Parliamentary Currency Commission (Hansard, 3 February 1998)

I beg to move,

That leave be given to bring in a Bill to establish a commission, chaired by a law lord, to examine and report to Parliament and to the public on future currency arrangements for the United Kingdom, including consideration of the options of retaining sterling, adopting the European Single Currency, or adopting the United States dollar. My Bill is straightforward enough. It recognises the importance of the decision that the British people will have to make in due course: whether or not to enter the European single currency.

The Bill has two main provisions. Those old enough to remember the referendum in the 1970s on entry to the European Economic Community might recall that, despite the plethora of information that was available for and against joining the EEC, as it was then known, the salient points were not clearly argued out. The pros made their case and the antis made theirs. Often their arguments did not meet, so clear conclusions could not be drawn. It was a little like Prime Minister's Question Time.

My Bill would appoint a commission, independent of Parliament and politics, chaired by a senior judge, to argue out the pros and the cons of Britain surrendering its national currency. Its findings would be made available to everyone entitled to vote in the referendum.

The Bill then goes further. It seeks to think the unthinkable. If, for the first time since the Norman invasion, the Government were to decide that we should adopt a foreign currency and surrender the pound because they believed that that was the best option for Britain—they might well decide that it was not and that we should stay as we are—the commission would be charged to ask: "Are these our only two options? Might there be an even better one?"

Deciding to stay with sterling or to adopt the euro are not the only two options. Joining a new currency is a decision that might last for generations. Limiting the options to just two is not rigorous economics and the Chancellor himself wants the decision to be based on economic grounds.

Last October, the Chancellor published "UK Membership of the Single Currency: An Assessment of the Five Economic Tests". Although parts of the document owe more to Mandelson-speak than to Treasury-speak, on the whole I welcome the Green Paper with the brown cover. I agree with the opening statement that the Chancellor makes in the preface:

The decision on a single currency must be determined by a hard-headed assessment of Britain's economic interests". Although members of the United States Federal Reserve, historians and economists have all said that a single currency can work only if there is, in effect, a single Government commanding a pan-European economic regime, that is a separate though most fundamental issue which—using all my reserves of will power—I shall ignore today.

Let us look at the economic criteria set out in the Green Paper for entering a single currency: business cycles, economic structures and—in Euro-speak—convergence. For Britain to operate successfully in a single currency. our economy must be synchronised to that currency. I asked the Library to analyse movements of the pound 861 against the deutschmark, the French franc and the United States dollar since we left the exchange rate mechanism and the pound could float freely, reflecting the real value of the currency. In the five years from October 1992 to October 1997, the standard deviation in values between the pound and dollar was just 3.3. In marked contrast, the standard deviation between the franc and the pound was almost double at 6.3 and between the deutschmark and the pound it was more than double at 7.

In other words, the pound is linked twice as strongly to the dollar as it is to either of the two main continental European currencies. That is good for British exporters to the Americas, the far east, and other dollar zone areas, but it does not augur well for British membership of a European single currency, which would be dominated by the German and French economies.

It is not surprising that Oxford Economic Forecasting's report published last autumn states that income tax and unemployment would rise if we entered economic and monetary union. It forecasts that the basic rate of income tax would have to rise from 23p to 28p to control inflation, with a resulting rise in unemployment.

What about labour market flexibility? European Union citizens can already work in any EU member state without a work permit. In practice, language and culture present the real barrier. Twice as many workers from the United States, Canada, Australia, and New Zealand as EU citizens are currently employed in the UK. Our entering EMU will not make a euro's worth of difference to that. Commonality of language, legal system, and culture is everything.

The Prime Minister has justified the introduction of the national minimum wage by claiming that the United States has such legislation. I am not opposed to the principle of a minimum wage that protects workers exploited in garment trade sweatshops in Bradford or the east end of London. However, the legislation in America is realistic. It excludes young employees and many industries, including those related to tourism. The Prime Minister is wrong to say that there is a national minimum wage in the United States. It has regional variations and the rate, which has just gone up, is only £3.05 an hour for those to whom it applies.

The legislation currently before Parliament has no exemptions and is convergent to some European legislation. I fear that if it is meant to converge our economy with the rest of Europe, it will succeed. Our unemployment will rise in harmony with the rest of Europe, where laws owe more to political correctness than to economic reality. The American economist Barry Eichengreen found that 862 The adjustment to regional labour market shocks is about 20 per cent. faster in the US than in the EU". Is not that what we want for Britain?

James Capel's November briefing last year stated: The UK is out of synch with Europe and:

The UK is different". It reports that, while German households have debt of only 17 per cent. of disposable income because they rent, the equivalent figure for Britain is 110 per cent.—six times as much—because we enjoy a home-owning economy. However, the US figures are similar to Britain's. Long-term mortgages are as available in the US as they are in the UK. To converge with Europe, are we to become a home-renting society?

We may not like it, but Britain's economy has greater economic convergence with the US than with the larger continental economies. The culture, legal system, and huge mutual investments make it so. Moreover, that convergence has stood the test of time. It meets the economic tests set down by the Chancellor.

The Bill would empower an independent commission to examine all the options. I believe that there are sound economic, let alone constitutional, grounds for keeping the pound. If I am wrong, let the commission investigate whether our interests would be better served by joining the dollar zone rather than the euro zone. I am not seriously suggesting today that we should adopt the dollar, but if the commission favours the dollar, why should we opt for the euro if it is second best?

The Chancellor has said: The decision on a single currency must be determined by a hard-headed assessment of Britain's economic interests". The commission could determine which single currency.

I beg that leave be given to bring in my Bill.

Question put and agreed to.

Bill ordered to be brought in by Mr. Michael Fabricant, Mr. Eric Forth, Mr. David Amess, Mr. Howard Flight and Mr. Peter Atkinson.