Commons Sitting of 10 July 2003

Preamble
The House met at half-past Eleven o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRIVATE BUSINESS
  NOTTINGHAM CITY COUNCIL BILL [Lords]
  Read the Third time, and passed.
Oral Answers to Questions
  TREASURY
  The Chancellor of the Exchequer was asked—
  TREASURY

    Bank of England (Gold Sales)
    Sir Teddy Taylor: If he will make a statement on his policy of instructing the Bank of England to sell gold and invest the proceeds in particular currencies.[124642]
    The Chancellor of the Exchequer (Mr. Gordon Brown): The decision to sell gold reserves was taken to reduce the risk of over-exposure to one asset in our foreign exchange reserves. That was successfully achieved, as measured by value at risk, and the gold sales delivered a 30 per cent. reduction in risk.
    Sir Teddy Taylor: Does not the Chancellor accept that it was a major error of judgment to force the Bank of England to sell its gold when the price was an almost all-time low? Why has he not been willing to admit to the precise consequences when reputable organisations advised me yesterday that, taking everything into account, the actual loss—they say that it is very easy to calculate—was about £400 million, which is about £32for every family in Britain? Although I accept that the Chancellor of the Exchequer is a very wise person, when he makes a mistake, should he not admit it and tell us the consequences?
    Mr. Brown: I disagree entirely with the hon. Gentleman. First, every country has been diversifying from gold. Switzerland sold 1,300 tonnes; Belgium sold 1,000 tonnes. We have sold 395 tonnes. Almost all our European partners, and Australia and Canada, have far less in gold than we do. It was the right decision for the country, and it was the right decision for the management of risk. The hon. Gentleman will be interested to know that, of the new assets that we bought, the ones that have gone up most in value over the past few years have been those that we bought in the
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    euro. It is quite interesting that, when the Conservative party wants to present itself as pro-European, we start the day with the hon. Gentleman leading the fight for the Conservatives.
    Mr. Tam Dalyell: I do not doubt the Chancellor, but what is the basis of the judgment that there has been a 30 per cent. reduction in risk? How is that arrived at?
    Mr. Brown: I have with me the National Audit Office report, and the hon. Member for Rochford and Southend, East (Sir Teddy Taylor) was also wrong to imply that that may not have been the Bank of England's advice to us. The Bank of England supported our decision. The hon. Gentleman will be interested to know that the NAO made a study of this. The study is not from a PhD thesis on the internet. [HON. MEMBERS: "Oh."] Again, if I can repeat to the House that, reading the study in its quite detailed complexity, there is no question of it ever being sexed up. The document itself makes it clear that this was a value-for-money exercise. That was the sole reason why it was done. It diversifies the risk to us, and already, as I have indicated to the hon. Gentleman, the rise in the value of the euro shows that it was a worthwhile exercise.
    Sir Peter Tapsell: Is the Chancellor aware that he is wrong when he says that all the countries are selling gold? The biggest holders of gold, none of which have sold, are the United States, France, Germany and Italy. China is a big buyer of gold, and it has been for some months. Will Britain press for a renewal of the Washington agreement on gold of September 1999, which is due for renewal next year and which he played a part in bringing about?
    Mr. Brown: It is exactly because we have the Washington agreement that other countries did not sell. We had to have the Washington agreement.
    Sir Peter Tapsell: The Chancellor just said that they had all sold.
    Mr. Brown: Yes, but they did not sell in the past two years. It is precisely because there was concern about the amount of gold being sold around the world, depressing the gold price at the time, that we got an agreement from all the countries. Our gold sales went ahead, other gold sales went ahead, and the countries the hon. Gentleman mentions agreed that they would not sell gold at that time because of the Washington agreement. Of course, we will continue to look at this, but he cannot deny the fact that, in many cases, the countries that have sold gold have sold far more gold that we have and, at the same time, most of the countries that I have mentioned, including Australia and Canada, outside the European Union have far less of their assets in gold. As for value for money, the mistake was made by the previous Conservative Government not selling gold when the gold price was even higher.
    David Cairns: To what extent did my right hon. Friend need to coerce the Bank

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    of England into taking that decision; or did it, in fact, agree with him that that was the correct policy to pursue given the current prevailing economic circumstances?
    Mr. Brown: The decision had the support of the Governor of the Bank of England. The decision was made in a transparent way, with the auctions of gold, for which we have been praised because that is a far more open process. The decision has been gone into in a huge amount of detail in the NAO report, and the results of that show that we have achieved value for money, that we are getting a satisfactory return on our reserves and that we are protecting the position of our reserves, while reducing risk. I should have thought that the Opposition parties would support what we did.

    Health Spending
    Dr. Andrew Murrison: If he will make a statement on progress towards bringing UK health spending into line with the EU average.[124643]
    The Chancellor of the Exchequer (Mr. Gordon Brown): Health spending this year is now estimated at 8.1 per cent. of GDP—around the European Union average. It will rise to 9.4 per cent. of GDP by 2007–08.
    Dr. Murrison: I am grateful to the Chancellor for that response. I need not remind him of his manifesto commitment to bring spending up to the EU average, and his right hon. Friend's subsequent comments to that effect. The King's Fund detects a sleight of hand, however, and I would be grateful for clarification. Is the Chancellor relying on weighted or unweighted data in addressing that comparison? Will he look at a static or projected spend to the year 2005? In addition, will he rely on the Office for National Statistics recomputation of health spend, which takes in, for example, spending by charitable and voluntary sectors, churches, the prison health service and the defence medical services? Clearly that will have a big impact.
    Mr. Brown: First, it is weighted data. Secondly, we cannot know in advance what all the other European countries will spend. I do not think that the hon. Gentleman can deny, however, that we have the fastest rising health service budget of any of the countries in Europe. We are making a public commitment to the health services. In relation to the King's Fund, I am happy to look at any evidence that he brings to bear, but he cannot deny that we are raising health expenditure by £8 billion, £9 billion and £10 billion a year in future and successive years, which is more than the previous Government ever committed themselves to spending. I would have thought that he would congratulate us today, because his two local health authorities have seen rises in their health expenditure of 9.5, 9.9, 9.7 and 9.5 per cent., and 8.9, 9.1, 8.9 and 8.7 per cent. respectively. How could any of that be possible if there were 20 per cent. cuts in the health service budget?
    Mr. Tom Harris: Has my right hon. Friend considered the financial implications of some of the alternative ways of funding the health service? To pluck an example out of thin air, has he considered some kind of voucher scheme that would
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    allow NHS patients to have their private care subsidised? Has he considered how much that would cost the country?
    Mr. Brown: I am grateful to my hon. Friend. We are spending 7.5 per cent. in real terms increases in the health service over the course of the next few years. Taxpayers, through the national insurance rise, are rightly contributing to the national health service increase. Every party at the last election stood on a manifesto supporting extra health service spending, but the Conservative party has walked away from the commitment. As far as the amounts of money that would be involved in a voucher system in private medical health insurance are concerned, something in the order of £2 billion extra a year would have to be taken from the national health service. That would still mean that a pensioner would pay £5,000 for a hip joint operation, £6,000 for a knee joint operation and £7,000 for a heart bypass. Those are the policies of the Conservative party.
    Mr. David Laws: The Chancellor says that the Government are delivering on improved health services, yet he will be aware of recent opinion polls that show that the public believe that health services, along with education, the police and transport, are all getting worse in this country. Who has got it wrong? Are the Government wrong on delivery, or are the public wrong?
    Mr. Brown: There were 11.3 million out-patient admissions a year when we came into office. There are now 12.7 million. There were 12.5 million accident and emergency admissions. There are now 12.9 million. There were 3.5 million elective admissions. There are now 4.5 million. There were 39,000 heart operations. There are now 54,000. That is an increase in the amount of money and an increase in the amount of activity in the national health service. Perhaps the hon. Gentleman might care to comment on his party's spokesman, who now seems to be absent from all our debates on economic matters, who said very clearly that there would be no extra money for the health service from the Liberal party.
    Mr. Dennis Skinner: Is the Chancellor aware that I am pleased that Labour Members decided to increase massively the amount of money that goes into the national health service, because in the last few months I have been one of the recipients of that treatment? I did a survey while I was in hospital, and every single person regarded their heart bypass as a success story. When we walked out of the hospital, I was waiting for the BBC "Panorama" camera team to ask me whether I thought that the money spent on the NHS was a success story. I did not find a single member of the media waiting for us. Why? Because all they are bothered about is digging in the gutter and failing to recognise that 1 million people are looked after in the national health service every 36 hours. That is a success story not a failure.
    Mr. Brown: The whole House will be able to see that my hon. Friend is back fighting fit after the great

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    treatment that he has had in the national health service. We welcome him back, and the contribution that he has made.
    I do not know what to say about the BBC and its programmes, but the fact is that there were 1.2 million cancer operations in the NHS when we came to power and there were 1.34 million last year. There has been a very big rise in the number of cancer patients treated. Equally, we are now in a position in which 98 per cent. of people are able to see a cancer specialist within two weeks. Under the Conservatives, the figure was 63 per cent.
    Mr. Andrew Mitchell: Is the Chancellor not at least a little concerned that in one part of the United Kingdom, Scotland, health spending is already at or even above the European average, and yet health outcomes are substantially below?
    Mr. Brown: Waiting times in Scotland are, on average, lower.

    Death Certificates
    Andrew Mackinlay: If he will ask the Office for National Statistics to discuss with the Department of Health (a) the reliability of information contained in and (b) return of death certificates.[124644]
    The Economic Secretary to the Treasury (John Healey): I can confirm to my hon. Friend that the Office for National Statistics is working with the Department of Health and the Home Office on planned changes to the system of death certificates. These will be set out in the Government's response to the fundamental review of death certification and the coroner service that was published last month. I can also confirm that the ONS has today published a consultation document on the legislation necessary to make such future changes. I have ensured that a copy of that document is placed in the Library of the House.
    Andrew Mackinlay: I am grateful for that reply, but can my hon. Friend tell me whether the brief that his Department gave him for this question contained the question that was asked of his predecessor on 29 March 2001 when I was promised that, from April that year, there would be an alteration in the ground rules for filling in death certificates, particularly in relation to MRSA? I would like his comments on when we are going to get the consistent filling in of death certificates when they relate to MRSA. Practice across the nation is patchy, and coroners and dependants are being deceived. Doctors are putting down pneumonia and septicaemia, which is true, but the contributory factor is MRSA. We need veracity in the statistics so I hope that he will tell his client Department—I was about to say something rude—to ensure that the certificates are filled in properly.
    John Healey: My hon. Friend is well aware of the difficulties of capturing MRSA and other such infections on death certificates. He also knows that the NHS has introduced a national management system for checking such infections in hospitals. He is right to draw
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    attention to this concern. The particular problem that he highlights with death certificates is one of a wider set of problems with the certification process. That relates precisely to the system that we need to reform, and today's consultation document will help us to do that. I know that the ONS would welcome any further representations that he might choose to make.
    Mrs. Cheryl Gillan: My constituent, Dr. Payne, is very concerned that when information on death certificates is found to be insufficient, that has resulted in the Inland Revenue approaching him directly for medical information about deceased persons. I do not believe that a majority of members of the public are aware that all their confidential medical records can be accessed by the Inland Revenue after death. Does the Minister agree that confidentiality does not cease with death and that the disclosure of information should be limited? What steps is he prepared to take to ensure that the Revenue is able to access only those records that are relevant to the financial matter being considered and not all medical records, as is currently the case?
    John Healey: The hon. Lady will know that the certification legislation that covers many of these aspects is now 50 years old. It is increasingly obsolete, inflexible and inconvenient for many families that want to register births, deaths or marriages. The legal amendments that I explained to the House a moment ago will help us to make those changes.
    On the hon. Lady's specific points about the Inland Revenue and her constituency case, I shall look into the matter further and respond to her if she writes to me with the details.
    Mr. Chris Bryant: I am sure that all hon. Members welcome the review of the coroners service that has been conducted and look forward to the introduction of legislation to ensure that we have a coroners service that is consistent throughout the whole country and a death certification process that is much more sensitive to the needs of families at a tough moment in their lives. Will the Minister assure us that the process for the certification of drug-related deaths will be clarified, because the way in which coroners in different parts of the country record such deaths dramatically affects spending on drug-related issues?
    John Healey: My hon. Friend makes a good point and neatly encapsulates many of the aims of the reforms that we are putting in place. Like my hon. Friend the Member for Thurrock (Andrew Mackinlay), who mentioned MRSA, he draws attention to a condition that is often not included on death certificates. One of the problems with the system is that it does not capture all the information about a death and all the circumstances that might have contributed to it. That will be a problem when we consider future policy changes, and it is also important when dealing with the problems that underlie such sad deaths.

    National Insurance
    Mr. David Amess: What plans he has to make further changes to the rates of national insurance contributions; and if he will make a statement.[124645]
    Bob Spink: What plans he has to make further changes to national insurance contribution rates; and if he will make a statement.[124652]
    The Paymaster General (Dawn Primarolo): Any changes to national insurance rates are announced at the time of the Budget and pre-Budget report.
    Mr. Amess: Following the loss of 200 jobs in the banking sector in Southend this week, will the Minister tell the House what plans she has to ensure that national insurance payers get value for money? Will she now admit that if the recent hikes are included, net taxes and social security contributions in the year 2003–04 will amount to £402.9 billion, but that that will not bring the improvements to public services that we would hope for? Will she admit that this rotten Government are taxing, spending and failing?
    Dawn Primarolo: As the hon. Gentleman well knows, unemployment in his constituency has reduced dramatically since the Government were elected in 1997. He will also be fully aware that the national insurance rise is specifically to pay for the increased spending on the national heath service. He must answer the question of whether he is in favour of spending more on the heath service. If he is not, what will he say to his constituents about the services that he wants to cut?
    Bob Spink: The whole country knows that the increases to national insurance so far and those that are further threatened by the Labour Government are destroying jobs and driving down the competitiveness of our economy because that must be the long-term natural result of such increases in taxation. Will the Paymaster General admit that the Labour Government are heading for a high-tax, low-efficiency economy—the old socialist piral?
    Dawn Primarolo: Opposition Members will do anything to try to avoid the facts. There are 1.3 million more jobs in the economy. Britain's unemployment is at its lowest level since the 1970s. Opposition Members do not want to answer the question of whether they are in favour of increasing spending for the national health service. If they are not, why not, and how will they explain to their constituents the cuts, and the public services that they will not get?
    Dr. Nick Palmer: Does my right hon. Friend agree that one of the difficulties is the measurement of progress in the health service? Those of us who have an interest in economic aspects are used to measuring such things as waiting list falls. However, some of the most important effects of our changes to national insurance and funding for the health service are non-measurable, such as the availability of statins for heart patients, which means that many thousands of
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    people are walking around who would otherwise be dead. Does she agree that such non-measurable benefits are as important as those that we can weigh and count?
    Dawn Primarolo: If my hon. Friend studies all the statistics, he will find out that in-patient and accident and emergency services, elective admissions and stations services offered by the national health service have increased. He is quite right that we need to increase spending on the national health service so that it provides the world-class service that our constituents want. National insurance is the fairest and best way to achieve that, and the spending results in improvements for his constituents and all our constituents.
    Mr. Bill O'Brien: Does my right hon. Friend accept that the people in Yorkshire in particular, and throughout the country in general, think that a taxpayer-funded NHS is the best way forward for health provision, so that health care is provided on the basis of need, not on the ability to pay? Is the hospital building programme on target? Will the new hospital planned for my constituency go ahead on schedule?
    Dawn Primarolo: My hon. Friend is a well known campaigner for the NHS, especially on the principle of availability to all on the basis of need. He is right to focus on the development of new hospitals. The Government have committed themselves to 110 new developments. Only 11 were undertaken under the previous Government. Those developments, including the hospital in my hon. Friend's constituency, are proceeding on time. I am happy to deal with more detailed questions that he may want to raise with me outside the Chamber if he wants to follow that point through.
    Mr. Michael Howard:Is the Paymaster General really unaware of the difficulties that the Chancellor's tax on jobs and pay are causing for taxpayers, public services and businesses alike? Did she not see the announcement last week by HSBC of 1,400 job losses, with higher national insurance contributions and pension costs given as the cause? Does she think that HSBC does not know what it is talking about, or does she accept that the Chancellor's policies have directly led to the loss of those jobs? Will she rule out any further rise in employer national insurance contributions?
    Dawn Primarolo: It is breathtaking to hear that from the right hon. and learned Gentleman, who was in a Government who increased national insurance, increased VAT and introduced 22 tax rises. He will not answer the question: does he support more spending in the national health service—yes or no?
    Mr. Howard: The Paymaster General does not understand. She should answer questions—not ask them—on behalf of the Government.
    So the Paymaster General refuses to rule out yet another rise in national insurance contributions for business. Is she not also aware of the pain that the Chancellor's rises in employee national insurance

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    contributions are causing? Is that not a tax on income by another name? Does she realise that this year alone a typical couple on average full-time earnings are £568 a year worse off as a result of rising council tax, frozen allowances and the rise in national insurance contributions? If the right hon. Lady refuses to rule out another increase in employer national insurance contributions, will she now rule out a further rise in employee national insurance contributions? Will she rule out yet another breach in the upper earnings limit? If she cannot provide the reassurances people want—we know that the Chairman of the Treasury Committee recently cast doubt on her ministerial knowledge—perhaps she can take a minute to ask the Chancellor, who is sitting next to her, whether he can provide the answers that we all want?
    Dawn Primarolo: That is very illuminating. The right hon. and learned Gentleman will do anything but answer the question normally, but he rose to the Dispatch Box on that specific point to say that he is not committed to spending that money in the NHS, which is what—
    Mr. Speaker: Order. The shadow Chancellor has the luxury of not having to answer questions. He is entitled to ask them.
    Mr. Howard: After those exchanges, we can all understand why the Chancellor does not like answering questions on tax at the Dispatch Box. This is a Government who said that they had no plans to increase tax at all, but who then introduced 60 new tax rises. This is a Government who said that people should not suppose that there would be rises in national insurance, but who increased national insurance in their very next Budget. Are there not growing fears of a black hole in the Chancellor's finances? After his record to date, is it not all too clear how that hole will be filled?
    I ask for a third time: are the Government refusing to rule out yet further rises in employer national insurance contributions, employee national insurance contributions and the upper earnings limit? Is it not clear that the Leader of the House was right and that further tax rises are exactly what they have in store? After the promises they have made and the promises they have broken, is it any wonder that no one believes a word they say?
    Dawn Primarolo: The right hon. and learned Gentleman cannot escape his own record. The British public are committed to and support increases in national insurance to pay for increases in spending in the national health service. It is fair and it is proper. He has confirmed today that he does not agree with that and that his party is not committed to that increased expenditure.

