Doncaster N)

Robertson, George

Wigley, Dafydd

Robinson, Geoffrey

Williams, Rt Hon Alan

Rogers, Allan

Williams, Alan W. (Carm'then)

Rooker, Jeff

Wilson, Brian

Ross, Ernie (Dundee W)

Winnick, David

Ross, William (Londonderry E)

Winterton, Nicholas

Rowlands, Ted

Wise, Mrs Audrey

Ruddock, Joan

Worthington, Tony

Salmond, Alex

Wray, Jimmy

Sedgemore, Brian

Young, David (Bolton SE)

Sheerman, Barry

Sheldon, Rt Hon Robert

Tellers for the Noes:

Shepherd, Richard (Aldridge)

Mrs. Llin Golding and Mr. Alien McKay.

Shore, Rt Hon Peter

Short, Clare

Question accordingly agreed to.
Resolved,
That this House congratulates the Government on joining the Exchange Rate Mechanism of the European Monetary System; notes the clear evidence that the Government's tight monetary and fiscal policies are reducing inflationary pressures in the economy; and believes Exchange Rate Mechanism membership will reinforce the Government's counter-inflationary strategy and help to strengthen the framework for a sustained improvement in economic performance.

Hong Kong
10.28 pm
The Parliamentary Under-Secretary of State for the Home Department (Mr. Peter Lloyd): I beg to move,
That the draft British Nationality (Hong Kong) (Selection Scheme) Order 1990, which was laid before this House on 15th October, be approved.
Subject to approval in this House and in another place, the order will come into force on 1 December.
The order sets out the scheme that the Governor of Hong Kong proposes to use to select up to 50,000 key people whom he will recommend to the Secretary of State for registration as British citizens under the British Nationality (Hong Kong) Act 1990.
The selection scheme that the Governor has presented to the Home Secretary, which is before the House tonight, is a complex one. Comments and suggestions have been received from a wide range of bodies with interests in Hong Kong's continued prosperity and stability, and both Houses examined outline proposals for the scheme during the passage of the British Nationality (Hong Kong) Act.
During those discussions, the Government made it clear that they intended to listen with an open mind to suggestions for ways in which the scheme might be improved. That is precisely what we have done. I believe that the detailed proposals now before the House represent a thorough, fair and objective means of selecting those Hong Kong residents whom it would be most damaging for the territory to lose and to whom we hope to give confidence to remain.
I have already written to more than 60 right hon. and hon. Members who were fortunate enough to catch Mr. Speaker's eye during the debates in this House, and to those who served on the Committee, to explain how the scheme now proposed by the Governor differs from the one envisaged in the explanatory notes that the Government made available during the passage of the Act.
For the benefit of others, I should like to say a few words about the scheme and the principal changes that have been made. The broad structure remains as envisaged in the explanatory notes. Subject to approval, the scheme would consist of four classes, each of which would be given a share of the 50,000 places. The general occupational class receives 36,200 places to be allocated among the 20 occupational groups specified in annex 1. Some 7,000 places go to the disciplined services class, covering the nine services set out in article 18 of the order. The sensitive service class—those in the public or private sectors serving the interests of the Crown or involved in other activities of a sensitive nature—will receive 6,300 places, while 500 places are reserved for the entrepreneurs class, in which the Governor will recommend those whom he considers to have made a special contribution to the economy of Hong Kong. The criteria that the Governor will take into account are set out in article 24.
With the exception of those in the entrepreneurs class, the available places will be distributed in tranches, the size of which will be set out in directions by the Home Secretary. About 87 per cent. of the places will be awarded in the first tranche.
If the order is approved, applications for the first tranche will be invited from 1 December with a closing

293
date of 28 February 1991 and will take some two years to process. The rest of the places—some 13 per cent.—will he awarded nearer 1997.
Applicants under the general occupational class and the disciplined services class will be selected on the basis of a points system. The broad criteria against which points will be awarded, and the maximum number of points available for each criterion, remain as set out in the explanatory notes.
Concern was expressed, especially in Committee, about the 150 points available for "special circumstances", in particular the amount of discretion available to the Governor in awarding up to 50 points for individual merit. Article 14 of the order now makes it clear that up to 30 of those points will be tied objectively to occupation-related merit or achievement—for example, local or international awards. A further maximum of 30 will be available for unpaid service with specified voluntary agencies or institutions in the social, medical or educational field and up to 20 points will be awarded for officially recognised and rewarded acts of bravery or gallantry.
Since the whole focus of the scheme is to discourage people who are prone to do so from emigrating, the Governor needs greater flexibility to recognise particularly high rates of emigration within occupational groups. The number of special circumstances points available for that purpose has therefore been increased from 50 to 75.
The final 50 points for modifying age, qualifications or experience to reflect the needs of a particular occupation or group remain unchanged. The total number of points that can he awarded to any individual under the special circumstances heading is still capped at 150.
On the question of age points, we considered very carefully with the Governor whether the criteria should be adjusted to give more points to those over 40, as some suggested during the passage of the Act. We have concluded that the proposed scale should not be changed. Maximum points are justified for those aged 30 to 40 because people in that age group would be moving into key positions in the years up to 1997 and immediately after, and a particularly large number of them are now emigrating. There is also, of course, as I said earlier, some extra flexibility available where age is concerned under the special circumstances heading.
Concern has been expressed in some quarters—particularly in the British business community in Hong Kong—about the number of points which can be awarded to those employed by British firms. We have been urged to increase them. But the award of those points is not designed to guarantee success for all applicants working in British companies. It would be wrong to rig the system in such a way that employees of British firms won places at the expense of others who were better qualified and therefore arguably more key to Hong Kong as a whole.
We have looked at the issue with particular care and believe that it would be a mistake to increase the maximum of 35 points that is available under this heading. Competition for places in the general occupational class will be fierce and there are bound to be groups of applicants bunched around the qualifying mark. In those circumstances, even a handful of points for those serving British firms will ensure that they are placed higher up the list than their counterparts who are, in all other respects, equal.
We have, however, agreed a change in the way in which the points should be awarded. They will be given to current
294
employees of British firms for any previous periods of service with a British firm or firms or with other British institutions. We have dropped the requirement envisaged in the explanatory note that such service should have been continuous.
We have considered very carefully how a "British firm" should be defined for the purpose of awarding those points. Adopting a narrow definition, restricted, for example, to firms with headquarters registered in the United Kingdom, would have rendered ineligible some of the major firms in Hong Kong which are generally regarded as British and which have extensive trading links with this country going back over many years. Looking therefore to the wider interests of Hong Kong, we have used the term "British undertaking" in the order and defined it as a company or firm which the Governor is satisfied has a close connection with the United Kingdom. In reaching his decisions, he will be assisted by a committee in which our senior British trade commissioner in Hong Kong is expected to play a leading part.
As a result of discussions in Committee which the hon. Member for Edinburgh, Central (Mr. Darling) will recall as he was interested in this, arrangements will be made for the steering group to advise the Governor on the use of special circumstances points on the basis of information from which the names of individuals have been removed.
As I have said, this is a complex order because selecting 50,000 people for British citizenship from a pool of many tens of thousands who could claim to be "key" to Hong Kong's future prosperity and stability is a complex task. The fact that so many different people from so many different walks of life will be eligible to apply demonstrates that this is not, as some had earlier suggested, a narrow, elitist scheme. It is one based on merit and achievement. The criteria are both fair and objective and the scope for bias or corruption has been, as far as humanly possible, eliminated.
The principal aim behind the scheme is to rebuild confidence in Hong Kong. To this end, those recommended by the Governor will, if acceptable, be registered on the Home Secretary's behalf by a team of officials based in Hong Kong. I hope that those selected under the scheme, and other British citizens in Hong Kong whose passports need renewing, will take advantage of the arrangements that are being made to issue British citizen passports in Hong Kong. Those will be standard machine-readable passports and identical to full passports issued elsewhere.
This scheme will, I believe, serve Hong Kong well and, by extension, the interests and responsibilities of the People's Republic of China and of the United Kingdom—as we both have a duty and a concern to maintain the stability and prosperity of Hong Kong in the years immediately ahead. I therefore commend the order to the House.
10.38 pm
Mr. Alistair Darling: The Opposition will not divide the House on this order tonight. We opposed the scheme and the British Nationality (Hong Kong) Act 1990 because the proposal is flawed in concept, and we set out our position in some detail in the Standing Committee. However, if we are to set up such a scheme, it can operate only on a points system. We must understand that any points system will result in difficulties and will undoubtedly in some cases result in significant unfairness.