    Employment
    Mr. Jim Cunningham: If he will make a statement on current employment levels and their effect on the economy.[124646]
    The Chancellor of the Exchequer (Mr. Gordon Brown): Employment in the United Kingdom is this year at its highest level ever. We are also today publishing our recommendations for employment creation in the European Union.
    Mr. Cunningham: I thank my right hon. Friend for that answer. Can he tell me what he is doing about the disparity in employment levels between the regions?
    Mr. Brown: In every region, employment has been rising and unemployment falling. In every region around this country, there are vacancies that there never were even with the high levels of growth achieved in the late 1980s. I say to my hon. Friend that, yes, there are pockets of unemployment in many parts of many regions. That is why we are introducing enterprise areas, which will provide additional resources for job creation in those areas, and why we are also announcing proposals this autumn to improve the new deal. The fact of the matter is that we have employment creation in every part of this country, and it is the policy of this Government to work towards full employment not only for one part of the country, but for all parts of it.
    Mr. Howard Flight: The Chancellor will no doubt be aware of the recent Office for National Statistics figures—the Government's own statistics—showing that, for the 12 months to the end of March, the 9.1 per cent. increase in spending on public services produced only a 2.5 per cent. increase in the real value of services delivered. Is the Chancellor concerned that those ONS figures also reveal that the extra £4.6 billion spending, which included more than 100,000 extra public sector employees, contributed only 0.5 per cent. to GDP growth, when the figures also show that a similar increase in household expenditure would have added 2.2 per cent? How does he propose to tackle the decline in public sector productivity? Does he accept that it is no good creating extra jobs when they do not create appropriate growth in the gross domestic product?
    Mr. Brown: This is a question about employment, and the hon. Gentleman should be congratulating us on the employment increase not only over the past six years, but over the past year, in which unemployment has been rising in almost every major industrial country. Our unemployment is now lower than in America, France, Germany and Japan. On his point about the public sector, he said—this is the view that he expressed in his question, and which lies behind it—in The Sunday Times on 10 March:
    "The whole mentality in the public sector is to do as little as you can."
    If that is the motivation behind the Flight review to cut 20 per cent. out of public expenditure, we know exactly where the Conservatives are coming from.
    John Robertson: My right hon. Friend will be aware that unemployment in my constituency has halved since 1997, but we still have a problem with people who are caught on benefits. Glasgow is now reaching a skills shortage and we need skilled labour. Does he agree, along with many people in Glasgow, that projects such as Glasgow harbour will

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    create thousands of new jobs, including skilled and unskilled jobs, and that we should be supporting such projects?
    Mr. Brown: I am grateful to my hon. Friend, who is one of those pressing for more job creation in Glasgow. Unemployment has halved in Glasgow since 1997, but there are many areas of Glasgow where unemployment is still too high. That is why the new deal is operational. There is a particular project in Glasgow, which involves working with the private sector, the voluntary sector and the Employment Service to create more jobs, and it has been very successful. There is also a major apprenticeship scheme run by Glasgow city. It has also been very successful and it is one of the most important apprenticeship schemes in the country, bringing people into the building trades and other trades. On Glasgow harbour, I shall pass on my hon. Friend's concerns to the Secretary of State for Scotland.
    Pete Wishart: Contrary to the rosy picture given by the Chancellor, we have learned this week that Scottish manufacturing has fallen by some 24 per cent. over the past year. That comes on top of the Government's own figures, which show that we have lost 39,000 jobs in manufacturing in Scotland since 1999. What specifically is he doing to assist Scottish manufacturing? Is he prepared to comment on the 18 different reports in his Department that suggest that early euro entry would help Scottish manufacturing?
    Mr. Brown: We will debate the euro later today, when I hope that we will hear about the position of the Scottish National party.
    As far as manufacturing industry is concerned, the hon. Gentleman will welcome our decisions to introduce a research and development tax credit, to make capital allowances permanent, to introduce an information technology allowance at 100 per cent., and to give funding to all the development agencies, including, via the Scottish Executive, Scottish Enterprise. All those measures help manufacturing most of all.
    The hon. Gentleman will also welcome the skills paper that was published yesterday and all the work that is being done throughout the United Kingdom in creating a modern apprenticeship taskforce. Perhaps he will reflect on the policies of the Scottish National party, which would cut thousands of jobs from the Scottish economy and even cut public spending in Scotland.

    Money Laundering
    Mr. Nigel Beard: If he will make a statement on progress in identifying money laundering through financial services companies reporting suspicious accounts.[124647]
    The Chief Secretary to the Treasury (Mr. Paul Boateng): A range of relevant measures has been implemented by the Government, working with the Financial Services Authority, the police, Customs and Excise and, of course, the financial services industry
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    itself, to strengthen the UK's protection against the money laundering that underpins so much crime and terrorism.
    Mr. Beard: I thank my right hon. Friend for that answer. Could he say what impact the threefold increase in suspicious activity reports from the financial services industry since 11 September 2001 has had on the number of prosecutions? Could he further say whether he believes that the strength of the National Criminal Intelligence Service is adequate for the purpose of investigating the current volume of suspicious activity reports?
    Mr. Boateng: My hon. Friend is right to stress the importance of the suspicious activity reporting regime to the Government's anti-money-laundering strategy. It is undoubtedly making a contribution to the increase in prosecutions, but also, vitally, to the intelligence gathering that is so important in combating crime and terrorism. The role of NCIS is vital. That is why my right hon. Friend the Home Secretary announced last week the establishment of a multi-agency taskforce to ensure that other criminal justice agencies and law enforcement bodies work effectively with NCIS in this area.
    Michael Fabricant: Rather than the Government having secret talks with the Spanish about Gibraltar, is the Minister having talks with Gibraltar and other British territories overseas regarding money laundering in banks there?
    Mr. Boateng: I am glad to give the hon. Gentleman and the House the assurance that to my certain knowledge, as a former Police Minister, Criminal Justice and Treasury Ministers have regular contact not only with the Spanish Government and authorities, but across the EU and beyond. It is that international co-operation that is securing the gains that are being made in combating crime and terrorism, not least in the aftermath of the events of 11 September.
    Mr. John McFall: The Minister may be aware that I have written to more than 30 banks and building societies about this matter. They all responded and outlined several concerns, not least in relation to NCIS and the need to report every single incident; there is a general feeling that that is clogging up the system. Consequently, I hope in the autumn to hold a conference with the industry and the Financial Services Authority. Will the Minister ensure that Treasury and Home Office representatives are there so that we can examine the issue comprehensively and end up with a more efficient system?
    Mr. Boateng: I am very grateful to my hon. Friend for the work that he does in this field as Chair of the Treasury Committee. He is absolutely right to stress the importance of the role of the banks and other financial services institutions. I would be delighted to ensure that Treasury officials attend the conference, and I shall certainly urge the same course on my right hon. and hon. Friends in the Home Office.
    Mr. Roy Beggs: I welcome the progress that is being made in identifying money laundering. Does the Minister agree that ordinary citizens who observe in their own communities individuals who are acquiring property and enjoying lavish lifestyles, yet are known not to have won lottery money, should pass on that information to their local police? We must put an end to this from the ground up.
    Mr. Boateng: The hon. Gentleman is right. The public's role is crucial and we have therefore recently joined the industry in an information campaign explaining to the wider public why they are asked to provide proof of identity on a more routine basis. It is vital in the battle against crime and terrorism.
    I pay tribute to the police and Customs and Excise in Northern Ireland. They work with the public in combating crime and terrorism. Gathering intelligence as the hon. Gentleman suggests is vital to that.

    Non-domiciled Tax Status
    Norman Baker: If he will review the treatment of those claiming non-domiciled tax status.[124648]
    The Paymaster General (Dawn Primarolo): In the 2002 Budget, the Chancellor announced a review of the residence and domicile rules as they affected the tax liabilities of individuals. That work is continuing. A background paper was published on Budget day 2003. It provides a framework for further analysis and discussion so that any specific options for reform are based on the widest possible understanding of their effect.
    Norman Baker: I am grateful for that, but we were promised opinions and proposals in the November 2002 pre-Budget report. It is taking a long time to provide them. Does the Paymaster General accept that ordinary, decent, hard-working people in my constituency who pay their taxes in full find it a little rum that a few multimillionaire freeloaders pay next to nothing?
    Dawn Primarolo: The hon. Gentleman follows the debate closely and he therefore knows that the rules are broadly unchanged since the early 19th century. In the absence of guidance, they have largely built up through case law. Consequently, the current rules are complex and, as he says, poorly understood. They do not reflect the realities of today's integrated world. In taking forward the review and examining all the questions, including the hon. Gentleman's, it is vital that the outcome is fair, clear, easy to operate and supports the competitiveness of the UK economy, for his constituents as well as mine and those of other hon. Members.

    Value Added Tax
    Bob Russell: What plans he has to reduce value added tax on residential conversion works to existing buildings.[124649]
    The Economic Secretary to the Treasury (John Healey): The Government have already reduced the VAT on most types of residential conversion work to the lowest rate permissible under the European Community VAT rules, but we will continue to keep the VAT treatment of that and other types of construction work under review.
    Bob Russell: I welcome the progress that has been made, but I am sure that the Minister knows of English Heritage's campaign for 5 per cent. VAT throughout the building industry, for new build and established buildings. Why do the Government refuse to follow the advice and recommendation of English Heritage?
    John Healey: I am aware of English Heritage's campaign, about which several hon. Members have contacted me recently. Creating a flat rate of VAT for all building work, for which English Heritage argues, would mean that we would have no option but to give up our zero rates, including on new charity buildings and new housing. I understand the argument that a VAT level playing field for all sorts of construction would encourage the repair of existing properties as opposed to the building of new ones. We will continue to keep those matters under review. We have undertaken to consider English Heritage's representations and several others in the context of a current European Commission review of the reduced rates rules at European level.
    Mr. Peter Pike: Despite our welcome actions, does my hon. Friend believe that we have done enough for areas such as Burnley, which has 4,500 empty houses? We need to do more in the housing pathfinder renewal areas because although we might need to demolish 2,000 houses, the cost of converting two into one and other schemes to save some others is expensive. We need more Government assistance to make the options viable.
    John Healey: I understand my hon. Friend's point. Most conversions of residential properties have been done at a reduced rate of VAT since 2001. That is also true of non-residential buildings, about which my hon. Friend is concerned, and conversion work to increase the number of residential units in existing buildings. The additional support for which he rightly argues in some of our most disadvantaged areas can come from beyond the VAT regime. We are providing for precisely that, especially in the 2,000 most disadvantaged wards in the UK. We are designating them as enterprise areas.
    Sir Patrick Cormack: Is the hon. Gentleman aware that the English Heritage campaign has strong support from the all-party arts and heritage group, which has some 300 members from all

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    parties in both Houses? May I draw his attention in particular to the problems faced by historic churches and by those charged with their repair?
    John Healey: I am aware of the support from the all-party group, and of the hon. Gentleman's support in particular. He has spoken personally to me about this matter, and I know of his work on the all-party group. All that I can say to him is that we are willing to consider proposals for new reduced rates in the context of the current European Commission review. We have received representations on proposals for reduced rates for a wide range of items, from bicycles and compact discs to restaurants and houseboats. We shall consider them all carefully, but they will be considered in the round, and in the context that I have just mentioned.

    Private Medical Insurance
    Siobhain McDonagh: What representations he has received about giving tax relief to private medical insurance payments.[124650]
    The Chancellor of the Exchequer (Mr. Gordon Brown): We estimate the Exchequer cost of full tax relief for private medical insurance to be about £1 billion— money that would be lost to the national health service.
    Siobhain McDonagh: I thank my right hon. Friend for that answer. Does he agree that the way to tackle waiting lists for hip and knee replacements in Mitcham and Morden is not through expensive subsidy of the private sector but by developing cutting-edge projects such as the south-west London treatment and diagnostic centre, which will open in December and, we hope, reduce waiting lists to six months?
    Mr. Brown: I am grateful to my hon. Friend for making that point. I know that she does a great deal in fighting for more resources for the health service in her area. It is true that, if we were to expand capacity in the private sector using policies that have been put to us, operations would cost twice as much as in the public sector. If we were to give expensive tax relief to private medical insurance, and to subsidise vouchers for private medical care, the overall cost could be in the order of £2 billion, but pensioners would still have to pay £5,000 for a hip joint operation. We consider that unfair.
    Mr. Edward Leigh: The Public Accounts Committee recently undertook detailed discussions with the Cour des Comptes in Paris on the back of a study published by the National Audit Office on international health comparisons, which showed that health care in France and Germany is far more comprehensive and effective than ours. Will the right hon. Gentleman therefore adopt a third way by rejecting the ideological solutions that suggest that either a central, state-run system or an entirely privatised system is best, and follow the French and Germans in promoting new ways to encourage ordinary people to devote a greater proportion of their income to their health care?
    Mr. Brown: What the hon. Gentleman, who is the Chairman of the Public Accounts Committee, forgets is
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    that the French spend substantially more on health care as a whole. Even in the public sector, they spend more than is spent in the United Kingdom. It therefore seems strange that he is also putting forward the proposal that he will not support additional national health service spending here. So far as private medical insurance is concerned—[Interruption.]There seems to be a division within the Conservative party: some people will not support additional health spending, but some are now suggesting that some of their Back Benchers do support it. The shadow Chancellor said clearly today that he did not support additional health service expenditure—
    Mr. Michael Howard: indicated dissent.
    Mr. Brown: The shadow Chancellor said that very clearly today, and it will be in the Hansard record tomorrow. So far as private medical insurance and the French model of social insurance are concerned, the hon. Member for Gainsborough (Mr. Leigh) also forgets that all the private medical insurance policies on offer in Britain at a rate that people might even consider exclude treatment for conditions or symptoms arising from physiological or natural causes, critical care, routine health checks, out-patient consultations and physiotherapy. In other words, people are paying substantial amounts of money for policies but not getting complete cover.

    Trade Liberalisation
    Syd Rapson: What discussions he has had on progress with world trade liberalisation.[124651]
    The Chancellor of the Exchequer (Mr. Gordon Brown): At the International Monetary Fund, I chaired a discussion of the trade negotiations by the governors of the IMF and central banks and the head of the World Trade Organisation. That was in the run-up to what we hope will be the successful outcome of the trade negotiations in Cancun in Mexico.
    Syd Rapson: I thank the Chancellor for that reply. Will he join me in congratulating the Trade Justice Movement and Christian Aid on organising last weekend's campaigns—involving many Members of Parliament—to raise liberalisation issues across the country? The question being asked in Portsmouth, in support of the Government's move, was whether the Government would maintain the momentum to enable the poorer countries to be free to choose the way in which they obtain sustainable development and poverty reduction in their own countries.
    Mr. Brown: My hon. Friend is right. A successful outcome for the world trade negotiations could lift 300 million people out of poverty. That is why I applaud the work done last weekend in presenting the case of the Trade Justice Movement to Members of Parliament in all political parties, and why I hope that the trade discussions that will take place in Cancun will gain extra momentum.

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    There are a number of areas in which progress must be made. The first is agriculture, but that has been helped by what happened in the European Union last week, and I hope that the talks can now move to a successful conclusion. The second is pharmaceuticals. As my hon. Friend knows, there is considerable worry about a failure to reach an agreement allowing drugs, particularly generic drugs, to go to the poorest countries. I hope that those who have not been able to sign up to that agreement will now do so.
    As for access to the developing countries generally, I hope that my hon. Friend agrees that the Government's record in ensuring that the developing countries' voice is heard in the trade negotiations is something of which we should be proud, but also something that we should continue and extend.
    Mr. John Bercow: Given that agriculture subsidies of up to $1 billion a day are gravely damaging to some of the poorest people in the world, and that the poor countries have vastly fewer resources to enable them to make their case in international trade negotiations than their richer counterparts, will the Chancellor endorse the Conservative proposal to establish an advocacy fund, paid for by the richest countries in the world, to allow the poorest countries in the world to choose the best possible legal representation to protect their interests and ensure that they will enjoy the level playing field that they have not enjoyed in the past?
    Mr. Brown: I will of course look at any proposal that is presented, but the hon. Gentleman must recognise that the United Kingdom Government have been helping the developing countries through the IMF and the World Bank and in the WTO talks, and will continue to do so.
    The decoupling that took place in last week's European Union agriculture talks is of some help, but we shall have to move the talks forward with other initiatives in other areas over the next few months. If legal assistance is needed we shall be willing to consider it, as we have done in regard to debt relief and at the International Monetary Fund. I hope that the hon. Gentleman will acknowledge that, in involving the developing countries, we all share the same aims.
    Mrs. Anne Campbell: Does my right hon. Friend agree that although further trade liberalisation is essential, there may be a case for offering protection to emerging markets in the least developed countries? That is one of the points made to me by members of the Trade Justice Movement when they visited my advice surgery. How will the issue be dealt with in the Cancun talks?
    Mr. Brown: I agree that that is a point of contention between the WTO and others who are presenting proposals, including many non-governmental organisations that subscribe to the Trade Justice Movement. I believe that there is a way forward, however. The sequencing of capital liberalisation and trade liberalisation will enable us to bridge the gap between the position taken by some NGOs and that taken by some of the Governments who have not yet reached agreement in the WTO. I think that the answer
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    for some of the poorest countries is to work within the WTO to bring about a sequencing of their liberalisation. If they do so they will not lose out, and at the same time will gain the benefit of trade in the world market.
    Mr. Stephen O'Brien: The Chancellor has the details of the Conservatives' pledge to establish an advocacy fund to help secure a fair deal on trade for the people of the developing countries, consisting of contributions from the world's rich nations. Those details were in a letter from my right hon. and learned Friend the shadow Chancellor that the Chancellor received 10 days ago. The fund would allow developing countries access—according to their own choice—to the highest-quality economic advice and advocacy on trade issues and WTO round negotiations, and support in the settling of trade disputes.
    As the Chancellor knows from that letter—and the answer that he gave my hon. Friend the Member for Buckingham (Mr. Bercow) was not unhelpful—this is designed to be a long-term, sustainable fund, despite being misrepresented as short-term by the Under-Secretary of State for International Development, who declined to correct his error. Our advocacy fund will go far beyond what is currently available from the Geneva advice centre.
    On the bipartisan basis on which the Chancellor always seeks—and indeed receives—our support for initiatives to help developing countries, will he now respond to the proposals set out in my right hon. and learned Friend's letter, and support our advocacy fund initiative?
    Mr. Brown: Of course, as I said earlier, we will look at every proposal that is put forward. The hon. Gentleman is suggesting economic advocacy but the hon. Member for Buckingham (Mr. Bercow) was suggesting legal advocacy. We will examine this issue in detail, but I will not be prepared to have international development funds being paid out in big fat fees to lawyers over the next few years. What I will do is to look at how we can help the poorest countries in all the areas in which they are negotiating—that includes the IMF, the World Bank and the WTO—and on which we have already made progress in terms of debt relief. We are prepared to look at such proposals, but there will be no huge payments in fat fees for lawyers.