295
I visited Hong Kong briefly after the British Nationality (Hong Kong) Bill received its Royal Assent earlier this year at the invitation of the Hong Kong Government. I repeat the assurance that I gave there and in Standing Committee: a Labour Government would honour all passports issued under the Act. We shall review the way in which the scheme has been operating when we come to office as the present Government have said they will. All passports granted under the scheme will be honoured by us.
The Minister said that some changes were made after the scheme was originally opposed. By and large, those changes are an honest attempt to improve the way in which the scheme operates. I believe that the Minister has made a valiant effort to try to meet some of the criticisms that were made, although, as I said, I do not believe that he has succeeded in doing so completely.
The Minister referred to article 14, which deals with special circumstances. Although the Committee and civil servants in Hong Kong did their best to eliminate discretion on the part of the Governor by allocating a set number of points for the various qualifications set out under the scheme, it is the case, and it is bound to be the case, that judgments will have to be made as between one applicant and another. As a result of that, it is inevitable that some people will feel hard done by. It is particularly difficult to follow the Government's route on British firms. We have a responsibility to the entire colony in Hong Kong, not just to British firms. France in particular has favoured French firms, but we should remember that the entire colony, not just British firms, is the responsibility of Britain.
We should understand that the new Act was never designed as a safety net for the majority of the population of Hong Kong. It was never designed to ensure that the whole population would be able to leave or to get out in the event of some danger, although many people at the time thought that that was what it was supposed to do. The Act was an attempt to keep in the labour market those with skills that were in short supply in the colony, and, by definition, those who could migrate quite easily. People in that position could usually find jobs elsewhere. For that reason, the scheme can never be entirely fair because it tends to favour people who already have choices.
It is unlikely that those people would come to the United Kingdom, as I suspect that they could get rather better jobs doing the same thing in different parts of the world. I do not think that that is a particularly real fear in respect of people who are likely to qualify under the scheme. But, because of their mobility, those who qualify under the scheme can in many cases qualify for other schemes being operated by various other countries. Perhaps the Minister will confirm that, if someone already has citizenship of another country, the points system will operate in such a way as to make it less likely—in fact, very unlikely—for him to qualify under our scheme.
Mr. Peter Lloyd: Perhaps it will be convenient if I answer that point now. There are negative points for those who have nationality of another country—minus 200—which makes it almost certain that they would not be able to achieve British nationality as well. The scheme is weighted heavily against them, although they will be able
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to enter it should they wish to do so. The knowledge that they would be "minused" in that way would encourage few of them to do so.
Mr. Darling: I am grateful for that assurance, especially as, in the four days that I was in Hong Kong, several people seemed to be under the impression that they would probably qualify for our scheme as well as other schemes on offer. Some of the people who might have applied would have liked Britain as their first choice, rather than Australia or Canada. It is important that we do not end up simply giving a large number of people passports while other people receive none at all.
The people who are likely to qualify under the scheme already have other choices available to them. Anyone who thinks that the Act or the scheme has anything to do with expanding the opportunity for people in Hong Kong to go elsewhere should the need arise should realise that the additional choices are being given to people who, for the most part, already have choices.
There is no doubt that the number of people who will be seeking passports will vastly outnumber the number of passports that are available. Because of that, there is a grave risk that there will be a sense of unfairness. With the best will in the world, any points scheme is discriminatory, and a large number of people will be disappointed. Those who operate the scheme have made every effort to avoid that possibility, but, none the less, it remains.
Under article 14—I dwelt on the matter at some length when we considered the Bill in Committee—the Governor still has much discretion. It is regrettable that the Government have sought to exclude judicial review. Individuals may feel aggrieved because their applications have been refused. They may feel that, in effect, they gave points to others who applied and were accepted, and who on the face of the applications seemed to be in exactly the same position as themselves. The risk of that happening has been reduced by spelling out the number of points that are available for certain qualifications, but it is one that remains.
It is regrettable that the scheme still maintains points for an applicant's wage level. That criterion is a classic example of the unfairness of the scheme. It attempts to equate additional value to society with higher remuneration. That is made clear in annex 3. It counters the Minister's claim that the scheme recognises merit and achievement. There are many in Hong Kong who have much merit and have achieved a great deal, but they will never qualify under the scheme because they are not at the top of the wage structure and have not achieved some other pre-eminence. Judicial review might have been an opportunity to set people's minds at ease. It might have provided an opportunity to put right some decisions that went wrong.
The Opposition do not believe that the Act and the scheme will determine the future of Hong Kong. It is obvious that the people want to stay there and will leave only as a last resort. The colony has always had a high turnover in its population, however, and that is likely to continue. The determining factor in the success of Hong Kong will be the relationship with China and China's internal development. The opportunities for investment in China and the entire Pacific basin are there to be taken. Britain could help to provide for confidence in the region through British companies. Britain does not enjoy an especially high reputation in that part of the world. The