    Biofuels
    Mr. Bob Blizzard: If he will make further changes to duty rates to facilitate the development of biodiesel fuel.[124653]
    The Economic Secretary to the Treasury (John Healey): Biodiesel already benefits from a duty incentive of 20p per litre below the rate for ultra-low sulphur diesel. As my hon. Friend is aware, duty rates are kept under review as part of the Budget process.
    Mr. Blizzard: I thank my hon. Friend for that reply. Is he aware that nearly all the biodiesel produced in this country is made from used cooking oil and tallow, but that it could be produced in large quantities from rapeseed if it were economic to do so? The industry estimates that a further duty reduction of some 8p to 10p

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    a litre is necessary for the economics to be right. Will he look again at the figures with the industry? Would not the reward be not only a new, environmentally sustainable fuel from a new type of oil field in places such as East Anglia, but new jobs in a new biodiesel production industry and a new market for farmers, who definitely need new markets?
    John Healey: I welcome the points that my hon. Friend makes; he is the very effective Chairman of the all-party group on the offshore oil and gas industry, so he has not only a constituency interest but industry expertise. I have looked at those arguments very carefully, met industry representatives and gone through their figures and arguments. Our principal consideration in assessing appropriate rates of fuel duty to support cleaner fuels is the environmental benefits that they can bring. We have looked at the figures from the sources that he cites and from others, at the environmental benefits and at the cost of production. However, as yet, we are not convinced that a bigger duty incentive for biodiesel is justified.
    Miss Anne McIntosh: Is the hon. Gentleman aware that a further reduction in biodiesel rates may come too late for the ARBRE project that took willow coppice from the Vale of York to be treated at its plant near Selby, and which regrettably has gone into receivership? What discussions has he had with his counterparts in the Department for Environment, Food and Rural Affairs on the benefits not just of lowering duty on biodiesel production, but of the helpful grants that DEFRA gives?
    John Healey: I am aware of the ARBRE project, as the hon. Lady would expect—it was undertaken in the region in which we both represent constituencies—and I was sad to see its collapse and closure. What she is really directing my attention to is the greater environmental gains that may be achieved from biofuels when they are made from woody, ligno-cellulosic feedstocks. We are in close discussion with DEFRA because we want to consider effective ways in which we can support the development of these new technologies. They are currently in the pre-production stages, but they offer much more potential for the future.

    Equity Release Schemes
    Ms Sally Keeble: If he will make a statement on the regulation of equity release schemes.[124654]
    The Chief Secretary to the Treasury (Mr. Paul Boateng): All mortgage-based equity release schemes will be regulated by the Financial Services Authority with effect from 31 October 2004. I announced on 5 June
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    that an open consultation would take place in the autumn on whether home reversion plans should also be regulated by the FSA.
    Ms Keeble: I thank my right hon. Friend for that reply. Given that these schemes are so important for pensioners—many of them are asset-rich but cash-poor—is the Treasury prepared to look at some options to provide further support or relief for equity release schemes where essential building repairs are required?
    Mr. Boateng: I shall treat that—as, no doubt, will my right hon. Friend the Chancellor—as an early Budget submission and it will be given careful consideration, as all such submissions are. On the wider point of consumer protection of the elderly, lessons have been learned from the failures of the '80s in relation to home income plans. In the light of the consultation on home reversion plans, I commend the work done by Age Concern with responsible members of the industry in setting up a code of practice under the safe home income plan scheme. That gives my hon. Friend's constituents and many others the sense of security and certainty to which they are entitled in their old age.

    Working Tax Credit
    Miss Anne Begg: If he will make a statement on the introduction of the working tax credit.[124655]
    The Paymaster General (Dawn Primarolo): The working and child tax credits were introduced in April and will provide an extra £2.7 billion support for families with children and low-income working households. The working tax credit continues to provide in-work support for families with children and disabled workers, and extends support to low-income working households without dependent children or a disability.
    Miss Begg: When the working families tax credit was introduced, one of my constituents was concerned that it did nothing for single people, particularly those on low wages. It remained a possibility, as in his case, that some one could be worse off in work than on benefit. That changed with the introduction of the working tax credit. My fear is that all the emphasis has been on support for children, while there has not been enough publicity for the benefits for single people. The working tax credit could make a huge difference to their lives. Will my right hon. Friend do more to publicise the difference that the working tax credit can make to single people in work?
    Dawn Primarolo: My hon. Friend is correct that single people aged 25 or over are entitled to receive the working tax credit, as are couples without children. The publicity focused both on the child tax credit and on the working tax credit, but I agree that in the next phase of publicity it will be important to highlight the benefits of the working tax credit to single working people, and I would be happy to involve her in the consultation as we develop the strategies.

Business of the House
12.32 pm
Mr. David Cameron: Will the Leader of the House please give us the business for next week?
The Leader of the House of Commons (Mr. Peter Hain): The business for next week will be as follows:
MONDAY 14 JULY—Commons consideration of Lords amendments to the Communications Bill.
TUESDAY 15 JuLY-Second Reading of the Sexual Offences Bill [Lords], followed by Commons consideration of Lords amendments.
WEDNESDAY 16 JULY—Opposition Day [14th Allotted Day]. There will be a debate on an Opposition motion, subject to be announced, followed by Commons consideration of Lords amendments.
THURSDAY 17 JULY—Commons consideration of Lords amendments, followed by motion on the summer recess Adjournment followed, if necessary, by further Commons consideration of Lords amendments.
The House will not adjourn until Royal Assent has been received to any Act.
The provisional business for Monday 8 September will be:
MONDAY 8 SEPTEMBER—Second Reading of the Water Bill [Lords].
I should like to remind the House that we will rise for the summer recess on Thursday 17 July and return for the September sitting on Monday 8 September.
The House will rise again for the conference recess on Thursday 18 September and return for the spillover on Tuesday 14 October.
I should also like to inform the House that the business in Westminster Hall for the remainder of the summer will be:
THURSDAY 17 JULY—A cross-cutting question session on domestic violence. Followed by a debate on financing development.
THURSDAY 11 SEPTEMBER—A debate On the United Nations.
THURSDAY 18 SEPTEMBER—A debate On the report from the Education and Skills Committee on the future of higher education.
Mr. Cameron: I thank the Leader of the House for that statement, but does he agree that, with just a week before the start of the recess, there are some important issues that remain to be discussed? First, when can we expect the Green Paper on children at risk to be published? It is referred to in early-day motion 1548,
[That this House is concerned that the inability of the honourable Member for Barking to carry out the duties of Minister for Children is impeding the Government's progress in presenting to the House the Green Paper on Children at Risk, as a result of which local councils are unable to implement changes which would improve the coordination of organisations and agencies involved in delivering children's services and improve accountability arrangements in response to Lord Laming's Report on the Enquiry into the death of Victoria Climbié and calls upon the Government to publish the Green Paper forthwith.]
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The right hon. Gentleman's predecessor said that it would be published before the recess, so where is it? The rumour is that the delay is due either to the Minister for Children feeling besieged or to the Prime Minister's desire to be present for the launch. Does the Leader of the House agree that neither reason is an acceptable excuse to delay such an important document?
Will there be a further statement before the end of next week on the security and humanitarian position in Iraq? This morning, the BBC reported Whitehall sources—that is sources plural, on this occasion—saying that Downing street now accepts that weapons of mass destruction may never be found in Iraq. That underlines the need for a statement to the whole House.
Perhaps most importantly, we need to clear up once and for all the controversy about the dodgy dossiers, which surfaced yet again at Prime Minister's questions. The Prime Minister claimed that the material in the February dossier—the dodgy one—
"was shared with the Leader of the Opposition at briefings"—[Official Report, 9 July 2003; Vol. 408, c. 1151.]
by the security services. However, my right hon. Friend met the security services once in September, long before the second dossier was even considered. His only other meeting was on 12 February, which was nine whole days after the dodgy dossier was published. When will the Prime Minister come to the House and explain himself? The Ministerial code is clear about this. Page 1—or, in new Labour terms, page 1, clause 1, line 1—of the code states that any error, inadvertent or not, must be corrected "at the earliest opportunity."
May we have an urgent debate on the role of the parliamentary ombudsman? There is an article in The Guardian this morning—I have to declare an interest, as I write a column for the Guardian website—[Interruption.] I cannot repeat that comment from the hon. Member for Bolsover (Mr. Skinner), but I like to think of my column as a beacon of right thinking in a sea of muddle-headedness. The parliamentary ombudsman, Ann Abraham, writes in her annual report:
"I cannot be expected to carry out my responsibilities properly with one hand tied behind my back."
One problem concerns getting information out of Ministers about gifts. It has apparently taken 16 months to get a response from the Government. The former Lord Chancellor thought that there was no problem. As the report says:
"He did not believe that disclosing the information would do any harm."
In response to attempts to get information on potential conflicts of interest for Ministers, the new Lord Chancellor issued a notice saying that disclosure would
"be prejudicial to the safety of the state."
That is a huge difference in opinion. It just goes to show that one's old flatmate is more reliable than one's old boss. The parliamentary ombudsman plays a vital role. These are matters of great importance, and they should be debated in the House.
In the context of the Modernisation Committee, will the Leader of the House look again at the completely unacceptable way in which programme motions are used to limit effective scrutiny of Bills? In consideration of the Health and Social Care (Community Health and Standards) Bill, 60 clauses were not even considered in

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Committee. Will the Leader of the House publish, and place in the Library, a list of clauses and schedules for all Bills that are not debated either in Committee or on Report? That list might well turn out to be a roll of shame, but people should know if this place is not allowed to do its job properly.
The Leader of the House will be aware that at the end of a parliamentary term there has been a tendency to sneak out—to use the words of my right hon. Friend the shadow Leader of the House—awkward and embarrassing written statements, answers, confessions, corrections and suchlike. In internet terms, it is like last minute.con. Can we have a guarantee that that will not happen on this occasion?
Now that the Convention on the Future of Europe is over, the Leader of the House has given up one of his three jobs, so I hope that he will and time to launch his great debate—I think that the words he used were "open and honest debate"—on taxation. We are all looking forward to that. After 60 tax increases and a national insurance rise that broke an election promise, people have a right to know what they are in for next. When is he going to tell us?
Mr. Hain: I welcome the hon. Member for Witney (Mr. Cameron) to the Dispatch Box. I said last week that he was widely liked, but I did not realise that my influence extended so far into the reaches of the Tory party that he would be instantly promoted. However, I would like to know why the shadow Leader of the House, who has only one job, cannot be bothered to turn up today. I understand that he is being wined and dined by journalists in the Press Gallery. The menu is Parma ham and figs, steamed halibut and vegetables, followed by assorted deserts—I mean desserts—although the vacancy he leaves is like a desert. He is being wined and dined instead of attending to the only duty that he has in the House all week.
The hon. Gentleman asked a series of questions, the first of which was about the children at risk Green Paper. We are the only Government ever to bring children's policy as it affects all Departments under one Minister. He should welcome that innovative, new and ground-breaking approach to government in respect of children's rights and protection. [Interruption.]As for the Green Paper, we will publish our strategy not when the hon. Gentleman demands it from a sedentary position but when we are ready. We will not publish according to a timetable set by the Opposition. The Tory party has never had a strategy for children.
Since the commitment was made, we have created a new opportunity to develop policy across Departments, under the control of one Minister for Children. The report will be published in due course, as soon as we are ready to do so. When it is published we will be able to show that it is being followed through in the context of a wider strategy of protecting children and advancing their rights. I have no doubt that the inquiry report, which has been published already, will be followed by local authorities. They will already be considering how to implement the recommendations, and that is the key point.
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As I have explained, the report must be set in the context of a sensible, coherent children's policy that protects their rights and advances their opportunities. That is the important point. As I said, the Tory party never had a policy on children at all.
The hon. Gentleman asked when there might be a statement on the humanitarian situation in Iraq. As he knows, there was such a statement last week. If the situation changes, the Government will stand ready to make a new statement. We heard the familiar gramophone record from the Tory party about weapons of mass destruction, dodgy dossiers and so on. As my right hon. Friend the Prime Minister explained very clearly, we are confident that the evidence for the weapons of mass destruction will be found. Iraq is larger than France, and the evidence could be hidden in any nook or cranny, or any shed, anywhere in Iraq. It will be found.
The hon. Gentleman referred also to the BBC. It is very important that the BBC stops being a player in the story and starts to become a spectator. Its job is to report fairly and accurately, and not to create the news or set the agenda. The BBC should stop spinning. It should listen to its own political editor, who rightly said last night:
"A very senior source I have spoken to on this was absolutely sure, when British troops went into action in Iraq, they would face chemical and possible biological weapons."
I think that Andrew Marr was right, and that the BBC should reflect that.
The hon. Gentleman made an important point about the ombudsman's report. We are the first Government to publish the gifts list for Ministers, which we did on 14 March. The list goes back to June 2001. The Cabinet Office apologised for the delay in publication, but we are the only Government ever to have published the list. We are open and accountable in such matters, and will continue to be so.
On the issue of disclosure in respect of conflicts of interest, what is being demanded is that we disclose contacts, correspondence and any communications between Ministers and their permanent secretaries. Permanent secretaries are responsible for upholding the ministerial code, and every Minister has to ensure that that is done. The Government have nothing to apologise for on the matter, and indeed we have every reason to say that we are out in the open and fully accountable in that respect.
The hon. Gentleman repeated another familiar refrain on programme motions and scrutiny. I shall certainly consider his request to publish a list of clauses and schedules that have not been debated, although as he will know, that is a matter of public record anyway. I do not think that it would be a problem to put it all together in the Library, but I shall get back to him on that.
On sneaking out last-minute statements, there is always a balance between keeping the House in formed—as Leader of the House I am anxious that the Government should do that—and overloading the House with business. [Laughter.]Hon. Members may laugh, but those on the Conservative Benches complain that too many statements are made and do not want them to be made on their Opposition days. They cannot have it both ways—they cannot have Ministers making

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statements at the Dispatch Box and keeping the House fully informed, if they are not prepared to accept that on Opposition days. The hon. Gentleman should bear that in mind.
Finally, on taxation, the Conservative party put unfair taxes on the British people year after year, hitting the lowest-paid and affecting everyone in all income brackets. As a Government, we have introduced fair taxes that assist those at the bottom of the pile, are fair to those in the middle, and are seen overall as fair and just.
Mr. Andrew Stunell: I remind the Leader of the House that yesterday was the final day for the Government to produce their response to the report of the Joint Committee on House of Lords Reform. When will he or his colleagues produce that response, or is it yet again a case of a timetable that has been set by someone else and is to be disregarded?
When will the Waste and Emissions Trading Bill return to the House? Having been through the Standing Committee, it seems to have become becalmed. We see no sign of its returning to the House for Report and Third Reading.
I welcome the right hon. Gentleman's announcement that there is to be a debate in Westminster Hall on the United Nations on the symbolic date of Thursday 11 September. I remind him that since the commencement of hostilities in Iraq, the House has had a large number of statements from Ministers but we have not had the opportunity to debate the outcome or the future prospects of that country. Will he arrange for a debate on our return to the House? By then it will be urgently needed, given that so far practically none of the objectives of the military action have been achieved. Saddam Hussein has not been found and nor have the weapons of mass destruction, there is no peace or security, there is a shortage of humanitarian and medical aid, there is no oil and there are no plans for reconstruction. The House needs an opportunity to debate those matters.
Finally, I ask the right hon. Gentleman not to listen to the siren voices in the House who are complaining about the siren voices outside in Parliament square. I remind him that in times past he thought that direct action outside Parliament was useful and appropriate, and it still is.
Mr. Hain: On House of Lords reform, it is my understanding that the Government will respond to the second report of the Joint Committee before the House rises for the summer recess.
The Waste and Emissions Trading Bill has completed all its stages in the Lords and is awaiting introduction in this House. I hope that we can proceed with that when the business slot arrives.
I agree with the hon. Gentleman that the debate on the United Nations is timely and important, and I hope that the whole House will have the opportunity to commend the UN for its international role and will seek to strengthen it, as indeed we as a Government have a proud record of doing. He pointed out the obvious fact that Saddam Hussein has not been found—obviously, he had prepared his exit strategy carefully, no doubt taking much Iraqi money with him. We intend to find
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him. When we do, that will encourage greater stability. However, the picture that the hon. Gentleman painted was almost as though the Iraqis would have been better off if we had not liberated Iraq. That is unacceptable. If one talks to any Iraqi who was not a Saddam supporter or one of his henchmen, or henchpersons, one finds that they are pleased that he has gone, and we ought to take credit for having achieved that.
As for protest outside the House, there is a long and honourable record of protest in Britain. I have taken part in it, as the hon. Gentleman was kind enough to remind me, and we should always uphold it.
Mr. Alan Meale: The Leader of the House is aware that all local authorities in England and Wales have to be compliant with the terms and conditions of the Disability Discrimination Act 1995 by October 2004, but is he aware that, over the past three or four years, 5,000 of the 10,000 public toilets in England and Wales have been closed? Will he get in touch with his colleagues in the appropriate Department to urge them to hold an emergency debate on this serious matter, before all public toilets are closed?
Mr. Hain: I very much welcome the fact that my hon. Friend raises that issue, which is of concern to all constituency Members, and I shall certainly draw his point to the attention of the Deputy Prime Minister. I commend my hon. Friend for continuing to raise such issues; access to toilets for people with disabilities is extremely important.
Sir Nicholas Winterton: The Leader of the House would expect me to support the request made by my hon. Friend the Member for Witney (Mr. Cameron) for a review of programming, at an early date, by the Modernisation Committee, of which I believe the Leader of the House will assume the chairmanship next week, and I wish him well with that. Will he give an assurance that that review will be a priority?
My real question relates to Zimbabwe. It is and has been a disaster, and it is developing into a catastrophe: a country will virtually disappear because of starvation and all the horrors of a totalitarian regime. Will the Leader of the House arrange for a statement—I know that a debate will be impossible before the House rises—on the current situation in Zimbabwe and on what the Government would hope to do, with other countries in southern Africa, to bring about the removal of Mr. Robert Mugabe?
Mr. Hain: I endorse what the hon. Gentleman said about Zimbabwe. As he knows, we have stood shoulder to shoulder in exposing and attacking the brutal tyranny that exists under Robert Mugabe. There will be an opportunity to discuss that in an Adjournment debate in Westminster Hall on Tuesday, and I hope that, if he is not in the Chair, he and colleagues will at least go along to make their voices heard. It is vital that we stand by the people of Zimbabwe and assist them in ensuring that a change is made to get rid of the tyranny to which they have been subjected.
The hon. Gentleman has raised with me the review of programming both on the Floor of the House and as Chairman of the Procedure Committee. I shall be happy