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Government, through their various agencies, could do far more to show that Britain is still committed to Hong Kong to 1997 and thereafter. As in many other parts of the world, we find that Japan, France, Germany and the United States are all bidding for work in Hong Kong. British companies are in evidence, but the Government could do much more to encourage those that are firmly rooted in Britain and other parts of Europe to realise that there are tremendous opportunities in the Pacific basin if Hong Kong is used as a base. That encouragement would do much to build confidence in the colony if it believed that the Government and people of Britain still cared about it.
The future of Hong Kong lies in the hands of the Foreign Office and the Department of Trade and Industry and not so much in those of the Home Office. I have never accepted that the Act was a matter of immigration. I know, however, that those who wished to parade their own prejudices and venom in society latched on to the measure. They recognised that it gave them the opportunity that they sought. I believe that the Act relates to the confidence of Hong Kong and that it is not merely a vehicle for the granting of passports. There is much more to it than that.
I make yet another plea to the Government to think again about those who do not qualify under the scheme. I realise, of course, that the Act provides that an annual report has to be laid before the House. I urge the Government to reconsider the position of those with no effective nationality. They may well be in an extremely difficult position in 1997. I have much in mind also the concern that was expressed on Report, especially for the wives of British citizens who do not have automatic rights in respect of this country. It would be nonsensical if people were obliged to return to Britain to live here for three years to ensure that their spouses qualified. That is something that must be kept open for review.
If we regarded Hong Kong as an asset to build upon rather than as a liability, we could do far more for the colony and the entire region than I suspect that we shall do under the scheme. A positive attitude on the part of the United Kingdom in Hong Kong and in China is essential if the Hong Kong agreement is to be fulfilled.
10.49 pm
Mr. Norman Tebbit: At this stage in our consideration of this legislation there is no point in attempting, even if it were not for the fact that it would be out of order, to go over the general principles of the Act. It is curious, however, that we can scarcely discuss details without reflecting upon the Act as a whole. Some of the provisions that are before us may appear to be erratic or peculiar, but they are based upon an Act which is both erratic and peculiar in the literal meanings of those words. So having swallowed the camel we must not strain at the gnat of the order.
I do not propose to detain the House long this evening but it is a great pity that my hon. Friend the Minister could not bring us some news when he introduced this statutory instrument of the further reaction from Peking to the legislation. It would have been comforting for those of us who opposed the Bill to be told that we were wrong in our assessment of the reaction of the Chinese Government and that the British Government were right. Unhappily the reverse is true. The Chinese Government have made it clear that they regard the legislation as an insulting
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interference in their affairs and have made it plain that it is an obstacle, rather than an assistance, to the further improvement of relations between Great Britain and the People's Republic of China. That is sad, but I guess that we shall have to live with it now, as the legislation has been passed.
I have to reflect somewhat lightheartedly on the sheer joy of seeing the various valuations that are placed on certain individuals in Hong Kong. Who am I, above all, to disagree with the view that a qualified kindergarten teacher qualifies for exactly as many points as someone who has a bachelor degree in law? It seems to be one of the better assessments of social work that we have had for some time, although I realise that not everyone would agree with me on that.
The instrument contains one curiosity which I am sure that my hon. Friend the Minister can explain. If he turns to page 17 he will find that if one is a journalist with a bachelor degree other than in journalism or communications one scores 45 points. Does that mean that if one is a practising lawyer with a bachelor's degree one is given 10 points but if one is a journalist with a bachelor's degree in law one is given 45 points? If so, that is curious and extraordinary in the extreme. It underlines the remarkable nature of this complex legislation, built upon a piece of bad legislation which is a minefield and a trap for anyone trying to find their way through it with common sense.
My hon. Friend the Minister might reflect on one person who, as far as I can see—although I have not checked out the numbers in detail—would probably have qualified under most of the criteria in the statutory instrument. He was a distinguished business man in Hong Kong. In fact, he was the chairman of the Hong Kong stock exchange. I take it that the fact that he has now been convicted of criminal offences will disqualify him. What an extraordinarily good thing that he was not given his British passport before he was convicted.
10.53 pm
Mr. Robert Maclennan: The order is not amendable and therefore there is a limit to the value of criticisms of any part of it. I want to use this opportunity, however, to ask the Minister about the effectiveness of the scheme at present and his perceptions of the response in Hong Kong to its provisions.
On the face of t, the scheme is not serving the purpose for which it was dreamt up. The prevalent anxiety in Hong Kong is about a breakdown in law and order. Those anxieties were referred to by Sir David Wilson in his speech to the Legislative Council two weeks ago, and I should be astonished if the Minister was unaware of them. It has been admitted that 150,000 members of the Triad organisation are no longer the subject of special attention by a division of the Hong Kong police, and that is causing great anxiety. Public service recruitment has been frozen and the staff targets for the police—a disciplined service specially referred to in the order—have not been met and have fallen short by about 50 per cent. Can the Minister say whether that is due to emigration? Are there any other reasons for that shortfall?
What is most alarming, as the Minister will be aware, is that Sir David Wilson has predicted that emigration will rise to 62,000 this year. It does not appear that the