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to listen to his and others' views on the matter. It is an agenda item for the Modernisation Committee, and I am content that that is the case.
Mrs. Janet Dean: Has my right hon. Friend seen the sensational headlines in today's Daily Express? Obviously, the control of sex offenders is important, so can he ensure that we have time to debate the issue before the summer recess?
Mr. Hain: A balance needs to be struck between gross sensationalism and ensuring that the problem is dealt with firmly. We are all aware of the need to target the problem of sex offenders and clamp down on it. The Government and the police are working together to ensure that that is done. Through the legislation and other measures that we have introduced, the problem is being targeted more systematically than ever before, but I shall certainly draw my hon. Friend's remarks to the attention of the Home Secretary.
David Davis: The Leader of the House knows that thousands of my constituents depend for their livelihood on the BAE Systems factory at Brough that makes Hawk aircraft. The factory depends on a Government contract for those aircraft, on which it was promised a decision last month. That decision was not forthcoming and the factory sought an extension. The extension passed last week. There is fear in my constituency that this unpopular decision, which, at the stroke of a pen, will alter the future for all my constituents, is being put off into the recess. Can the right hon. Gentleman give an undertaking either that we shall have that decision before the recess or that a Minister will come to the Dispatch Box to explain why the Government are not competent enough to deliver on a promise that they made last year?
Mr. Hain: I understand the point that the right hon. Gentleman is, quite properly, making on behalf of his constituents. As he knows, we have a good record of support for the aerospace industry, especially on defence contracts. I realise that the contract is extremely important for the BAE factory in his constituency, and I shall certainly get in touch with the Secretary of State for Defence as a matter of urgency.
Mr. Colin Challen: May I draw the attention of my right hon. Friend to early-day motion 1488.
[That this House congratulates Liverpool, and all the contenders for the title of European City of Culture 2008, on their efforts to make the UK a rich and diverse place to live; notes that many British cities could with justice have claimed the title, but that there are other strengths in cities which should be recognised and encouraged amongst which, most importantly, would be the ability to create strong local economies; calls upon the Secretary of State for Trade and Industry to lobby the European Union for the creation of the title European City of Enterprise to be awarded annually, starting with a British city in 2004; and further notes that if this award were to be made, one of the strongest contenders and probably winner of the first award would be the city of Leeds, which on every measure
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has demonstrated a determined and successful strategy to reduce unemployment, create new businesses and develop thriving private and public sectors which has resulted in long-term economic stability for its inhabitants, whilst recognising that there is always more to doi.]?
We hold many debates about the rural economy and the role of London and capital cities. Should not more attention be paid to the role that regional cities play in the country's economy?
Mr. Hain: My hon. Friend has identified an important point. I was a strong backer of Cardiff's bid to be the European city of culture, because it is a fine and enterprising city, as are Leeds and other cities in the rest of Britain. We should like to pursue the idea of an annual award to a European city, and if he makes further representations, I am sure that they will be listened to.
Mr. Andrew Rosindell: Will the Leader of the House arrange, at the earliest opportunity, for a debate on the report that the Home Secretary intends to introduce compulsory identity cards and on the implications of that in terms of both cost and the freedom and liberty that we have enjoyed for so long in this country?
Mr. Hain: There is, of course, a debate on entitlement cards in Westminster Hall on Tuesday, and Home Office questions will be held next week, so the hon. Gentleman will have an opportunity to raise those matters.
Mrs. Alice Mahon: Has the Leader of the House seen the statement made by Mr. Joseph Wilson, a former United States ambassador, who investigated for President Bush the claim that Saddam Hussein was buying uranium in Africa? In February, Mr. Wilson informed the CIA that the documents pertaining to that were forged. In view of the fact that President Bush has acknowledged that he should not have used that information in his State of the Union address, may we have a statement from the Prime Minister to explain why he continues to insist that the evidence justifies the claim?
Mr. Hain: I understand my hon. Friend's concern about that matter; she has followed such questions closely. However, the Prime Minister has made more statements on the matter than most people have had hot breakfasts—[Interruption.]—or hot dinners, or hot lunches upstairs with the press. Those matters were dealt with in front of the Foreign Affairs Committee and they will continue to be dealt with, as the Prime Minister has done.
Mrs. Gillian Shephard: In his response to my hon. Friend the Member for Witney (Mr. Cameron) about the Government Green Paper that will eventually respond to the findings of the Victoria Climbié inquiry, the Leader of the House said that the Government would not follow a timetable set by the Opposition. Of course, that is his prerogative, but may I draw his attention to a letter to me from his predecessor, saying that the Government would publish their response before the summer recess? That, in the

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middle of May, was the Government's timetable for publication of the Green Paper, yet now it is not. What has changed, apart from the Government's excuse?
Mr. Hain: I would have thought that the right hon. Lady would have understood the point that I made earlier. What has changed considerably between May and a few weeks ago is that we now have a new Minister for Children and we are able to set that important report and the action that we are taking to deal with it in the context of a wider strategy on children's issues. I would have thought that she would welcome that. I would have thought that she would say that reports on children who have been subject to abuse and the action that needs to be taken ought to be set in the context of action on children's policy right across the board. No Government have had such a comprehensive policy on children's rights and the protection of children as we have the opportunity of developing. That is a commonsense approach, and the right hon. Lady should pause and wait a few weeks, and then I think that she, and every child in Britain, will be pleased with the outcome, even if Tory Back Benchers are playing games and making mischief about the timing of the matter.
Mr. Ian Cawsey: I associate myself entirely with the question asked by the right hon. Member for Haltemprice and Howden (David Davis). To follow on from it, two weeks ago at business questions I asked my right hon. Friend to arrange for a statement on the intentions of the Ministry of Defence on buying British Hawk jets. He agreed that it was important that the interests involved were secure. I listened carefully to his reply to the right hon. Member for Haltemprice and Howden, and urge him not only to speak to Ministers, as he agreed to do, but also to ensure that there is a pre-recess statement. Surely it would be improper and wrong for such an important announcement to be made when the House is in recess.
Mr. Hain: I understand the points that my hon. Friend makes on behalf of his constituents, and I am well seized of the issue's urgency. It is important the Government get the decision right, rather than rushing it out, although any undue delay would obviously cause anxiety. As I have said, I will certainly speak to the Secretary of State for Defence as quickly as I can, and I am sure that he will understand the urgency as well.
Mr. Nigel Dodds: I urge the Leader of the House to find time for an early debate in the House on early-day motion 1391, on establishing an older people's rights commissioner.
[That this House believes that the human rights of older people in the United Kingdom are too often overlooked or undervalued; condemns the neglect and financial abuse of vulnerable elderly people revealed by the BBC Television series 'Britain's Secret Shame'; recognises that the majority of such cases result from a lack of understanding rather than deliberate cruelty; welcomes the Help the Aged campaign to tackle such mistreatment of older people; notes the introduction on 17th June of a bill under the 10 minute rule by the honourable Member for North West Leicestershire to establish an Older Person's Rights Commissioner to promote and protect the human rights of older people; urges honourable and Right honourable
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Members to endorse this proposal; notes that domestic and European anti-discrimination legislation for goods and services does not make specific provision relating to age; and calls on the Government to correct that position as a matter of urgency as part of a comprehensive effort to end the injustices endured by older people on a regular basis.]
Does the right hon. Gentleman accept that there is still a lot of injustice and discrimination against people on the grounds of age, and that it is therefore important that the House consider this matter, establish such an office and end discrimination against older people, not only in employment, but in the provision of goods and services?
Mr. Hain: I will certainly draw the hon. Gentleman's interesting idea to the attention of the relevant Secretary of State. I am sure that he will know, however, that the Government have a very good record, especially in recent times, of ensuring that age discrimination is elevated right to the top of the agenda, along with other forms of discrimination. Successive Governments have not done that in previous years. That is a good policy, and his proposal certainly deserves scrutiny.
Mr. Clive Betts: Will the Leader of the House arrange a debate on prescribing anti-TNF drugs for rheumatoid arthritis sufferers? Clinicians in Sheffield tell me that about 140 people could benefit from using those drugs, but that fewer than half of those people will be receiving them by the end of this year. The Government have done a great deal to stop postcode prescribing in the national health service. We do not want it to come in by the back door. All those people who do not get those drugs will suffer further irreversible damage to their health. I hope that we can have a debate on that very important issue.
Mr. Hain: I agree with my hon. Friend that this is a very important issue, and I commend him for his interest and work on the issue, as will lots of our citizens, far too many of whom suffer from that problem. The Adjournment debate on Thursday—the last business of the House before we go into the summer recess—provides an opportunity for those issues to be raised; but in the meantime, I shall draw his concerns to the attention of the Secretary of State for Health.
Mr. Michael Jack: In supporting the point made by my right hon. Friend the Member for Haltemprice and Howden (David Davis), may I ask the Leader of the House whether he will also consider—perhaps when the House returns in September—holding an urgent debate on defence procurement and its effect on the aerospace industry in the north-west? There is considerable uncertainty about tranche 2 of the Eurofighter, Typhoon, about the future of the Nimrod MR4A aircraft and, indeed, about the implications of the Hawk order, to which right hon. and hon. Members have already referred. Some 40,000 jobs are dependent on the aerospace industry in the north-west, and a debate on that matter would now be timely.
Mr. Hain: The right hon. Gentleman has spoken to me about those matters in the past, and I understand his important constituency interest, which is shared by the right hon. Member for Haltemprice and Howden

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(David Davis) and my hon. Friend the Member for Brigg and Goole (Mr. Cawsey). We would all share their concerns if we were in the same position. Even if I have received no other message in the past half hour or so, they have made it clear that that is something of very great concern, and I shall ensure that their views are transmitted to the appropriate quarters.
Ann Clwyd: Survival rates for breast cancer are improving. Nevertheless, more than 11,000 women died from breast cancer in 2002. There is evidence of regional disparities and age discrimination. May we please have an early debate on breast cancer services?
Mr. Hain: I will certainly bear in mind my hon. Friend's request because that is an absolutely crucial issue, and she has a very long record of promoting good policy on such issues. Indeed, as she implies, 98.3 per cent. of patients with suspected breast cancer, referred urgently by their GPs, are now seen by specialists within two weeks, and 96.3 per cent. of patients diagnosed with breast cancer now receive treatment within a month. That is a massive improvement and a tribute to the Government's policies, but we must never be complacent on this issue.
Andrew Selous: Will the Leader of the House arrange for a statement before the summer recess on this country's ability to control its own borders—something that was promised in the Labour party manifesto, although recent parliamentary answers have revealed that it will not be guaranteed in future?
Mr. Hain: No; I do not know where the hon. Gentleman gets that idea. As far as we are concerned—whether in negotiations on the future of Europe, or in other respects—we are absolutely committed to secure borders and to retaining control over our own borders. Yes, there is a problem with illegal human trafficking; it is a worldwide problem, affecting Europe in particular, and we are suffering from it especially, but we are taking action. The issue is coming increasingly under control, and we will continue to bear down on it to ensure that our borders are indeed secure.
Dr. Alan Whitehead: I am grateful to the Leader of the House for the time that he has provided for debates on Europe, but I wonder whether he might find time to debate the resolution of a specific European conundrum: the statement by the right hon. Member for Wells (Mr. Heathcoat-Amory) that, if there were a vote against the proposed European constitution, the state would have to
"allow the others to go ahead, having negotiated an associate membership of some kind",
and the statement made by right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) in Prague today that a vote against the proposed new EU constitution would not be a vote in any way to withdraw from Europe.
Mr. Hain: There is a contradiction, and I will certainly consider the opportunities for arranging such a debate.
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Of course my hon. Friend, along with other colleagues, can press for an Adjournment debate or another debate on that matter, but it is very significant that the Leader of the Opposition is still a signed-up member of Conservatives Against a Federal Europe, which advocates withdrawal. Indeed, he is also been a supporter of the Bruges group, which said only a few months ago:
"It would have been better if we had never joined"
Europe.
Mr. Paul Goodman: The Leader of the House will be aware that, a fortnight ago during business questions, I asked him whether he could provide an urgent debate on Iraq, having earlier called for an independent inquiry. Given that Whitehall sources are now saying that weapons of mass destruction may never be found, will he provide time for a statement, since some of us are increasingly concerned that we may have been misled into voting for war without good cause and that, whether or not that is so, the Government owe us an explanation on WM D?
Mr. Hain: I realise that that is a convenient parliamentary tactic by the Conservatives, but the hon. Gentleman knows as well as I do that the Prime Minister appeared before the Liaison Committee only a few days ago to answer in detail and to make himself accountable on the specifics of those matters. That is old ground, which has been crawled over ad nauseam. The truth remains that we are confident, as the Prime Minister said, that we will find evidence of weapons of mass destruction. Is the hon. Gentleman suggesting that the intelligence services did not provide accurate evidence? Is he attacking the intelligence services? If so, he should come out and say so.
Lynne Jones: My right hon. Friend will be aware that the High Hedges (No.2) Bill was recently talked out. The Government are aware of that Bill's importance to alleviating the misery caused to thousands of people throughout the country by high hedges. Indeed, some of my constituents, who are members of Hedgeline, were very pleased to receive a ministerial statement with a commitment that the Government will make every effort to get that Bill on to the statute book. Will my right hon. Friend discuss how that can be achieved with colleagues in the Office of the Deputy Prime Minister? After all, it is a very simple Bill; apart from the odd loquacious Member, it has all-party support; and it should not take up too much time with Government support.
Mr. Hain: I very much agree with all the points that my hon. Friend makes. It was scandalous that the Conservatives talked out that Bill—the hon. Member for Christchurch (Mr. Chope) was specifically responsible for doing so—and I will certainly consider any opportunity to resurrect it, because all Labour Members recognise that that is an important issue to address.
Sir George Young: The recess, which the Leader of the House has confirmed for next week, will come as an enormous relief to Labour Members—while Conservative Members will, of

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course, be happy to sit into August if necessary. Will he spend the recess taking a knife to next year's legislative programme? Does he agree that what has happened in the past fortnight has been wholly unacceptable, with large chunks of Government Bills simply not debated? Will he give an undertaking that there will be no repetition of that fiasco next year?
Mr. Hain: I saw the glum faces around the right hon. Gentleman when he was proposing to chop his colleagues' holidays. There would be cancelled holidays galore on the Conservative Benches. I must disappoint him, however, as there is no prospect of that happening. He will understand that the original legislative programme, which I agree has become overcrowded, became so because of Iraq in particular—and, rightly, the enormous pressure on parliamentary business from debating those matters fully—and Northern Ireland legislation. I am confident that we will get a legislative programme that is better able to be taken through the House in the normal timetable. We cannot plan for the unexpected, however, which is what happened in the past year. We are attempting to provide for the unexpected in the next year's legislative programme.
Mr. Ivan Henderson: Would my right hon. Friend consider having a debate on schools funding? Today, there are calls from schools across Essex for the resignation of the Tory cabinet member responsible on Essex county council, because the council is still sitting on £21 million that could be allocated to schools in my area. If we had a debate, we could find out how much more money is being held by authorities around the country that should now be directed to local schools.
Mr. Hain: My hon. Friend raises an important charge against Essex county council, and I am sure that the public of Essex will want to know what the situation is and what the Conservative council is doing about it. He will also understand, however, that spending per pupil is up by £800 a year in real terms since 1997, with huge numbers of extra teachers and classroom assistants being recruited. That is against a background, of course, in which one in five teachers would be sacked as a result of the Tory policy of 20 per cent. cuts across the board.
Mrs. Eleanor Laing: My hon. Friend the Member for Witney (Mr. Cameron) has already drawn the attention of the Leader of the House to early-day motion 1548, on the Green Paper on children at risk. It seems that the Government have changed not only the timetable for the publication of this important Green Paper, but the excuse for the delay in publication. Last week, the excuse given was that the Prime Minister understandably, wants to be present at the launch of the Green Paper, and that he does not have time to do so until September. This week, in answer to my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard), the Leader of the House said that the reason for the delay is that there will be further policies in the Green Paper. This matter is too important to be played about with in this manner. We are not making mischief. I am genuinely concerned about the children who are at risk and who are not getting the attention that they deserve from local authorities, as local authorities are
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having to wait so long for this Green Paper. They cannot take action until they have it. Can we have a debate next week on children at risk? It is an urgent matter.
Mr. Hain: The report has been out for some time now. Every responsible director of social services and responsible local authority has already had a copy, is acting on it and is taking forward its recommendations.
Mrs. Laing indicated dissent.
Mr. Hain: Perhaps there is a Conservative county council somewhere in the country that is not doing that, in which case we should be told—[Interruption.]
Mr. Speaker: Order. The hon. Member for Epping Forest (Mrs. Laing) has asked a question, and the Leader of the House should be able to answer.
Mr. Hain: Thank you, Mr. Speaker. The point of the hon. Lady's and her right hon. and hon. Friends' fabricated frenzy is to attack the new Minister for Children instead of recognising that there are sensible reasons, including the Prime Minister putting his personal stamp on a radical new policy to advance children's rights and to protect children in a way that has not been done before. As someone who seeks to aspire to that job, she ought to welcome that.
Kevin Brennan: Can we have a debate on Duchenne muscular dystrophy, a deadly disease that affects families from every constituency in this country? Is my right hon. Friend aware that last week a group of parents came to Westminster and lobbied outside the Department of Health but sadly no one was available to see them? Will he undertake to raise this matter with his ministerial colleagues and if possible arrange for a debate to build on the welcome proposals contained in the Government's White Paper on genetics?
Mr. Hain: I am well aware that my hon. Friend has shown great energy and diligence in pursuing the problem of muscular dystrophy, and it was unfortunate that that particular protest was not recognised. I hope that the relevant Department will ensure that representations on behalf of those people are fully taken into account, and I am sure that he will follow that up. In terms of House business, he has the opportunity to apply for a debate, and, with any luck, it will be heard.
Richard Younger-Ross: In answer to the hon. Member for Birmingham, Selly Oak (Lynne Jones), I hope that time will be found for the High Hedges (No. 2) Bill and that it will not be kicked into the long grass.
Has the Leader of the House had an opportunity to see early-day motion 1566, on the centenary of the young Liberal movement, of which he was at one time a leader?
[That this House notes that Liberal Democrat Youth and Students are celebrating '100 years of Young Liberals' this week; congratulates the Young Liberals on their centenary and their contribution to politics both in the UK and abroad; and wishes LDYS every success in continuing to make politics relevant to young people.]

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Can he speak to the Minister for Children, who I understand is also the Minister for youth, to see whether we can have a statement or a debate on making politics relevant to youth today? As he will recall, the level of youth involvement in politics when I first joined some 30 years ago was greater than it is today.
Mr. Hain: I recognise the hon. Gentleman's points. I notice that my brief on early-day motion 1566, headed "Young Liberals", says, "Be neutral", so that is what I will be.
Keith Vaz: Can we have a debate in Government time on the procedure for the closure of post offices? I have written to the Secretary of State about the closure of Humberstone post office in my constituency, which was done without proper consultation with local residents. The head of the regional office, Mr. Paul Maisey, refused to meet me or my constituents before the post office was closed. I support the Government's policy on modernisation, but modernisation should not be used as a euphemism for closure.
Mr. Hain: I certainly endorse my hon. Friend's point on behalf of his local post office. Modernisation is not a euphemism for closure. We all share the concern that a changing pattern of consumption and lifestyle means that many local post offices are increasingly coming under threat. As I have said before in business questions, my local post office has been under threat over the past year. When a local branch of Barclays bank closed, however, and I encouraged customers to switch their accounts to the post office, which they could have done to underpin its viability, there was very little take-up. We are therefore dealing with a problem of human behaviour that is wider than the issues that he raised.
Dr. Julian Lewis: Yesterday, the Prime Minister sought to implicate my right hon. Friend the Leader of the Opposition in the dodgy dossier by insisting that he had been briefed on the intelligence contents of that dossier, when we now know that that was not the case. The day before, however, in his evidence to the Liaison Committee, the Prime Minister, in answer to question 186 from my hon. Friend the Member for Gainsborough (Mr. Leigh), denied categorically the claim that 90 per cent. of that dossier had come from plagiarised material. On 19 June, however, the author of the main article that was plagiarised gave evidence to the Foreign Affairs Committee that 90 per cent. of the second dossier came from his article and two other articles; and a paper by a Cambridge academic submitted to the Foreign Affairs Committee provided a page-by-page analysis backing that up. May we therefore have a statement from the Prime Minister analysing the contents of the dossier, because he has not only plagiarised the material of that young student but called him a liar by denying his analysis that 90 per cent. of the dossier was plagiarised and that therefore only a tiny fraction of it could have been intelligence material?
Mr. Hain: This contribution from the Conservative Benches is getting to sound like a rather scratchy old
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gramophone record. Let us look at the facts. The Prime Minister said yesterday that the briefing given to the Leader of the Opposition was based on intelligence. That is what he said: the very same intelligence that had gone into those two documents. The Leader of the Opposition should come clean. He should say whether he is disputing any of that intelligence, because he did not dispute it at the time. Indeed, he supported the Government's policy at the time. Now, however, he sees a chance to make mischief opportunistically, and he continually seeks to do so, with the support of the hon. Gentleman.
Glenda Jackson: In the light of the previous answers from the Leader of the House, is it still the Government's position that Iraq's weapons of mass destruction will be found? Is he categorically denying the reports running on the BBC today that the Government are now saying that such weapons will not be found, either because they were destroyed before the war began or because they have been hidden? Surely we should have a debate on the issue in the House. It would not be some arcane parliamentary debate; people died on the decisions that the House made based on reports that the Government had given not only on the size of the weapons of mass destruction arsenal but on Saddam Hussein's capacity to launch them within 45 minutes.
Mr. Hain: I am sorry that my hon. Friend is relying on BBC spin rather than on the evidence. The truth is that the Foreign Affairs Committee report upheld the Prime Minister's record on this matter. The truth is that those like myself—I was in the Foreign Office as the Minister with responsibility for Iraq, then Minister for Europe, and subsequently a Cabinet Minister—who saw the raw intelligence and were briefed by the Joint Intelligence Committee and other senior intelligence sources were absolutely clear that there was evidence of weapons of mass destruction. That evidence was underpinned by United Nations inspections reports that my hon. Friend has never really accepted. That was the basis for our action. I would have thought that we ought now to put that behind us and seek to work together internationally to make sure that Iraq goes into a new democratic future, having been liberated from such a brutal dictator.
Pete Wishart: Surely it is now imperative that we have a statement from the Prime Minister on the whole issue of weapons of mass destruction, especially after senior Whitehall sources—I note that the Leader of the House did not contradict them—suggested that we would never find these weapons of mass destruction. I know that the Prime Minister has appeared before the Liaison Committee, but only the three main parties are represented on it. Does not the whole House deserve an explanation and does not the whole nation, through the House, deserve to know what is going on with WMD?
Mr. Hain: I do not know whether BBC sources these days are dodgy or not; I really do not, and I do not think the public know. If the hon. Gentleman is asking what I and the Prime Minister believe, the answer is that we believe that evidence of weapons of mass destruction

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will be found. I would be very surprised if it was not. As I have said before, Iraq is a huge country and we know, and we knew at the time from intelligence, that Saddam Hussein was dispersing these weapons of mass destruction for months before he anticipated the weapons inspectors would come in. It is not surprising that they are not in a shop window somewhere for us to go and find. That would be astonishing.
Mr. Gordon Prentice: May I echo the concerns expressed by my hon. Friend the Member for Leicester, East (Keith Vaz) about post office closures? We are witnessing an incredible shrinkage of the post office branch network. In my constituency, people have been absolutely bewildered this week at the news that five branch offices are due to close. It is an important issue and we should hear from Ministers in the Department of Trade and Industry about the discussions that they are having with the Post Office to maintain this valued national institution of a post office branch network.
Mr. Hain: I understand my hon. Friend's concern. All of us as local Members of Parliament value local post offices and the local communities that they serve value them even more. The picture that he paints is a very serious one and I shall bring it to the attention of the relevant Minister and Secretary of State as soon as I can, so that any action can then follow.
Several hon. Members rose—
Mr. Speaker: Order. Only a few Members are standing, but I must have brief questions if I am to call them all before half-past the hour.
Tony Baldry: The Prime Minister told the Liaison Committee that he would not have committed UK troops to war in Iraq if he had not won the vote in the House of Commons. It is reasonable to infer that many Members supported him in the Division Lobby because they believed that there were weapons of mass destruction that could be deployed within 45 minutes. If they knew then what they know now, many Members might well have not supported the Prime Minister in the Division Lobby.
Is it not despicable that the Prime Minister should come to the Liaison Committee and do Prime Minister's questions and, almost immediately after, Government spokesmen put out another spin on the story—that weapons of mass destruction may never be discovered? It is doubly despicable that the Leader of the House should then come to the Chamber and seek to blame the BBC for fabricating that story. Can we have a debate next week not necessarily on Iraq, but on the whole Government machinery of—
Mr. Speaker: Order. I call the Leader of the House.
Mr. Hain: Just for the record, I did not blame the BBC's political editor. In fact, I commended the quote that he gave on either the 10 o'clock news or the "Today" programme this morning. I blamed BBC spin—and indeed, that spin was directly contradicted, as I understand it, by the Prime Minister's official
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spokesman in the Lobby briefing this morning, in which he said that the Prime Minister and the Government remain confident that evidence will be found.
I do not know whether the hon. Gentleman, along with opponents of our action, wants to airbrush out of history the fact that United Nations reports consistently reported evidence of weapons of mass destruction. Our own intelligence services—as I have seen for myself—reported that evidence as well. He should be standing by those reports and standing by the intelligence services, and not seeking to undermine them.
Mrs. Anne Campbell: My right hon. Friend will be aware that I have a high proportion of private rented sector dwellings in my constituency to cater for the needs of students. I welcome very much the excellent pilots that the Government carried out on the tenancy deposit protection scheme. However, I am disappointed that there is no forthcoming mention of that in the draft Housing Bill. Does my right hon. Friend agree that it is an important issue that needs to be pushed forward? Will he make representations to my right hon. Friend the Secretary of State?
Mr. Hain: I understand my hon. Friend's concerns and the important points that she makes. I will certainly draw them to the attention of the Secretary of State.
Mr. Andrew Mackay: I join other colleagues in calling on the Leader of the House to arrange for the Prime Minister to come to the Dispatch Box next week to explain the allegations that he made against my right hon. Friend the Leader of the Opposition yesterday. Will the Leader of the House confirm that my right hon. Friend met the head of the Joint Intelligence Committee on 12 February, which was nine days after the dossier was published? Yes or no?
Mr. Hain: The Prime Minister wrote yesterday to the Leader of the Opposition setting out very clearly—[Interruption]He did, indeed. He made it absolutely clear that the evidence upon which the Leader of the Opposition was briefed was the same evidence that went into the documents concerned. It has been the same evidence that formed the basis of the approach to conflict and that we relied upon. Again, I directly ask the right hon. Gentleman, if not the Leader of the Opposition, whether he is disputing the intelligence services' evidence. Is he—yes or no? As for the Prime Minister answering questions, he will be here on Wednesday to answer the questions that anybody wants to put to him.
Mr. Michael Connarty: Can the Leader of the House organise for a statement to be made to the House following the publication by her Majesty's chief inspector of prisons of the report on the two remaining detention, or what I think are called removal, centres for immigrants, including Dungavel in Scotland? Is my right hon. Friend aware that, when the chief inspector published in April her review of the three centres that she had visited, she said that no child should be kept in such places—that applied to all five of them—for more than six days? Does he not think it ironic that while he is talking today about the children's Minister,

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something that I fully support, the children of the Ay family will have spent a year in detention in Dungavel come next week? Can he arrange for that to be debated on the Floor of the House as soon as possible?
Mr. Hain: I am not sure that I will be able to find time for a specific debate. My hon. Friend will have the opportunity to raise the issue in other ways, but I assure him that I will draw his important points to the attention of my right hon. Friend the Home Secretary.
Rev. Martin Smyth: The Leader of the House will be aware that there have been discussions about a shadow monitoring commission for Northern Ireland. Can he guide as to whether the Government are planning to introduce legislation in the coming week or in September?
Mr. Hain: There are no plans for the coming week but, as the hon. Gentleman will be aware, we are obviously seized of the importance of Northern Ireland legislation on a number of matters. I will draw the Secretary of State's attention to his question.
Mr. Speaker: I call Mr. Robertson—I am sorry, Mr. Ian Carmichael.
Mr. Alistair Carmichael: Very close, Mr. Speaker. It is Alistair actually. I am delighted to have the opportunity to ask my question.
Can we have a statement before the recess from the Minister responsible for shipping to give the Government's response to reports that we are to import a so-called ghost fleet of 94 former naval ships from the United States for decommissioning on Teesside? Apparently, they will be towed through the Pentland Firth, to the south of my constituency. My constituents wish to know why on earth we are importing these ships from the other side of the world and what steps the Government will take to ensure that these highly
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contaminated and dangerous wrecks do not cause the damage that they have the potential to cause to our very precious coastline.
Mr. Hain: Obviously, safety factors are uppermost in the minds of the Government and the authorities when such undertakings are considered. I imagine that the enterprise means that jobs are at stake, and I am sure that the hon. Gentleman will consider that as well. I shall draw his specific points to the attention of the Secretary of State, and the Scottish Parliament might want to take an interest as well.
Mr. John Bercow: Further to the Leader of the House's erroneous claim, in response to the question asked by my hon. Friend the Member for South-West Bedfordshire (Andrew Selous), that this country has kept control of its national borders, may we have an urgent statement to clarify the situation, because the Minister for Europe's written answer at column 735W on 8 July to a question tabled by my hon. Friend the Member for Witney (Mr. Cameron) said that it was essential to scrap the veto and move to qualified majority voting on immigration and asylum policy? The Leader of the House seems to be woefully ignorant of that fact.
Mr. Hain: I always admire the hon. Gentleman's ability to recite facts one after another without consulting his notes.
Mr. Stephen O'Brien: Answer the question.
Mr. Hain: I am about to. The hon. Member for Buckingham (Mr. Bercow) is confusing border control with having a common asylum policy throughout Europe. Such a policy would enable us to ensure that backmarkers on human trafficking—countries in which the problem arises but that pass the buck to us—take their responsibilities seriously and have procedures for admitting such people. That would mean that we could ensure that if such people cross on to our shores, we could put them back in the European countries where they first landed. Our border controls will remain exactly the same and the hon. Gentleman should not confuse the two issues in such a way.

Economic and Monetary Union
[Relevant document: The Sixth Report from the Treasury Committee, Session 2002–03, HC 187-I and -II, on the UK and the euro.]
Motion made, and Question proposed,That this House do now adjourn.—[Vernon Coaker.]
1.32 pm
The Chancellor of the Exchequer (Mr. Gordon Brown): I want to share with the House the evidence and conclusions contained in the euro assessment. I shall give more detail on measures that are good for Britain and that advance convergence and flexibility: measures on housing, the sale of surplus public sector land; planning, driving up performance; and flexibility, progress on skills, labour market reforms and pay flexibility in the public sector. I want to show not only that sustained convergence and living with euro area interest rates while advancing stability, full employment and the funding of public services is in the national economic interest, but, more generally, that it is in the British national economic interest to be fully engaged and enthusiastic members of the European Union—not to be semi-detached—and to play a full part in equipping a new enlarged Europe to meet global challenges.
I acknowledge that no cause has been more controversial, no issue has been more difficult, and no subject has been more complex for the British people for so long than Britain's relationship with Europe. No issue has attracted more of the House's attention or engaged it in so much scrutiny and debate. However, if the first three phases in our post-war relationship with Europe were our pre-1972 decision not to join, which was wrong, our decision to join yet to be continually unhappy with the terms for the next two decades and, in the wake of the fall of the Berlin wall and the Maastricht treaty, the decision in the early 1990s to stand further apart from Europe, we have now entered a new fourth phase of our relationship. Europe is moving from its often inward-looking and exclusive era as a trade bloc towards a recognition that it must compete globally. That is the context of the decisions that we must take about not only the intergovernmental conference but the euro.
When we joined the then Common Market in 1972, 2 million jobs depended on our trade with Europe, but now 3 million jobs depend on it. We now import £154 billion of goods and services each year from Europe—53 per cent. of our total imports of goods and services—compared with £5 billion in 1972. Compared with £4 billion in 1972, we now export £140 billion of goods and services to Europe each year, which is 52 per cent. of our total exports of goods and services. It is estimated that 750,000 British companies have trading relationships with the rest of Europe. As Europe has advanced from a common market to a single market, 73 per cent. of our investment overseas now goes to European Union countries, compared with less than 14 per cent. before we joined the Common Market. Therefore, adopting a policy that would leave Britain semi-detached from Europe would be a disastrous stance for jobs, business and trade.
Until now, the context in which we have viewed decisions about Europe has been European rather than global. The European Union was the world's first
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trading bloc. It was the precursor of the North American Free Trade Agreement, Mercosur, the Association of South East Asian Nations and the other trade blocs. Its role was to organise its rules, to formulate its preferential agreements and to fashion its social dimension and external relations. However, discussion of the euro takes place today in a new global context. We have an enlarged Europe that is moving from the Europe of the trade-bloc era in which it was more protected, sheltered and inward-looking, to a Europe of the global age that cannot avoid intense global competition.
Mr. John Redwood: Will the right hon. Gentleman give way?
Mr. Brown: I shall give way after I have set up the argument.
In 1972, 21 per cent. of the UK's output was traded, and the figure is now 27 per cent. France traded 22 per cent. of its output in 1972 and now trades 26 per cent. Germany's figure was 29 per cent. and is now 33 per cent. Twenty-one per cent. of Europe's output was traded worldwide in 1972. The figure was 30 per cent. in 1990 and is 34 per cent. today.
In this new stage of Europe's history as a union—the global rather than trade-bloc phase—three changes affect our decision on the euro. First, the enlarged Europe has to look outwards. Indeed, during the past 10 years, there has been a tenfold increase in European investment in the USA, and European investment in the USA has been twice American investment in Europe. That means that Europe must recognise that it benefits from partnership rather than rivalry with the USA, and that it must seek job-enhancing trade agreements with the rest of the world, including the USA.
Secondly, the euro decision must be taken, as the intense competition that globalisation brings forces every country to become more competitive. Economic reform is, and must be, the driving force behind Europe's economic agenda. Thirdly, the euro decision is being made as the global competitive challenge demands a greater flexibility in labour markets, thus forcing Europe to redefine its social dimension.
Europe has to form new outward-looking relationships and is being forced to reform economically and socially. That leads me to conclude that those who rule out euro membership, either because they demand a choice between Europe and America or because they believe that Europe does not have the capacity to reform, are misreading the direction of change and the influence that Britain is having, and can have, on the debate about a global Europe, because, after all, Britain was the pioneer of free trade and the first proponent of economic liberalisation—I pay tribute to Conservative Members for their role in that—and the single market. That is the new global context in which we must make our decisions about the euro.
Mr. Redwood: Will the Chancellor explain why the richest country in Europe, as measured in per capita income, is Switzerland? It does not intend to join the euro but it does massive trade with the rest of the European area.
Mr. Brown: It is funny that the right hon. Gentleman says that because whenever I meet Switzerland's finance