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Government's efforts to stabilise the population are meeting with the sort of success that can be the only justification for the scheme set out in the order.
In common with he right hon. Member for Chingford (Mr. Tebbit), I shall not enter into the merits of the Bill. The Minister is aware that I opposed it in principle in the belief that if the population retained in the colony was to be sufficient to guarantee the economy more people should have been eligible under the Government scheme.
We are entitled to know what value the Government place upon the scheme on the basis of the evidence of recent months since the Bill's enactment. It is difficult to agree with the Minister that bias will not enter into the consideration of entitlement under the scheme. Bias is built into the scheme. Indeed, the Minister spoke of the consideration given to whether there should be an adjustment of the points awarded on age. It is clear that the scheme leans heavily towards the 30 to 40-year-old group. It is therefore biased against some people who may
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have given great service to this country and to the colony for substantially longer than those in the aforementioned group. That older generation may feel a great sense of grievance.
The categories specially favoured by points will be the subject of great debate. The Minister has already drawn attention to a particular common commercial group and for every person satisfied there will be many more who are dissatisfied.
The scheme has contributed to the growing unrest in the colony and it has resulted in the increase in the numbers seeking to emigrate. That unrest must be contributing to the downturn in the growth of the colony's economy. This year it witnessed an economic growth of 2·5 per cent., the lowest in the Pacific basin. Inflation has also risen to nearly 10 per cent. and it is clear that we are judging the scheme against an unhealthy state of affairs.
In this short debate, I hope that it will be possible for the Minister to say something about how he sees the scheme contributing to the future of Hong Kong on the basis of the experience gained so far.
10.58 pm
Mrs. Teresa Gorman: As I have watched the events in the middle east unravel on the television screen in the past few months, I have wondered why a small enclave, Kuwait, clinging to the fringes of an alien and hostile country ruled over by a dictatorship, should command such concern here and elsewhere in the world when the liberty of its citizens is threatened. In comparison, we offer no hope or promise to the people of Hong Kong, over which this country has far more say, that should the alien power behind them decide to invade and perpetrate the crimes now perpetrated in Kuwait, we and the rest of the world will go in to defend the remnants of their liberty. Had we given those people that assurance when we last debated this issue, we should not now need to be discussing the points scheme. I have always opposed the points scheme and moves to remove the elite from Hong Kong. After all, they are the very people who may have been able to develop a system of resistance to an alien force that might decide to move into that territory.
Even now we are not meeting the understandable and natural fears of the majority of the people there. While there is still time, let us consider what more we might offer them by way of consolation, in view of our concern, as the member of an international body, for the plight of small, unprotected or difficult-to-protect groups who have strong ties with our way of justice and law and who have strong economic ties with us.
There is still time for us to discuss ways, in addition to the points scheme, of giving those people a greater sense of security and reassurance about the future. Let them, too, feel that should what has happened in Kuwait happen to them, we and world bodies would adopt the same attitude and protect their liberties. Then, perhaps not so many of them would wish to flood away from that country. After all, it is our creation. It reflects our way of life and our belief in freedom. Their energy and exuberance have created there a prosperous and free state. If they felt that we were prepared to back what we have helped to create there, in precisely the same way as we are saying to the people of Kuwait, "We shall come in and restore your liberty," that would reassure the people of Hong Kong. for they would feel that we were prepared to do for them what we are prepared to do for the people of Kuwait.
11.2 pm
Mr. Ivan Lawrence: We should not lose this opportunity to congratulate whoever devised this devilish scheme. I was a member of the Select Committee on Foreign Affairs and we funked the task of going into the matter in too much detail. We said:
"We appreciate the difficulties of defining coherent categories of suitable people apart from public servants … to whom a right of abode or an assurance of a right of entry for settlement might be offered."
Lord MacLehose said, when giving evidence to the Committee:
"There are people in the Home Office who are frightfully ingenious at keeping people out and I think they are perfectly capable of thinking of a formula for letting them in."
That led us to the conclusion:
"We believe such assurances could be provided to a significant number of Hong Kong BDTCs in key positions."
We would not go further than that. But it looks as though the Home Office or somebody else has come up to the expectations of Lord MacLehose and has devised a
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devilishly ingenious scheme. So ingenious is it that few of us can think of anything to say when faced with the statutory instrument.
But having congratulated whoever devised the scheme, I wonder whether we might hear from the Minister whether the purpose of this devilish scheme, which was to give some reassurance to the very groups of people in Hong Kong who are expected—because, in earlier figures, they were shown to be doing so—to leave Hong Kong as 1997 approaches, is being effected. We did not have such a statement from the Minister earlier, and I hope that, when he replies, he will feel able to give it.
We said in our report, which was accepted by the Government, that although between the years 1980 and 1986 the average yearly outflow was about 20,000, in 1989 it was 42,000 and this year it was expected to be 55,000. The whole purpose of the scheme, devilish or otherwise, was to try to stop that haemorrhage of great talent from Hong Kong and anchor the people there so that they would continue the success of Hong Kong, making it a great and happy place when eventually the takeover took place.
We know that this is the second draft of the scheme and there has been much discussion in Hong Kong about the scheme's detail. It would be encouraging to hear from the Minister that the number of those leaving is already beginning to turn down. If the scheme is not having that effect, something more will have to be done. We do not want to have to keep coming back to the House at such a late hour to consider even more devilish schemes, which is the way that the gentlemen in the Home Office, who are so skilled at devising such proposals, will be forced to proceed if what we have done so far shows absolutely no signs of success. Therefore, I ask my hon. Friend the Minister to give us some reassurance on that, because, apart from reassuring us, he will comfort the people of Hong Kong who are probably just as puzzled as most of us appear to be by the way in which the categories have been worked out and the numbers allocated.
11.7 pm
Mr. Peter Lloyd: A number of points have been raised and I shall try to answer each of them in turn as best I can.
The hon. Member for Edinburgh, Central (Mr. Darling) talked about British firms and wondered whether any extra points should be given for British firms in Hong Kong. He shakes his head, which means that I must have missed his point entirely, and I would be grateful if he would tell me what he meant.
Mr. Darling: I was commenting on the fact that I thought that the Minister said that he had devised a formula that would make it slightly more favourable for people employed by British firms. I was simply making the point that Britain is responsible for the whole colony; people there work for firms that are owned by many countries—it is an international community. I do not think that favouring British firms has as much merit as the Minister was hinting at. We have responsibility for the whole colony, not just for people employed by British firms or, as he said, firms that might have some connection with Britain.
Mr. Lloyd: I did understand the hon. Gentleman. In my opening remarks I said that we had broadened the definition of British firms so that many firms in the colony