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Ministers I am told that they wish to join the European Union and that it would be to their advantage. When I give him figures showing the increasing amount of British trade with the European area, surely he must accept, as many of his Front-Bench colleagues now do, that detaching ourselves from the European Union would be a big mistake. The question is not whether we detach ourselves but whether it is right to join the euro at this stage.
Mr. David Laws: We know the Chancellor's judgment at this time about the five economic tests. Will he tell us whether he would be disappointed if Britain was not in the single currency in five years' time?
Mr. Brown: We are in favour of joining the single currency in principle, but we need to meet the five economic tests. I am about to explain what needs to be done to meet the tests and the changes that we need to make. However, the changes that we are bringing about to the British economy are in the British national economic interest.
Mr. Michael Howard: The Chancellor might be about to pass on from his observations about our membership of the European Union. He is fully aware that our ability to continue to be a strong and active member of the European Union without joining the single currency is safeguarded by the opt-out clause in the treaty of Maastricht. Is he aware that no such opt-out clause exists in the European constitution?
Mr. Brown: We always supported the Maastricht opt-out clause. The opt-out clause stands. If the right hon. and learned Gentleman is suggesting that the opt-out clause falls, he is making a great mistake.
Mr. Howard: In that case, will the Chancellor give the House a cast-iron guarantee this afternoon that in the negotiations on the constitution at the intergovernmental conference the United Kingdom Government will make it absolutely clear that they will not sign up to the new constitution unless it replicates the opt-out from the single currency that is contained in the Maastricht treaty?
Mr. Brown: Not only does the opt-out clause remain, but, equally, the other states that are joining the European Union from the east of Europe do not have that opt-out clause, nor does Sweden. Britain has that opt-out clause, and we supported it in 1992 when the Bill came before the House of Commons. The right hon. and learned Gentleman does not have the evidence to suggest that Britain is walking away from the opt-out clause.
Mr. Howard: If what the Chancellor says is correct, there should be no difficulty in giving me the assurance for which I asked. He should be able to give the House a guarantee this afternoon that the Government will not sign up to any constitution that does not replicate the opt-out from the single currency contained in the Maastricht treaty. It is a perfectly simple matter.
Mr. Brown: The shadow Chancellor is trying to raise an issue that does not arise. The opt-out clause remains.
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Once again, it is a Conservative red herring to disguise the fact that the Conservative party is against the euro in principle and against membership of the European Union. That is the position.
Mr. John Bercow: The right hon. Gentleman is factually and legally wrong, and my right hon. and learned Friend is factually and legally right. Does the Chancellor not recognise that the European constitution will override and supersede all previous treaties and that it is therefore essential to guarantee the opt-out by incorporating a clause to that effect in the new constitution? In the absence of such a clause, will the Government veto the constitution—yea or nay?
Mr. Brown: Once again, Conservative Front Benchers and Back Benchers are trying to get us into a position of vetoing the conclusions of the IGC. They will choose any issue—any red herring—to do so. Their aim, frankly, is that we reject the IGC, put Europe into crisis and have a semi-detached or associate membership of the European Union, or some other relationship with it. I have told the shadow Chancellor the position: the opt-out stands. It was negotiated. We supported it at the time, just as they supported it. As for what is likely to happen, no other members of the European Union that are joining from the east have sought, or are getting, the opt-out clause. Britain has the opt-out clause. Even Sweden, which is to have a referendum later this year, has not asked for, and does not have, such a clause.
Europe is having to make difficult decisions about outward-looking relationships with the rest of the world, economic reform and a new social dimension. As a nation with a global trading economy and a history of stop-go in economic policy and management, the question for us, which the euro assessment addresses, is not whether further engagement is, in principle, against the British national interest, but whether the practical economic consequences of euro membership are in British national economic interests, because the decision is irreversible—hence the policy that we have adopted of testing membership against strict criteria, investment flexibility, financial services, employment and growth, and convergence.
Sustainable convergence is essentially the stability test. It means that the British economy can live on a permanent basis with euro area interest rates, can advance our objectives of high and stable levels of growth and employment and, of course, can provide secure, sustained and stable funding of our schools, hospitals and other public services. Flexibility is being able, in the absence of exchange rate or interest rate flexibility, to adjust our economy quickly to any shocks that arise so that we do not put those objectives at risk.
The purpose, therefore, of the five tests is to assess whether we have secured for Britain convergence with our European partners that is settled and durable, which is the first test; sufficient flexibility, which is the second test; and whether we can also confirm conclusively and confidently to the British people that the potential benefits for investment, financial services, employment, growth and trade—the benefits that I listed in detail when I made my statement to the House of Commons, which are contained in the many documents that were produced on the day—can indeed be realised.

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The five tests are our guarantee of stability, high and stable levels of growth and employment, and the proper funding of public services. To meet them would ensure that we do not put at risk our economy or our public services. To fail to meet them would risk repeating the exchange rate mechanism mistakes. Overall, the assessment concluded that, inside or outside the single currency, the competitive strength of the City of London is such that the UK financial services industry should continue to thrive. Subject to the achievement of sustainable convergence and sufficient flexibility, we also concluded that the tests for investment and employment would be met. We were especially interested in the views of many inward investors about how they saw the future.
The issue is the convergence and flexibility tests, and then the exchange rate and transition issues. On convergence, since 1997 the short-term interest rate divergence between Britain and the euro area has fallen from 4 percentage points to 1.5 percentage points after the interest rate cut announced by the Bank of England today. Long-term interest rates have virtually converged today at around 4 per cent., but while our assessment finds that convergence has been, or can be, achieved in the provision of small business finance, large company finance and personal finance—where, in fact, the UK economy is found to be no more interest-rate sensitive than others—it is the inflationary pressures that arise from the housing market that have led consistently, over the past 30 years, either to higher inflation in Britain than in other countries or to higher interest rates to keep inflation under control, and sometimes both.
The challenge of convergence when applied to housing is not, as some suggest, that we seek the same structure of the housing market or the mortgage market as the Germans, French, Dutch or Italians. All countries have, and will continue to have, unique features of their housing markets. The challenge is that the combination of house price inflation and volatility, and the impact of both on consumption, has generally led to interest rates that are higher than rates in other countries in order to deliver stability. Measures that reduce housing market volatility would reduce the extent to which interest rates need to take account of the housing market, and they would be good for industry whether or not the UK were to join the economic and monetary union.
Mr. Michael Fallon: Given the structural issues involved in meeting the convergence test and the steps that the Chancellor has set out to tackle them, what is his forecast of when the convergence test might be met?
Mr. Brown: I am not going to give a running commentary. I gave the assessment that we have made to the House of Commons a few weeks ago. I said that we would review the position prior to the Budget next year and report on progress. If there were sufficient progress, we would trigger a further assessment. I do not believe that it is helpful for me either to prejudge what might be announced next year or to give a forecast, as though I were a gambler on such matters. The important thing to recognise is that we will not short-cut or fudge the test. We will have a rigorous assessment and, before the Budget next year, a rigorous review. That is the best guarantee I should and can give to the British people.
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The one thing that is absolutely clear—I think it needs to be said, given what we have heard from Conservative Front Benchers today—is that we will not repeat the mistakes that were made in the ERM era. Those mistakes were, incidentally, never to have an assessment, either public or private—[Interruption.]Let me explain to Conservative Members the extent of their problem. No assessment was ever made, internal to Government, of any detail—
Mr. Howard: You never asked for one.
Mr. Brown: Oh! So it would have been right, as an act of statesmanship, for us to ask for an assessment before it could be done?
Mr. Howard: The Chancellor cannot escape from his history on the matter. A year before we joined the ERM, he was asking for early entry. When we joined, the right hon. Gentleman and his colleagues in the shadow Cabinet never asked for an assessment, never said it was the wrong rate and never criticised that decision in any way, shape or form. Instead, they gave that decision their full and wholehearted support. That decision, which was a grievously mistaken decision, had the full support of the Chancellor, all his right hon. and hon. Friends, the TUC, the CBI, the Liberal Democrats—of absolutely everyone. The Chancellor cannot escape his history.
Mr. Brown: The shadow Chancellor was Secretary of State for Employment. He conducted no assessment of the employment consequences of entering the exchange rate mechanism, and the Secretary of State for Trade and Industry did no proper assessment of the investment and trade consequences—and now the Opposition try to blame us. They told us at the time that they had five conditions that had to be met. Those conditions were not met, and they still joined the ERM. They were never able to prove to us that the conditions were met.
The shadow Chancellor thinks that he has got out of the problem because he has made an apology, but I seem to remember that, as Home Secretary, he used to say that apologies were not enough. He said that the punishment must fit the crime. He used to tell us that punishment worked and that we should condemn a little more and understand a little less. Why is he the only surviving member of that ERM Cabinet who is still sitting on the Conservative Front Bench? He is a very fortunate man, but the electorate will not forget that he was responsible for the loss of a million jobs in manufacturing and unemployment rising above 3 million, even while he was cutting employment training schemes that would have kept people in work. So we will accept no attempt to blame the Labour party in opposition for the mistakes of a Conservative Government who brought us the worst recession since the second world war and caused 15 per cent. interest rates and 10 per cent. inflation. Until the Conservatives do more than apologise for those mistakes, the electorate will never support them for economic competence again.
Roger Casale: I am grateful to my right hon. Friend for giving way. At the time of ERM entry,

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there was not only a complete lack of rigour in making any assessment, but the Government of the day also had a completely enfeebled negotiating stance, because the party was completely split on Europe—a split between those who wanted to come out and those who saw its practical benefits. Does he agree that that is still the case today? The Conservatives would be on their knees in the face of having to negotiate at a new intergovernmental conference, whereas I know that my right hon. Friends will stand up and fight for British interests.
Mr. Brown: My hon. Friend is absolutely right. [HON. MEMBERS: "Give him a job."] Job applications do not come to me; they come to the Prime Minister.
Mr. Tam Dalyell: I intervene in the hope of understanding a little more and perhaps making a little bit of special pleading on the question of the stability of interest rates. My right hon. Friend and I know, as we both represent the paper industry, how incredibly important stability of interest rates is. My hon. Friend the Member for Glasgow, Anniesland (John Robertson) and I, along with other colleagues, were recently in Finland finding out about nuclear waste, but we heard about the paper industry there. Surely these industries throughout Europe need an indication of the stability or otherwise of interest rates? Can he be helpful on that point?
Mr. Brown: I am grateful to my hon. Friend. We represent adjoining constituencies, but I cannot say that I represent the paper industry, even though I use a great deal of paper. It is absolutely true that a number of companies are involved in the production of paper and that they represent a number of companies throughout the country that are worried about issues relating to interest rates and stability. I assure him that we will do nothing in any decision that we make to put the basic stability of the British economy at risk. It is precisely because we will not put the British economy's stability at risk that we introduced independence for the Bank of England and our new fiscal and monetary regime. It is also precisely for that reason that we will take no risks in the euro assessment, which will be conducted with rigour and in a way that is both transparent and comprehensive. I hope that he will agree that the documentation produced by the Treasury, which has been made available to every Member of Parliament—all the detailed work done by the Treasury on these issues has been made public—shows that we take these issues seriously. The future of both manufacturing industry and industry in services generally is uppermost in our minds as we consider these issues.
I was raising the question of convergence generally and specifically referring to the state of the housing market and the inflationary consequences that have arisen over many years from its volatility. To help balance supply and demand in the housing market further and reduce the scarcity of housing, which is an issue for many British people and has lain behind the long-term growth in house prices, in the national interest as well as the interests of convergence, the Deputy Prime Minister will shortly make further announcements on new house building with the aim of
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achieving existing planning targets in the south of England and building an additional 200,000 homes by 2016. That will include expanding the Thames gateway, which is probably the largest area of derelict land available for development in western Europe; releasing surplus public sector landholdings to further increase the supply of land for housing; and ensuring that regional and local planning authorities—I think that all hon. Members would wish to see this—respond to housing market needs, not least by encouraging land that has been allocated for commercial and industrial purposes to be used for housing unless a convincing alternative case can be made.
We have also been looking at the planning system. To speed up that system, the Deputy Prime Minister is giving planning authorities an extra £170 million by 2006; insisting that 60 per cent. of all major applications are processed within 13 weeks; intervening when planning authorities fail; taking powers to call in large planning applications in areas with housing shortfalls; and piloting a new planning advisory service to drive up performance. We are also considering—he will make an announcement at the appropriate stage—whether the poorest-performing local authorities should be linked with high-performing authorities, so that we can share best practice and achieve best results. So further housing market reforms will be put in place over the coming year.
Mr. Michael Connarty: I am very enthusiastic about the announcements from the Deputy Prime Minister. Has there been any discussion with the Scottish Executive about housing in Scotland and the similar planning issues that arise time and again in every local authority in Scotland? Will there be any liaison with the Scottish Executive on this policy?
Mr. Brown: Not only is there liaison on these issues, but a Scottish euro preparations committee will be formed by the Secretary of State for Scotland. That will involve representation from the Scottish Executive and the business community in Scotland. I believe that similar organisations will be formed—announcements will be made very shortly—in Wales and Northern Ireland. Of course, we are adding representation from the regions to the euro preparations committee that meets under my chairmanship and includes representatives of the Bank of England, the Financial Services Authority, the clearing banks and many other financial sector organisations.
Those further housing market reforms will be put in place over the coming year. They are right, in any event, for the British economy, as hon. Members in all parts of the House will agree. They will help to ensure that, by having a reduced propensity towards house price inflation in this country, stability in our economy can be further entrenched. In addition to the study that Kate Barker of the Monetary Policy Committee is leading to examine what more can be done to remove barriers to supply in housing, a further study, also with an interim report in the pre-Budget report, by Professor Miles of Imperial college, is examining the case for a long-term fixed-rate mortgage market in the UK and how we can help its development.
On convergence, I also announced to this House on 9 June that, subject to confirmation at the time of the pre-Budget report, I intend to change the inflation target

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at that time to the consumer prices definition. As is customary, I will provide all the supporting documentation setting out the detailed advantages of the new target at that time. The advantage of the current indicator, RPIX, is that it is known and well understood and has served us well. However, the advantages of the consumer price index, HICP, the harmonised index of consumer prices, which is internationally recognised, are that it uses a geometric rather than an arithmetic mean and so allows for consumers substituting cheaper goods for more expensive ones when relative prices change and can therefore more accurately reflect people's behaviour in the marketplace. It is also in line with best international practice; it gives a more complete picture of spending patterns as it takes account of spending by all consumers, including foreign visitors and pensioners, who are not part of the RPIX process in the way that one might have expected; and it is the most comparable measure internationally and is used by our neighbours in Europe. It also gives businesses and households the information that they need to make sound decisions on pricing and investment in the context of being able to make comparisons with other countries in this increasingly global economy. Given that pensions, benefits and index-linked gilts will be calculated on exactly the same basis as now, however, pensioners and claimants do not need to fear that there is any change that will directly affect them, and they will not lose out.
The second issue raised on 9 June when I made the assessment and announced it to the House of Commons was flexibility. The flexibility test that would have to be made is whether, if problems emerge, there is sufficient flexibility in our economy to deal with them. Although Britain is indeed a more flexible economy, flexibility means being able, in the absence of exchange rate or interest rate flexibility, to adjust our economy quickly to any shocks that arise so that we do not put at risk our objectives of high and stable levels of growth and employment and sustained and sustainable funding of schools, hospitals and other services.
Mr. Laws: Will the Chancellor give way?
Mr. Brown: The hon. Gentleman is the only representative of the Liberals here today. Every year they have called for us to join the single currency. His leader has said that it was a total mistake that we did not join in 1999: a decision that would have put the British economy into recession, as evidenced by the detailed assessment that we published. Given that he is the only Liberal who has bothered to turn up; he is not even the Treasury spokesman—[Interruption.]By popular request, I will allow him to intervene.
Mr. Laws: I am grateful to the Chancellor for that introduction. Perhaps my colleagues realise that as he has been politically successful in kicking the issue into the next Parliament, some of these economic issues are not substantive.
As regards flexibility, would any changes in the stability and growth pact that he seeks constitute preconditions before we could join the euro?
Mr. Brown: I am coming to that in a minute. There is no sixth test. The stability and growth pact is under
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discussion, as are the rules governing the monetary policy of the European Central Bank. We have been very clear since 1997 that we believe that the stability and growth pact will work better if it takes account of the whole economic cycle, if it recognises the importance of investment as well as consumption—of course, we have a major investment programme under way—and if it takes account of sustainable levels of debt. In the United Kingdom we have achieved debt levels of the order of 30 to 35 per cent., but other countries in the eurozone have debt levels of 110 per cent., 105 per cent. or 100 per cent. of GDP. Clearly, therefore, their capacity to borrow is far more limited than that of a country that has relatively low levels of debt and a sustainable fiscal position on that basis.
We have been discussing three changes in relation to the stability and growth pact, and the intellectual argument has moved firmly in our favour on this: first, taking more account of investment, not just consumption; secondly, looking over the cycle; and thirdly, investment. I hope that there will be general support in the House for that.
Angus Robertson: On the possibility of a sixth test, does the Chancellor concede that it might be advantageous to assess the risks and costs of staying out of the single currency area? Does he appreciate that for economies that depend in large part on exports—such as Scotland, or my constituency, with its whisky and food manufacturing sector—the time is right to assess the risks and costs of staying out of the eurozone?
Mr. Brown: I do not know whether the hon. Gentleman has bothered to read the 18 studies, which examine all those issues. As part of the five tests, we consider the advantages and disadvantages in relation to investment, financial services, convergence and all the other points that I mentioned earlier. The importance that certain industries attach to being part of the euro and the disadvantages that they have raised with us in relation to staying out are dealt with in the assessment, and we have come to a rounded conclusion.
The problem for the Scottish National party is that for the first 50 years of its history it wanted to break up the single currency area of the United Kingdom and retreat into a Scottish pound, but the nationalists seem to have abandoned that policy in favour of going straight into the euro. However, they cannot tell us how, in the independent Scotland that they propose, their monetary or fiscal policy would work. They cannot tell us whether they would still want the Bank of England to set interest rates in the interim or no.
Angus Robertson indicated dissent.
Mr. Brown: They do not want the Bank of England to set interest rates in the interim. What would happen if the hon. Gentleman had an independent Scotland and we were still not part of the euro? Who would set the interest rates?
Angus Robertson: Perhaps the Chancellor will announce that we can have a referendum so that we can move as quickly as possible into the single currency.
Mr. Brown: The hon. Gentleman cannot answer the question as to what would happen if there was an

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independent Scotland and we were still not part of the euro. Would the interest rate be set by the Bank of England, would there be a separate monetary policy committee in Scotland, would there be a separate Scottish pound or would he work within the British pound? The SNP really needs to go back to the drawing board and think again.
Mr. Chris Bryant: I wonder whether my right hon. Friend has analysed the Welsh nationalists' position, which is even more complex. Their economic spokesman wants to make sure that we stay out of the euro for ever, but also wants to separate Wales from the rest of the United Kingdom: they advocate precisely what the Chancellor criticises.
Mr. Brown: My hon. Friend is right: there is no convergence among the nationalist parties of the United Kingdom. The Welsh nationalist party wants to stay out of the single currency and the Scottish National party wants to join, while the Liberal party wants to join tomorrow, or as quickly as possible. [Interruption.]For the Liberal party, every time we have a debate is the right time to join, irrespective of the exchange rate or the interest rate. I am sorry that the hon. Member for Yeovil (Mr. Laws) has to speak for both the leader of the Liberal party and the Treasury spokesman, because the Liberals' position is that they would have joined in 1999 at the first stage, and everybody now knows that that would have caused real problems for the British economy.
Mr. Laws rose—
Mr. Brown: I give way to the hon. Gentleman once more, in recognition of the fact that he is a lone voice in the Chamber.
Mr. Laws: The Chancellor must not continue to misrepresent the position of the Liberal Democrats. He might do well instead to pay far more heed to some of the documents that we produce, including one from 2000, which showed that the exchange rate was then overvalued and signalled a target range of precisely the figure that he came up with in the five tests analysis.
Mr. Brown: The leader of the Liberal party said that he very much regretted that we had not joined on the first day that the single currency was formed. [Interruption.]Well, I have the quote. Perhaps it would educate the hon. Member for Yeovil and he can take it to use in his missionary work among Liberal MPs who cannot find their way into the Chamber. The Liberal leader said that
"Britain would have been a great deal better off as a founder member of the euro."
That is the formal position of the Liberal party, and the hon. Gentleman cannot deny that it is the position that was taken by his leader. He must also recognise, if he believes that the five tests assessment is a serious piece of work, that it would have been wrong to join in 1999 and that there would have been inflationary consequences for the British economy. The interest rate divergence was too high.
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Although Britain is a more flexible economy than it was in 1999, when the single currency was formed, flexibility means being able, in the absence of exchange rate or interest rate flexibility, to adjust our economy quickly. What measures do we propose to take to deal with that? First, to improve functional flexibility—that is, the flexibility of our wage and labour markets—we need to equip people with the skills that they need to meet new and different challenges; the Secretary of State for Education and Skills set out measures on skills yesterday.
Secondly, to achieve full employment we must do more to improve the regional and local labour market flexibility of our economy to get more of the long-term unemployed and inactive back to work, more successfully to match vacancies to jobs, and to increase the new deal's ability to respond in the event of a local or regional shock. Over the next few months, we will announce new measures that will help the unemployed get to work, help to deal with the large numbers of unfilled vacancies in many regions and localities, and help to deal with some of the problems that have arisen in relation to incapacity benefit and housing benefit. In return for greater local discretion for Employment Service managers, a new performance regime will accord higher rewards to jobcentre managers, with provision to change the management of the worst performing jobcentres.
Thirdly, we propose to strike the right balance between fairness and flexibility in the pursuit of full employment. We have already introduced a minimum wage, which now has all-party support in the House of Commons and a new tax credit system that will soon, I hope, have all-party support in the House of Commons—[Interruption.]After all, the tax credit system that we introduced is based on an original idea by Ronald Reagan in the United States of America. If it was good enough for the American Republicans, it ought to be good enough for the British Conservatives.
Mr. Stephen O'Brien: The Chancellor did not tell Labour Back Benchers that.
Mr. Brown: I am proud to acknowledge the role of American labour market policy in helping us to develop the tax credit—
Mr. Bercow: Say that name again.
Mr. Brown: Ronald Reagan, the American President. The problem is that Ronald Reagan is too right-wing for Conservative Members, and they will not adopt the policy of tax credits. [HON. MEMBERS: "Not too right-wing for you, then."]
Mr. Brown: Absolutely. The Opposition's response is interesting. The working families tax credit has worked in getting thousands of people back into jobs. The new employment tax credit will help single people and couples back to work, but for ideological reasons the Conservative party continues to refuse to support not only something that is a good idea on paper but a policy that works and gets people into jobs. Why do not

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Conservative Members support measures such as the working families tax credit and the employment tax credit?
Mr. Howard: A million people are waiting.
Mr. Brown: The shadow Chancellor refers to the child tax credit, for which, Conservative Members claimed, no one would apply. They said that it was too complicated and that there would be no applications, yet 5.5 million people are receiving it. Conservative Members know that if they reject measures that help to tackle family poverty and get money to lower and middle-income families, they will pay a heavy price at the general election. I reiterate that 5.5 million families are receiving a benefit that helps family prosperity in this country.
We want to improve the working families tax credit and the related employment credit. With a national framework of fairness in place, it makes sense to acknowledge that a more considered approach to local and regional pay conditions, including in London and the south-east, where the low-paid in particular have lost out, offers the best modern route to full employment. In future, we will not only publish data on regional prices and inflation, but by next year we will ensure that almost all pay remits for public sector bodies, including the civil service, can incorporate a regional or local pay dimension within their nationally determined frameworks.
Today, we are publishing amended remits for the health service and Prison Service. We shall shortly publish the remits for schoolteachers and senior salary review bodies, taking account of local and regional conditions. At the same time, the Secretary of State for Work and Pensions will introduce reforms to improve labour market mobility, including housing benefit reform to remove disincentives to work or to move from one place to another.
Those measures, which will be introduced in the coming year, will make Britain, which already has the lowest unemployment of the main industrialised countries and has created 1.5 million more jobs than existed in 1997, the most employment-friendly country. The changes that we have had to make in Britain to render our labour market more flexible would, if applied through economic reform of labour markets in Europe, yield extra jobs.
The other form of flexibility is fiscal. Just as we in Britain are examining the way in which we advance in monetary policy, and the European Central Bank is reviewing its monetary policy strategy, European Governments, as I said in reply to the hon. Member for Yeovil, are rightly examining the way in which the stability and growth pact can become more effective. There is growing agreement that the fiscal rules of the stability and growth pact should be sufficiently flexible to make the right fiscal adjustments at every stage of the economic cycle. Several countries are setting up or considering new domestic procedures for faster and more effective adjustments to change.
In the principles that we have applied to British monetary policy, we insisted on clear, symmetrical rules, well understood procedures and enhanced transparency. We believe that the same principles
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should apply to any new arrangements for British fiscal policy if we were part of economic and monetary union. To ensure stability in the euro area, we are consulting, as a result of the publications on 9 June, on the case for an open letter system on fiscal policy and a new, additional fiscal rule. We propose a regular fiscal stability report, which is published to Parliament according to a preannounced timetable, thus ensuring that fiscal decisions are fully transparent and accountable. The report will contain an assessment of the gap between actual and trend output in the economy. When actual output materially diverges from its trend, we propose an open letter by the Treasury to Parliament, setting out the Government's response. In that way, in EMU, the principles that underpin our monetary policy regime and have successfully provided stability would be mirrored in a similar fiscal policy regime. However, we will not rejoin the exchange rate mechanism.
Our resolve to implement far-reaching reforms is the practical and best expression of our intent. In answer to an earlier question, I said that we would report on progress in next year's Budget. We can then consider the extent of progress and determine whether we make a further Treasury assessment of the five tests. If it were positive next year, that would allow us to put the issue before the British people in a referendum.
In line with our policy of prepare and decide, we are stepping up our preparatory work, expanding the membership of the UK preparation standing committee and establishing regional and national committees. A draft referendum Bill will be published in the autumn. We are considering paving legislation to finance the changeover and issuing a detailed report on euro preparations in Government. We shall publish that report later this year. We shall undertake a programme of consultation with all sectors of the economy throughout the UK. At every point, the national economic interest will be the deciding factor. There will be no fudge or short cuts, as happened with the Conservative Government's disastrous judgments between 1990 and 1992. There must be rigour at every point.
The Government believe in our membership of the European Union and reject the semi-detached policy for Europe that would be disastrous for jobs, business and trade. We also believe that engaging with an enlarged, reforming European Union is in the national economic interest and that we have a vital role in helping to shape the changing Europe as we move from the Europe of the trade bloc era to that of the global era. We believe that it is possible to build in our country a deeper, wider, pro-European consensus. It is time that sensible Conservatives united behind a pro-European consensus. Our approach is at odds with that of those who would rule out euro membership, even if there were a clear and unambiguous case for it and joining was shown to be in the national economic interest.
All our decisions will be made in the national economic interest. We have said that we support the principle of membership of the euro; we have told hon. Members the conditions that will have to be fulfilled; we have given hon. Members the measures that we will take and the reporting mechanism that we will use. I commend the Government's assessment to the House.
2.15 pm
Mr. Michael Howard: I draw hon. Members' attention to my entry in the Register of Members' Interests.
I welcome the debate, not least because we have had revealed to us this afternoon the hitherto secret identity of the Chancellor's economic guru: it was not Balls after all; it was Ronald Reagan. It is a great shame that the Chancellor did not make that clear to Labour Back Benchers when he introduced his policies on tax credits. I wonder whether he will attribute to Ronald Reagan the authorship of the new policies on regional pay that he announced this afternoon, which caused such joy among Labour Members.
The Chancellor began his speech in Monday's debate by claiming that the documents from which he quoted were neither "sexed up" nor based on a PhD thesis. He repeated that claim this morning at Treasury questions. He is obviously keen to distance himself from claims that any document to which he refers is "sexed up" or based on a PhD thesis. I am sure his next-door neighbour will scrutinise those remarks carefully—although I do not wish to enter into that debate.
The conclusions on the euro that we are discussing this afternoon are so sexed up and dodgy that even the Chancellor has not been able to repeat his claim again. His conclusions come from a single source and I am afraid they cannot be backed up. But the source is far from anonymous; indeed, he is sitting directly opposite me, although of course whether the words are those of the Chancellor or of the Prime Minister is a different matter.
This is the second time in a month that the Chancellor has come to the House to explain the Government's position on the euro. Given the extent of the open warfare in the Cabinet that preceded his first outing, I was a little surprised to see him volunteer a second. But now of course it is quite clear that, compared with the splits on foundation hospitals, Iraq and top-up fees, going back to euro factionalism is a nostalgic exercise—a welcome break, which, by contrast, almost presents a picture of unity. And on this issue at least the battle lines have been drawn for some time. They know who is on which side, who briefs against whom and who wants the other's job.
But policy on the euro is not an issue that should be determined according to factions in the Cabinet. The conclusions that the Chancellor reached on 9 June and put before the House again this afternoon were simply not supported by the evidence that he published. As the Treasury's analysis states,
"the EMU decision is irreversible".
So the burden of proof lies with those who would seek to take such a momentous and irreversible step. In the oft-repeated words of the Chancellor, the economic case has to be clear and unambiguous.
Yet far from there being a clear and unambiguous case in favour of euro entry, any objective reading of the Treasury's own evidence, published by the Chancellor on 9 June, leads to the opposite conclusion. As the Chancellor himself said when he set his tests six years ago, the
"first and most critical
test
"is convergence"—[Official Report,27 October 1997; Vol. 299, c. 584.]
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Unless that test is met, clearly and unambiguously, he conceded that jobs, prosperity and the national economic interest would be damaged if we joined. The evidence that the Chancellor himself published shows how far that test is from being met. The evidence shows that our economic cycle is
"strongly correlated with that in the US, somewhat more so than with those in Europe".
The evidence shows that, if we abandon the ability to set our interest rates to meet our own economic needs and instead adopt a one-size-fits-all interest rate for the whole of the eurozone,
"real interest rate movements in the UK might prove destabilising".
Those are the words of the Treasury documents themselves. And the evidence shows that, since 1997, the UK has had a weaker correlation of business cycle to the euro area than Germany has had. So all the problems that Germany has faced through having the wrong interest rates for its needs would be magnified here. Germany has 4.3 million people out of work. Its Economics Minister has said that recent interest rate cuts were "overdue", and that there was
"scope for further cuts yet"
while acknowledging that
"of course, the European Central Bank has to take account of the economies of all the member states, and so that sometimes leads to certain delays in its interest rates move in comparison with what would be required by the situation in Germany."
The evidence that the Chancellor himself published shows that the effect of the euro would be all too real in Britain, as it has been in Germany. It shows what the real effect would be on pensioners, for whom the Treasury concludes that
"overall the environment would be one of greater uncertainty."
It also shows what the real effect would be on homeowners, whom the Treasury evidence warns of
"particularly large swings in the housing market",
and on companies and employees, for whom the Treasury's evidence warns of cuts in output and jobs if wages grow without offsetting gains in productivity.
The Chancellor knows full well what the economic evidence—including that in the 18 volumes that he published—says. Yet on 9 June, he refused to put forward that case. He refused to put forward what he knew to be an honest assessment of the evidence. His statement on that day was not based on the national economic interest, or on economics at all. It was not even based on the perceived political needs of the country. Instead, it was based on the narrow partisan interests of a faction-ridden Cabinet and of a Chancellor of the Exchequer trying to keep in with both sides. The result was a ludicrous compromise that was cobbled together to try to satisfy the Labour party's factions, and which makes no sense whatever.
The Chancellor admitted that four of the five tests had been failed, yet he said that he and his colleagues would anyway go round the country saying how wonderful euro membership would be. The Labour party's eNews, which goes to all the party activists, put it perfectly:
"The Euro only met one of the government's five tests…and failed others on jobs and investment. However, the government made clear that ministers and others will mount a nationwide tour explaining how the single currency will benefit the people of this country".

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So there we have it. How wonderful it will be to join the euro, they say, if only we can just resolve the minor matters of lack of convergence, absence of flexibility, the negative assessment of the effect on investment, and the euro's adverse effects on growth, stability and jobs. The score in 1997 was 4–1 against; the score now is 4–1 against. And the Government's conclusion? What a great victory for the euro!
The Chancellor and his colleagues are reduced to following the example set by the hon. Member for Leicester, East (Keith Vaz)—I am delighted to see him in his place this afternoon—and spending taxpayers' money travelling round the country extolling the virtue of a currency which few people want and which the Treasury's own evidence shows is not in the national economic interest. This will be the first 4–1 defeat in history to lead to a nationwide victory tour in an open-top bus.
On 9 June, the Chancellor was reduced to distorting the Treasury's own evidence in order to try to keep all the factions in the Cabinet happy. In his statement, he said that
"since 1997 there has been significant progress in achieving cyclical convergence."—[Official Report,9 June 2003; Vol. 406, c. 410.]
But the evidence is that not a single region in the United Kingdom is strongly associated with the European cycle. In that, we are unique in Europe. The Chancellor said that the City test had been passed, but the evidence is that
"to date the euro has not affected London's ability to compete in international wholesale markets."
The Chancellor said that homeowners in continental Europe had "consistently" had the benefit of lower interest rates. But the evidence is that mortgage rates in the United Kingdom average 5 per cent., compared with an average of 5.4 per cent. in the euro area. If inflation is taken into account, the gap is even wider.
The Chancellor said that we could gain up to 50 per cent. more trade by joining the euro and that national income could grow by 0.25 per cent. a year as a result. But the evidence supports
"the view that euro membership would not increase UK euro area trade by much."
On 9 June, I said that the Chancellor's figures on trade were based on studies of currency unions involving Angola and Mozambique, Burkina Faso and Chad, Vatican City and San Marino, and Tuvalu and Tonga. Some have claimed, as I think the Chief Secretary may be doing from a sedentary position now, that I presented a distorted impression of the Chancellor's analysis—that I gave too much prominence to those particular currency unions. Some might think that those were not the only countries that the Chancellor and his colleagues looked at. I have to confess that they would be right. There are indeed other countries included in that analysis. In the heat of the moment on 9 June, I am afraid that I did not mention the other currency unions that were studied—the currency unions involving Christmas Island and Kiribati, Anguilla and St. Vincent and the Grenadines, French Polynesia and Guadeloupe, and Gabon and Guinea-Bissau.
Why is the Chancellor reduced to presenting such a ludicrous case? Why is his analysis so distorted? It is, of course, because his statement was based not on the national economic interest but on trying to keep all the Cabinet's factions happy.
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But the result of the compromise that the Chancellor has been forced to cobble together is more serious than just the propaganda and the deception. He intends to make real and lasting changes to economic policy in this country merely to satisfy the Cabinet's factions. Six years ago, the Chancellor said that Britain could join the single currency only when we could demonstrate a "settled period of convergence" with the eurozone. He said that this would come about only after a "period of stability" for the economy.
On 9 June, however, the position changed. The Chancellor can no longer sit back and wait for convergence of the UK and eurozone economies to occur naturally. The Cabinet's factions will not let him. Instead, he has set out measures that aim to shoehorn our economy into the structure that he thinks will fit the euro. Now, he is hell-bent on achieving convergence artificially when it would not occur naturally. No longer will he sit back and wait; he is going to try to wrench our economy into the euro straitjacket, whether it fits or not.
First, the Chancellor said that there would be changes to the housing market. This is not because the housing market needs changing, but because one faction in the Cabinet needs pleasing. So he will be trying to encourage fixed-rate mortgages. But was the former Governor of the Bank of England not right when he said that
"there are long-term fixed-rate mortgages if you want to take them up…the question is, is there an appetite for them?"
But to please the Cabinet's factions, the Chancellor wants to force-feed them to us, whether we have the appetite for them or not. He will be pursuing this course in advance of a euro referendum. The Bank of England's chief economist told the Treasury Committee what that would mean:
"you would certainly have to move interest rates more than you would otherwise have to do, to have the same impact on demand".
I am sorry that the hon. Member for Linlithgow (Mr. Dalyell) is not here to listen to that.
So, the result of the Chancellor's policy of cajoling people into taking out a mortgage product that they do not want will be more violent swings in interest rates. Despite all that, when the Chancellor's study is complete and the changes have been made, the evidence suggests that even then he will not achieve what he wants. His reforms will not change the fact that, as his own evidence shows, we have higher mortgage debt and more home ownership than France or Germany, more equity withdrawal, and house prices that have risen at double the rate in France and Germany. That will be true even after the Chancellor has messed around with the mortgage market.
That is not all that the Chancellor has in mind on housing to please the Cabinet's factions. He also has planning policy in his sights, as he reminded us this afternoon. His assessment talks of
"tough and credible measures, including intervention, where local authorities are not delivering housing numbers in high demand areas; and exploring whether, in the medium term, achieving the Government's objective will require a system of binding local plans".
The Campaign to Protect Rural England has warned that Government proposals could cause a further erosion of greenfield sites.