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would be accommodated. Secondly, I said that we had decided not to increase the number of points for British firms beyond 35 so that it would act merely as a tie breaker between those who were equally qualified. As it is a British passport and British nationality being given, it seems right that British firms should, when everything else is equal, be the ones to benefit, not least because, as the hon. Gentleman said, firms of other nationalities in Hong Kong are generally taking steps to look after their own employees in that way. Therefore, we are doing little more than evening up matters.
The hon. Gentleman spoke of those who already had choices being given more choices. That is the basic intention of what we are doing. It is those with choices who are leaving. Those who do not have choices are staying in Hong Kong. We are trying to ensure that those who have the choice to leave have another choice to take up British passports and nationality, and stay in Hong Kong, which British nationality will give them the confidence to do.
The hon. Gentleman also said that pay levels should not be taken into account. He is mistaken in his belief as to how widely they are to be taken into account. There is only one group to which they relate—business men and managers. It is only one measure among many that will go to make up the number of points that they can score. As ability to earn is one of the characteristics of a successful business man it would be wrong, in fact one would be blind, not to take it into account, at least for some of the points that he may earn.
Mr. Timothy Raison: This is the provision that I find offensive. It seems to me the most dangerous example of one law for the rich and one for the poor that I have ever seen. I hope that when this matter is reconsidered we can get away from this provision. It does not make a spectacular difference, as my hon. Friend the Under-Secretary has just said, but if it were on the statute book it would be a very unhappy state of affairs.
Mr. Lloyd: That is very misguided of my right hon. Friend. Of course, in the business sector, one of the indicators of success is the amount that people earn. If my hon. Friend does not want to face that, or believes that we should not face it when we determine the key people who should be anchored, he is facing the problem in a blind way, as it cannot and should not be ignored. Those are the sort of people whom we want to anchor in Hong Kong. As I told the hon. Member for Edinburgh, Central, those are the people who find it easiest to emigrate. That is why the provision is in the Bill, and it is right that it should be.
The hon. Member for Edinburgh, Central also mentioned special circumstances points. As I said in my opening remarks, we have tried to make them as objective as possible. The hon. Gentleman says that it is not quite objective enough for him, but if he reads the rules carefully he will understand that, although the Governor has the opportunity to change the balance of special circumstances points, according to the needs of a certain class or category, nevertheless he has to apply them similarly to everyone in that category. So, as far as the category is concerned, the points are applied objectively.
Mr. Tebbit: My hon. Friend is not quite correct. Article 14(2), on special circumstances, states:
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"The Governor may allocate up to 75 points to an applicant if he considers that there is an exceptionally high propensity to emigrate amongst those serving in the relevant occupation or amongst a particular group of persons serving in that occupation."
I do not want to push the matter to the extent of saying that the "particular group" could be people called Lee, or Lloyd, or something like that, but it gives the Governor a pretty enormous discretion to specify a particular group.
Mr. Lloyd: My right hon. Friend entirely misses the point. The whole purpose of the scheme is to anchor those people in Hong Kong who have a particular propensity to emigrate; and enabling the Governor to take into account the greater propensity of a particular group to emigrate underlines the object of the points system.
Mr. Tebbit: My hon. Friend misunderstands me. I know that the Act is based upon partiality and favouritism. The amount of discretion in exercising partiality and favouritism which is extended to the Governor is quite enormous. He can even decide, according to the order, not to give points for a particular qualification if he does not like it; he can add qualifications which are not included if he likes them. That is part of the Act.
Mr. Lloyd: My right hon. Friend does not want to understand the system, because if he did he would say that of course the Governor has the discretion to apply different points, but he has it only to apply them to different groups. They have to apply equally to those people in those groups. Therefore, he does not select one person as against another; he recognises the reality of the position that a particular group is in.
Mr. Tebbit: How does one define a qualifying group? Could it be of Wykehamists or Old Etonians?
Mr. Lloyd: I think that if it was plain that he was doing that and that he was exercising his discretion unreasonably—my right hon. Friend will remember our debate on Report—that would clearly be a matter on which judicial review could be sought. My right hon. Friend takes his case to the point of absurdity where the Governor would be exercising his discretion not reasonably but unreasonably.
Mr. Lawrence: In which countries will the judicial review be sought?
Mr. Lloyd: Of course, it will be in Hong Kong where common law applies and the possibility of judicial review exists, as it does here. My right hon. Friend the Member for Chingford made great play about the way in which the points are made up in the appendix to the rules. He forgets that lawyers and journalists are in separate groups and are not comparable. Points for professional and vocational qualifications are earned only for occupation-related qualifications. He mentioned lawyers in particular. A bachelor degree in law will be a preliminary qualification worth 10 points, but the degree holder will have other qualifications to add. My right hon. Friend should look at how the system will work as a whole rather than picking out and making a misinterpretation of how the Governor will be able to use the system.
Mr. Tebbit: Will my hon. Friend give way?
Mr. Lloyd: No, because I should like to answer some more points.
Mr. Tebbit: My hon. Friend has not answered my points.
Mr. Lloyd: I most certainly have, and if my right hon. Friend reads Hansard he will see that that is so, especially if he reads it in the light of his earlier remarks.
The hon. Member for Caithness and Sutherland (Mr. Maclennan) wondered whether the scheme was already working. Of course it is not because it is not yet available. If the orders are approved it will come into effect on 1 December. The emigration rates indicate the plans that were made by people who were worried about staying in Hong Kong 18 months to two years ago. We shall not see the effect of the scheme until it is well under way and British citizenship is being granted. If the hon. Gentleman wants an example of how such citizenship can work, I suggest that he looks at the figures for Singapore. It issued some 25,000 passports to citizens in Hong Kong and very few of them have moved from there. The passports have succeeded in anchoring those people for the present. I have no doubt that British passports will do that even more effectively in Hong Kong.
Mr. Maclennan: Is the Minister saying that anticipation of the possibility of being one of the fortunate 50,000 is in itself of no importance and is not an anchor? I thought that that was part of the Government's argument.
Mr. Lloyd: I am saying that somebody who has decided that he really must emigrate because he did not want to stay in Hong Kong 18 months or a year ago would not withdraw his application, especially if he thought it might be successful in Canada or Australia, on the offchance that the Bill might become law and the order might be approved. We shall see the effect of these only in the coming years and they certainly will not affect decisions that were made 18 months to two years ago.
The hon. Member for Caithness and Sutherland also asked whether members of the police force were emigrating and said that recruitment to the police was difficult. The indications are that people are leaving the police force to go into the private sector rather than emigrating. However, it is to address the problem of retaining high-grade staff in the police and the other disciplined services that we have included a special category in the Act and in the rules.
The hon. Member for Caithness and Sutherland talked about the bias in the rules. Naturally, the whole purpose of a points system is to give additional points to people with qualities, experience or characteristics that are particularly valuable, in this case to Hong Kong.
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However, I do not accept what he says about bias between people. People in the same situation are treated in the same way and get a similar number of points. There is no way that under the discretion allowed to the Governor he can apply the rules other than in that manner, even if he wanted to do so which, of course, he would not. He would like the system to work in a manner that benefited Hong Kong. That is also the intention of the Act and the rules.
My hon. Friend the Member for Billericay (Mrs. Gorman) said that she would not support a points system and would use some other method to show Hong Kong that we were concerned for it and would try to assist its stability in the years ahead. She did not say what her method would be but drew a parallel with Kuwait. Other than sending the Desert Rats to China, I am not sure what she had in mind.
My hon. and learned Friend the Member for Burton (Mr. Lawrence) called our scheme devilishly ingenious. It is honest, straightforward and practical. I refer my hon and learned Friend to what I said to the hon. Member for Caithness and Sutherland, who wondered why the scheme was not yet having an effect. I told him that we have not even passed the Orders in Council on which the scheme depends. The decisions that are being seen by the number of people leaving—which has, indeed, increased—were made a year, 18 months or even two years ago.
The figures cited by my hon. and learned Friend and the hon. Member for Caithness and Sutherland suggest that there is an increasing problem in Hong Kong—the problem of emigration. We badly need an Act and some rules to contribute towards the anchoring of at least some of those people in Hong Kong, especially the most able. That is why I have every confidence in the order. The Bill was passed by a large majority on Second Reading, and the principle was accepted without a Division on Third Reading. I am therefore confident that the House will back the order now.
Question put and agreed to.
Resolved,
That the draft British Nationality (Hong Kong) (Selection Scheme) Order 1990, which was laid before this House on 15th October, be approved.

TELEVISING OF PROCEEDINGS OF THE HOUSE
Ordered,
That Mr. Tristan Garel-Jones be discharged from the Select Committee on Televising of Proceedings of the House and Mr. Tom Sackville be added to the Committee.—[Mr. Wood.]

Princess Alexandra Hospital, Harlow
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wood.]
11.22 pm
Mr. Jerry Hayes: It is no exaggeration to say that health care in West Essex district health authority is probably worse than I have ever known it. We have some of the worst and longest waiting lists in the country; we are expected to have a deficit of some £2 million next year. Yet some people will still say that the problem is due to mismanagement by the district health authority.
I wish to refute that. Way back in 1984, plans were presented to reduce the deficit to the tune of £1 million a year. This debate is all about what happened on 24 September this year: that is the date on which my constituents—and those of my hon. Friends the Members for Hertford and Stortford (Mr. Wells) and for Saffron Walden (Mr. Haselhurst), who have a keen interest in the matters—were betrayed by North-East Thames regional health authority. That is the date on which the capital programme to centralise the Princess Alexandra hospital in Harlow bit the dust, along with the £40 million development plan involving a community hospital—St. Margaret's hospital, Epping—and others in Hertfordshire and Essex, despite the region's promises.
Let me briefly run through the chronology of events. In 1984, the major capital scheme was approved in the region's strategic plan for 1993. It was realised that it was ridiculous to have three accident and emergency departments in one district: it did not work, it was not efficient, it was not good for patient care or health, and it led to the haemorrhaging of over £1 million a year. West Essex health authority took the bull by the horns, and presented a sensible capital development plan.
On 19 April, Mr. Michael Chapman was appointed chairman of the health authority. He had the following brief:
"Persuade the public of the need to centralise acute services at Harlow …Develop the concept of community hospitals".
That was an heroic task: it was not easy at all. The proposed closure of the Honey Lane hospital was challenged by judicial review by Epping Forest district council, and its application was defeated. The hospital—in the constituency of my hon. Friend the Member for Epping Forest (Mr. Norris)—was closed in July.
In October 1986, a regional report confirmed the cost of the scheme, compiled with current service planning and financial criteria, as £40·6 million. In early 1987, informal public consultation meetings were started by Mr. Chapman, and action committees to save the local hospitals in Epping and Bishop's Stortford had already been formed by local people. On 10 July 1987, Mr. Chapman made a presentation to the Herts and Essex hospital action committee meeting. All parliamentary candidates were present. My hon. Friend the Member for Hertford and Stortford quite properly publicly supported the draft plans. On 11 June 1987—how could we forget—there was a general election. On 18 September, approval was given in principle and documents were approved by West Essex district health authority. That was followed by staff meetings at all sites. There were more than 50 meetings, and they included meetings with the Essex family practitioner committee, all the district councils,
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some of the town and parish councils and all general practices. There were community health council public meetings with both West Essex and East Hertfordshire district health authorities, plus other voluntary organisations. The district chairman, the general manager and a member of the consultant medical staff attended all meetings.
It was not a painless process. There was a great deal of local outrage and upset. At a public meeting in the constituency of my hon. Friend the Member for Epping Forest, the district chairman stated that we had a national health service and that the money from the sale of the local hospital—and it was the second to be closed—was to be used for the good of all the people in the West Essex district health authority area, at the district general hospital in Harlow.
In January 1988, the document that had been approved in principle was submitted to the Minister. It was supported by the community health councils—and that was not an easy task, even though an independent report prepared for the West Essex community health council favoured a two-site solution. It was supported by all the consultant medical staff of the district.
On 12 May, my right hon. Friend the Member for Braintree (Mr. Newton)—then Minister for Health—publicly announced at Harlow approval for the scheme to proceed. A project team was appointed with commercial project managers to ensure value for money. It was the first occasion when outside project managers had been appointed for a district general hospital scheme in the North-East Thames regional health authority area.
On 15 December, a by-election was held in Epping Forest. In the run-up to the election, my hon. Friend the Member for Epping Forest publicly supported the centralisation plans, even though that involved a change in the use of St. Margaret's hospital. Part of the overall plan was new buildings for the community hospital in Epping. I say with respect to my hon. Friend that that involved considerable political risk.
Mr. Steve Norris: I am grateful to my hon. Friend for allowing me briefly to intervene. Like my hon. Friends the Members for Hertford and Stortford (Mr. Wells) and for Saffron Walden (Mr. Haselhurst), I am here because of my concern about the very parlous state of the finances of our health authority. My hon. Friend the Member for Harlow (Mr. Hayes) was right to say that it caused me a great deal of embarrassment during the by-election to stick by the capital programme, which I took to be the right programme. I believed that then and I believe it now.
My hon. Friend will agree that while the decline in capital values in the property market generally has undoubtedly had an effect on the region's finances—and that was inevitable—it is a crude response simply to abandon all the carefully thought out programmes for which many of us have fought hard. Although I have, on occasions, been critical of the district for failing to meet its expenditure targets from time to time, to suggest that it will be in a position to think not only about what it will do without the new capital programme, but to deal with a revenue cut of the size being contemplated of £2 million is to demand too much even of the most vigorously effective health authority.
Mr. Hayes: My hon. Friend makes his point well. The region is saying that falling land values prevent the spending of the money. The truth of the matter is that £20 million worth of that money was raised through land sales in my hon. Friend's constituency. It is not the region's money. My hon. Friend the Minister will rightly say that that is the way in which the health service is financed regionally, but this is money which belongs to my hon. Friend's constituents and to the West Essex district health authority and it should be spent for the district.
It is not just my hon. Friend who took political risks and who is severely embarrassed. My hon. Friend the Member for Saffron Walden also played a major part.
Mr. Alan Haselhurst: My hon. Friend has missed out one date in his chronology, and that is June 1985, when the Government took a decision that Stansted airport was to be developed into London's third airport. Those of us who said that there may be a need for further hospital facilities to be maintained in Bishop's Stortford were pushed aside on the basis that a major district general hospital at Harlow would be the right way to deal with the needs of the airport and the growing population that would come with it. The Government have willed the appearance of the airport, albeit built with private money, but what will they do now about the demand for health services in the area that will accompany it when the district general hospital is cancelled?
Mr. Hayes: It is not just my hon. Friend who is concerned. My hon. Friend the Member for Hertford and Stortford, despite considerable local difficulty, did his best for the Herts and Essex hospital. But part of the deal in the considerable risk that he took was that there should be a community hospital in the heart of Essex. That was all part of the deal and my hon. Friend will tell the House what happened.
Mr. Bowen Wells: Not only was there a promise of an up-to-date modern community hospital to take care of the 95 per cent. of the hospital needs of Bishop's Stortford, but it must be remembered that a second hospital in Bishop's Stortford, which had been contributed by the townspeople of Bishop's Stortford, had been sold. Therefore, in addition to the £20 million from Epping Forest, some £7 million, plus interest, I hope, is owing to the people of Bishop's Stortford as a result of the sale of that hospital. I have come to the conclusion that all the money will be sucked out of our district. We shall never get a fair deal for our people while the district remains in the North-East Thames regional health authority or any other London-based region. Our constituents will not get the level of hospital service that other places expect and enjoy while we administer the district through a London-based hospital system that absorbs all our money and retains it in the capital.
Mr. Hayes: My hon. Friends make their points well. This is not a health authority riven with difficulty and division, with politicians fighting each other. This is a health authority where consultants, community health councils, staff, patients and everyone else have pulled together, with the encouragement of Ministers and the regional health authority. That is why there is so much outrage and anger that the plan should have been cancelled.
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It may be helpful if I continue the chronological order of events because it is only right and proper that that should be put on record. In 1989, after long negotiations with Epping Forest district council, planning and other problems were overcome and the site of Waltham Abbey was ready for sale. On 16 March 1989, the district chairman wrote to the regional chairman expressing concern at the sale price and the regional difficulties being experienced with the capital programme.
The sale proceeded at £20 million, with the first payment balancing the region's capital programme for that year. Assurances were given that the money would be made available in west Essex when needed. In April 1989, improvements were made to the plans contained in the consultation document because the designers were able to deliver a functional solution with the cost advantage of a shorter building period.
In June 1989, further savings were identified and agreed with the design team. From April to December 1989 there were weekly meetings between the design team and sub-groups with the consultants and other staff, and at the end of the briefing stage a full report on the major capital scheme was submitted to the region in December 1989.
On 6 February this year, the region reaffirmed the capital scheme and gave instructions to proceed with the plans and design work. On 17 September, plans and costings were submitted to the region—and all were within budget and on time.
Here comes the rub. On 24 September, the regional health authority cancelled all its capital schemes where contracts for building had not started. In addition to the major capital scheme, those affected included schemes for the Epping community hospital and for Bishop's Stortford hospital.
Can that be called poor management on the part of the district health authority, which followed Government policy to the letter and was encouraged by Ministers? All of us involved, quite properly, lobbied Ministers and secured their active support and encouragement, as well as that of the region—and then we were told that the money had been spent elsewhere.
My constituents and those of my hon. Friends are angry and outraged. The health service is not just about statistics. It is also to do with relieving pain and suffering, and with offering speedy operations where they are needed. When constituents have to wait two or three years for a hernia operation, a year or more for a cataract operation, and much longer in other cases—and that situation will not improve unless there is a resolution to the problem—they have every right to be angry and outraged.
Perhaps these are only the opening shots in a war—although I hope that it will not be a terribly long war. Later this week, my hon. Friends and I will be meeting my right hon. and learned Friend the Secretary of State and my hon. Friend the Minister, so I do not expect my hon. Friend the Minister to say too much tonight. However, the very least that we expect——
Mr. Wells: Is an apology.
Mr. Hayes: Never mind an apology, although my hon. Friend is right to seek one. We want some money—and what is more, we want our money. We want the money that was raised locally through sensible land sales to provide decent health care, which has been denied to us

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and of which we have been robbed by North-East Thames regional health authority—and that is totally unacceptable.
11.38 pm
The Parliamentary Under-Secretary of State for Health (Mr. Stephen Dorrell): I was relieved to hear at one point in the very effective speech of my hon. Friend the Member for Harlow (Mr. Hayes) that he did not intend that there should be any political infighting. He congratulated the members of West Essex health authority on the ground that they were not the prisoners of political faction and had attempted over many years, and were attempting now, to run their area health service effectively and without regard to party political considerations. I hope that we shall be able to approach the undoubted problems affecting the delivery of health care in my hon. Friend's district in the same spirit, both this evening and at my meeting with my hon. Friend the Member for Harlow and other hon. Friends later this week.
I congratulate my hon. Friend the Member for Harlow and my hon. Friends who represent neighbouring constituencies. They have not only raised the matter on the Adjournment; they are to raise it with me in a meeting later this week and, perhaps more important, this is merely the latest stage in a long campaign that they have waged to ensure that the problems of their health district have remained very much to the fore in my mind and in the minds of my predecessors and present colleagues at the Department of Health.
Sometimes, when I reply to an Adjournment debate, I approach the subject fresh and with a newly prepared brief——
Mr. Norris: This one is dog-eared.
Mr. Dorrell: As my hon. Friend rightly says, the brief on this issue is becoming somewhat dog-eared. The ground has been well ploughed and, although this is the first occasion on which I have had to answer a debate on this subject, it is certainly not new to the officials who have been discussing it with me today. The effect of my hon. Friend's campaigns over the years has been to ensure that those in the Department who are responsible for these matters are fully aware of the strength of local feeling on them.
As some of the interventions in the debate have illustrated, although our main purpose was to concentrate on the capital programme in West Essex, that is not the only issue that arouses public concern—or, indeed, the only issue that health service managers in the area must address. There are also difficult questions associated with the revenue budget of West Essex, and it is perhaps unrealistic to expect to approach either topic in isolation.
My hon. Friend the Member for Harlow underlined the fact that the approval in principle for the Princess Alexandra hospital dates back to 1985. That programme was clearly intended as a major investment in improving the delivery of health care in the West Essex district. For that reason alone, one might have expected the project to be popular with and looked forward to by local people and consequently that any decision to postpone or shelve the proposal would arouse real concern.
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I recognise that that concern is compounded by the fact that we are not talking merely about another health service investment—the kind of investment of which there are many currently in train in the health service—to improve the delivery of health care in the district. The proposal was the cornerstone of the district's and the region's strategy for the delivery of health care in West Essex over the intervening period of five years.
It was the approval in principle of the Princess Alexandra scheme that provided the framework for the concentration of acute services on a single site—moving away from the wasteful delivery of such services across three sites in what is by no means the largest district in the NHS, although it is certainly not the smallest. Clearly, the prospect of being able to deliver acute services from a single site, and in a more efficient manner, was particularly important in the context of planning the future of West Essex, given the pressures—to which several of my hon. Friends have referred—on its revenue budget. Both the region and I are fully aware of the real and understandable public upset voiced by my hon. Friends this evening.
It is important to consider the implications of what the regional health authority decided on 24 September and where we go from here. The first decision that the authority made is wholly incontestable. It decided that its capital programme at 24 September was undeliverable because it was too ambitious; the programme was over-committed It also decided that, against an over-committed programme, the only sensible action was to shelve any scheme for which it had not signed a fixed contract and to reappraise the remaining schemes in the programme. I am sure that that was the correct decision. Any other decision would have involved leaping to ill-considered conclusions about the relative priorities of schemes which had been included in the over-committed programme.
The regional health authority is now committed to that complete reappraisal of the capital programme with the objective of developing a new approach to the planning of new national health service building which, against the pressure on the capital programme, will ask all district health authorities in the region to achieve acute sector rationalisation quicker and with less reliance on capital investment. That is being encouraged throughout the health service. It is not unreasonable to require that people in charge of a capital programme should satisfy themselves that they are using the capital as efficiently as possible. That is an entirely proper pressure for a region to place on those who espouse a particular capital scheme.
I have already said that I understand that that decision was hardly likely to be popular in West Essex or in the other districts affected by the region's decision of 24 September. However, I do not believe that the region had any realistic choice once it found itself in that position. It is unrealistic to expect the NHS investment programme to escape unscathed the implications of falling land values. That pressure applies right across the economy, and the NHS cannot expect to be exempt from it.
Any institution with a capital programme must face up to the implications of the falling values of the assets that it has for disposal. The region is entitled to some credit for having faced up to the implications instead of trying to hold out unrealistic prospects which it would later have to dash. It is far better to face up to the implications, address the issues and make a series of rational and ordered decisions than to try to fudge the decisions away.

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The region's decision will give it the headroom to make decisions about proper priorities within the scheme once the deficit caused by the existing contracts on the over-committed programme has been cleared. We expect that deficit to be cleared by 1993.
Reference has been made to the £20 million raised by the sale of the Honey lane site. It is important to understand the principle that the NHS does not regard the resources raised by the sale of capital assets as district-specific. It would make the NHS quite unreasonably inflexible if we were to resile from the principle that capital raised by the sale of assets is a resource which should be redistributed through a proper mechanism within the NHS.
It is also fair to point out that, against the £20 million which has been raised from a site within West Essex, we must weigh the £11 million capital investment programme; nearly £2·5 million for refurbishment at the Princess Alexandra; over £1 million for the elderly day hospital at Saffron Walden; and a further £3·3 million for various projects for mentally handicapped patients. It is not as if it is £20 million out and nothing back.
With regard to the prospects for the capital programme, the district has made clear its belief that the Bishop's Stortford community hospital project may well be able to be financed in conjunction with a developer.
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Therefore, hopes for that scheme have not been entirely dashed by the pressures that apply across the rest of the investment programme.
I recognise the disappointment which people understandably and properly feel about the implications of the region's decision about the future of the Princess Alexandra hospital. We must consider how best to develop realistic and deliverable plans to achieve our objectives for improving health care within West Essex.
Mr. Bowen Wells: Will my hon. Friend give way?
Mr. Dorrell: No. I have only a minute left and I prefer to make a final point.
The analysis which determines that the single-site delivery of acute services is the most efficient use of resources has not been abandoned. The task that now falls to all those who are willing and able and want to consider the future delivery of health care to the people of West Essex within the resources that are likely to become available and within a realistic timescale is to consider the new circumstances and how best that objective can be delivered with regard to the most efficient use of capital in the context of West Essex. That is the——
The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at eight minutes to Twelve o'clock.