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The Chancellor also plans the most significant change in inflation targeting for a decade—not because he thinks that monetary policy needs changing, but to please one faction in the Cabinet. He plans to make changes before a single vote is cast in a referendum, and irrespective of whether people want the euro or not. Monetary policy will no longer be based on the current measure of inflation, the retail prices index excluding mortgage interest payments; instead, we will adopt the eurozone's favoured measure, the harmonised index of consumer prices or HICP.
The Chancellor tries to justify that in two contradictory ways. First, he says that the new measure will be better, although apparently we shall have to wait until the decision is implemented to see a comprehensive list of what he considers to be its advantages. Normally when people propose a new policy they set out its advantages at the time. Secondly, he implies that it will not make much difference anyway. In his 246-page assessment of the five economic tests, just one paragraph is devoted to the issue. It states that over the long term the current inflation target corresponds to around 2 per cent. for HICP. Yet had the Bank of England been set in January 2000 the HICP inflation target that the Government now suggest, it would have missed that target repeatedly. On 12 occasions since then, HICP inflation has been below 1 per cent. Each time, the governor would have needed to send the Chancellor a letter explaining the reasons for the failure.
Had the Government set the inflation target that they now suggest, monetary policy over the last three years would have been significantly looser than it has been. In fact, the latest figures show that RPIX exceeded HICP by the widest margin for 14 years.
Where is the Chancellor's analysis of the effects of this change? Where are the pros and cons of excluding housing costs from a price index in a country where those costs are so important? Where is the estimate of what such a change would mean for interest rates when the gap between the two measures of inflation was widening? What will be the effect if, in future, policy based on HICP is loosened at a time when RPIX is rising? The Chancellor's only analysis has been of the effect on the factions in the Cabinet, because that is the only test he cares about now.
Mr. Bercow: Given that the Chancellor strongly advocated entry to the exchange rate mechanism—which was unsuccessful but reversible—and given that he now favours, in principle, entry to the European central currency and the running of our monetary policy by people whom we do not elect and cannot remove, does he now recall the wisdom of Kipling, who wrote:
"The burnt Fool's bandaged finger goes wabbling back to the Fire"?
Mr. Howard: My hon. Friend makes his point with characteristic eloquence, and I entirely agree with him. Perhaps, however, he makes the mistake of assuming that the Chancellor's approach to this matter is rational. As we know, his approach to the whole question is determined simply on the basis of the faction fighting in the Cabinet.
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The Chancellor is also consulting on a new fiscal policy in the event of our joining the euro. He is not content with merely abandoning his monetary policy; he must abandon his fiscal policy as well. Since becoming Chancellor, the right hon. Gentleman has gone to great lengths to boast about his fiscal policy framework and his supposedly cast-iron fiscal rules. If we join the euro, however, that framework is set to change. The Chancellor will have to introduce a third rule allowing him to do what Governments stopped doing 30 years ago, and try to fine-tune the economy with tax changes. Governments gave that up 30 years ago because it did not work, but the Chancellor has to try to do it again, because he will have given away the ability to set interest rates. He is giving away the nutcracker, so out comes the sledgehammer to crack the nut instead. That is why his own evidence says that
"fiscal policy may need to be more activist"
if Britain joins the single currency.
Mr. John Wilkinson: My right hon. and learned Friend has identified an important point. The problem experienced by Finance Minister Eichel in the Federal Republic of Germany, to which he alluded earlier, is precisely the one that he describes. Forcing through a reform package of taxation against the predispositions of the Social Democratic party has proved to be exceedingly difficult, and in the meantime German unemployment remains inexorably high.
Mr. Howard: That is true, but the change that the Chancellor is embracing needs a little more analysis. We must consider what it will mean in the real world. According to John Butler of HSBC,
"very important and frequent swings in tax rates"
will be required. The Chancellor's documents list the taxes that he has in mind: VAT, excise duties and taxes on housing. "Investment in housing", his documents complain,
"is relatively lightly taxed compared to other investments".
The Chancellor has spent six years "converging" Britain with European levels of business tax and European levels of red tape. Now it is the turn of homeowners.
"Tax instruments affecting the housing market have some immediate appeal".
his documents say, and stamp duty is singled out. What level of tax rises has he in mind?
Mr. Nigel Beard: Will the right hon. and learned Gentleman give way?
Mr. Howard: I am afraid that the hon. Gentleman will have to listen to this for a little longer.
Replicating the average level of stamp duty in France. Germany, Italy and Spain would involve a fivefold increase in the tax paid by people buying properties valued at between £60,000 and £250,000. That would increase the amount of stamp duty paid on a £100,000 house by £4,000.
I now give way to the hon. Gentleman. I look forward to hearing him explain how he will justify that sort of increase to his constituents.
Mr. Beard: Can the right hon. and learned Gentleman explain why the United States, with a common interest

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policy, does not experience the vast swings of tax policy that he describes, yet is perfectly well managed economically?
Mr. Howard: The United States is one country. It has much higher labour mobility. Its people speak one language. It has a system of substantial fiscal transfers between one state and another. The only reason for entering the euro is to build a country called Europe. Those who want to build a country called Europe are absolutely right to be in favour of joining the euro, but if there is no wish to build a country called Europe there is no justification for joining.
The increases in stamp duty are not the only tax increases identified in the Chancellor's own documents. Everything that I am saying is based on those documents. They say that existing powers to raise taxes such as VAT may not be enough, and that the limits may have to be widened if we join the euro. The fact that the existing powers allow the Chancellor to increase VAT to nearly 22 per cent. gives some indication of the sort of tax rises that he has in mind.
None of it would work anyway. The Treasury's own evidence lists all the reasons why discretionary fiscal policy has failed in the past. I think I just heard the Chancellor ask, from a sedentary position, "Who wrote this?" The answer is the economists in the Treasury. It all comes from the 18 volumes of supporting documents that the Chancellor produced on 9 June.
Listing the reasons for the failure of discretionary fiscal policy, the Treasury says that there are "complexities" and "practical difficulties". It cites studies showing that the policy was a destabilising influence. The Chancellor's permanent secretary and his chief economic adviser have written a book about what a mess it all was, and how wonderful it is that we have left all that behind. But now, as the Institute for Fiscal Studies puts it, it is "back to the future". It says:
"The idea that tax rates should be used actively to manage the amount of spending power in the economy has been out of fashion for three decades, but Mr. Brown is willing to turn the clock back".
That is not all. This is the Chancellor whose allies told The Independent in February:
"If the tests have not been met, we should rule it out for the Parliament. You can't keep looking at it every six months or a year until you get the right result. People would see that as a political fix rather than a decision taken on economic grounds".
But a political fix is exactly what the Chancellor announced.
The Chancellor once used to say that to join the euro successfully,
"we must demonstrate a settled period of convergence."
And to "demonstrate sustainable convergence", he said,
"will take a period of years".—[Official Report, 27 October 1997; Vol. 299, c. 584–85.]
After all, if our economy looks similar to the eurozone economy, how do we know that so-called convergence is real, and that it is not a case of ships simply passing in the night? But on 9 June all that changed, when the Chancellor told the House that far from judging sustainable and durable convergence over a period of years, he will give it until next March, when he may look at the tests again. So we have no convergence to speak of now, but the Chancellor is asking us to believe that we
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might have "sustainable and durable" convergence in eight months' time. Four in five tests have been failed, but the Chancellor is asking us to believe that all five might be passed "clearly and unambiguously" in eight months' time.
What of all the reforms that the Chancellor says are required to bring that about, such as changes to housing finance, labour market flexibility, regional and local pay structures, new inflation targets, reform of the stability and growth pact, and reform of the European Central Bank and of the economies of the eurozone? All of that is to be completed well before next March, to provide time for the result to be assessed afterwards. But in fact, this week the Prime Minister gave the game away when he suggested that the referendum could take place before the reforms are fully implemented.
So there we have it: the issue is not completing the reforms and assessing the results. So much for assessing sustainable and durable convergence over a period of years! Now, convergence is to be judged on the basis that these reforms just might, eventually, get under way. So not only will we not know whether the ships are just passing in the night; the ships will not actually be anywhere near each other. They will just be on the way, and hopefully they may meet, this year, next year, sometime—or never. What an absurd basis on which to make irrevocable changes to the economic future of our country.
As Steven Andrew of the asset management company ISIS said:
"It borders on the incredible to suggest a significantly different conclusion can be sensibly reached within such a brief time frame".
Even the Institute for Public Policy Research, the Government's favourite think-tank, says that it is "implausible" that progress will have been made by next year on the
"long-term barriers to euro entry"
that the Chancellor identified. So why is the Chancellor continuing the uncertainty in this way?
It is clear that the policy that the Chancellor has now adopted on the euro was based not on logic, and certainly not on the national economic interest, but on the narrow, partisan interest of a faction-ridden Cabinet, and on the narrow, partisan interest of a Chancellor looking to keep in with both sides. None of this would matter quite so much if he did not mean it and he was just taking his colleagues for a ride, but his policies will affect people before a single vote is cast in a referendum. It is the country that is being taken for a ride. Business will now pay the price of the Chancellor's rolling assessments and rolling uncertainty. Households will now pay the price of his attempts to force our economy to "converge". And the whole nation will now pay the price of the Cabinet's faction-fighting—a nation that says that its priorities are hospitals, schools, crime and tax, but which sees the Government continuing to waste time on the euro.
To curry favour with those factions, the self-styled "iron Chancellor" has announced that he was prepared to ditch everything that he claimed he stood for: his monetary policy, his fiscal framework and his so-called prudence. Some of it will go now, irrespective of whether we join, and he has no qualms about abandoning the rest if we go in. The Chancellor's approach is now clear

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for the whole nation to see. After all the fine talk of the last six years, when it came to the crunch, this Chancellor has chosen to sacrifice his credibility for partisan reasons; and now that it has gone, he will find that it has gone for good.
The Chancellor may have thought that the compromise that he agreed on 9 June was worth it for a quiet life. He may have thought that the price of the policies that he has now adopted would be paid by others than himself. He may even like to pretend that it was really nothing to do with him, but ultimately the content of that statement was his responsibility, and in lost credibility and respect he may find that he has paid the biggest price of all.
Madam Deputy Speaker (Sylvia Heal): Order. I remind all Members that
Mr. Speaker has imposed a 15-minute limit on Back-Bench speeches.
2.44 pm
Mr. John McFall: It is a pleasure to speak in today's debate, and I begin by thanking the Chancellor for the Treasury's response to the Select Committee report on the euro. In particular, I want to thank him, on behalf of my colleagues, for saying that the report is an important contribution to the debate. I remind the House that this report was unanimous—a fact that demonstrates that individuals throughout the House can come together and examine a complex and sensitive issue in a serious way. I want to compliment my colleagues on their long-term contribution to this debate.
We did not undertake a running commentary on the Chancellor's tests, but we did identify key questions. For example, are they the correct tests and does the technical and preliminary work cover the relevant areas? Also, how did other countries prepare—or how are they preparing—for entry, and what were their changeover plans? I hope that the report can be a template for the ensuing debate, because we need a long and sustained discussion on this issue.
I commend the Chancellor and the Treasury for the rigorous economic analysis that they undertook. A look back at the 20th century reveals the debacle of sterling, which began in 1925 with the gold standard and continued in the 1940s. Devaluation occurred in 1967, and the debacle culminated in our exit from the exchange rate mechanism. The shadow Chancellor's imprecision is admirable, as he was very much involved in the ERM decision. We can imagine him and other members of the then Cabinet in Horseguards Parade, listening to the radio to discover the latest value of sterling, and to see where their policy would lead them. I do not call that decision making—I call it an utter and total shambles. If he wants to show the necessary degree of humility today, I shall be delighted to give way to him.
Mr. Howard: The hon. Gentleman must know that I have said on countless occasions that the decision in question was a terrible mistake, and that I fully accept my share of responsibility for it, because I was a member of the Cabinet at the time, but unlike Labour
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Members—who were fully supportive of that decision before, when and after it was taken—I have learned the error of my ways. I am determined that the people of this country should not again have to go through the hardships that they went through after that decision was taken.
Mr. McFall: For the shadow Chancellor, that is an example of consistent humility, and I shall be quite happy if he signs up to it, but in practice, one week he says that he is humble, and the next he becomes arrogant on this issue. The point is that it is those in government who take the decisions; it is not the Opposition who take them. We have to make the economic tests rigorous, and I should like him and the rest of the official Opposition to sign up to that principle. Economic tests are extremely important, and the Committee was unanimous in recognising that fact.
Although the five tests are extremely important, there is a debate as to whether they are clear and unambiguous. At the end of the day, some form of judgment on them is essential.
Mr. Redwood: It is customary when candidates sit examinations that they can never pass that somebody says to them at some point, "I wouldn't carry on wasting your time." At what point should we say to the Chancellor that there is no point in trying to pass these tests, because we are not going to?
Mr. McFall: That position derives from a stubborn and intellectually ignorant base. The issue that we must engage with is Europe, but where are the Tory party coming from in this regard? On GMTV on 1 May 1999, the former shadow Chancellor, the right hon. Member for Kensington and Chelsea (Mr. Portillo)—he is in his place—said, with determination and sureness:
"We've always said that we don't know whether the principle of a single currency is right."
Is that the correct stance for 2003, as we in Europe look forward? Is the principle of a single currency correct or not? What is the Tory party position? There is so much obfuscation that we cannot engage in a reasonable and rational debate. That is the core of the issue today.
What we heard from the shadow Chancellor a few moments ago was an elucidation of all the negative aspects: nothing positive and no engagement in the debate on Britain's place in Europe. That reflects the negative position of Conservative Members, and they will never make electoral headway until they realise that they have to be honest and open with the electorate and engage in a constructive debate.
From a personal point of view, I would like to comment on the fact that only one of the five economic tests has been passed. That is similar to the position in 1997. In the coming weeks and months, I would like the Chancellor to elaborate on the tests, because I believe that significant progress has been made in several aspects of them. For example, on convergence, the Chancellor himself said in a report this morning that "significant progress" had been made, and I well remember Professor Michael Moore of Queen's university Belfast telling the Select Committee that there would be no convergence
"until Britain joins the monetary union."

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Convergence requires a process of involvement in monetary union and I would like the Chancellor to take account of such comments.
We are currently one of the most flexible economies in Europe. Yes, more could be done, and I applaud the establishment of the review on housing and labour market flexibility, but the Chancellor should report on that matter in a reasonable time. Professor David Miles, whom he appointed to examine the issues, gave evidence to the Committee, and I questioned him on how long it would take to move over to fixed interest rates. He said that it could take several years. The question is whether we are satisfied that sufficient progress has been made, or whether we wait for full completion in respect of the housing market, which could be detrimental to our medium and long-term interests in Europe.
On investment, are we not already losing out in existing circumstances? Several witnesses spoke about that, including the president of Alstom in the UK and the chief executive of Siemens. Niall Fitzgerald of Unilever made a submission in which he made it clear that the company was already suffering from the current position. The president of Alstom was equally clear in saying that, if hard facts were wanted, staying out of the euro would mean that, within two or three years, he would have to recommend transferring 50 per cent. of the UK's manufacturing jobs into the eurozone economy.
Mr. James Plaskitt: Has my hon. Friend seen the latest figures on foreign direct investment, which show a further fall in the value of FDI coming into the UK over the past 12 months?
Mr. McFall: I have seen those figures, which make the problem even more urgent. Constituencies such as mine, which has a whisky interest and greatly depends on exports to Europe, will very shortly start suffering if a decision is not taken.
The Chancellor told us that the City test was passed. Members of my Committee had regular and extensive discussions with individuals from the City, and it is fair to describe the City's position as agnostic—it will make money irrespective of what currency it is in. That is basically what City people told us, but we also have to consider the issue of regulation and euro regulation. The City of London is twice the size of its nearest competitor, Frankfurt, but regulation in Europe will increase over the years, which will be to the detriment of the City. As my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) said, people in the City are aware that in the longer term it could be disadvantageous to the City, so they are turning their minds to a future in the euro.
The last test was jobs and growth. The figures will be important in the medium term, but there can be no doubt about the danger of longer-term detriment. The Chancellor made it clear in his opening speech that we depend on Europe for 3 million jobs, and we have £154 billion of imports and £140 billion of exports. That is hugely significant, so we have to be careful when so many jobs are at stake. The hon. Member for Moray (Angus Robertson) made an important point about that, which has not received the prominence that it should have. The status quo will no longer be an option.
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The ground is moving under our feet, and if we do not recognise that, it will be detrimental to both our medium and our long-term interests. The status quo is no longer an option.
Public understanding was the last issue that the Committee examined. We feel that the public have a right to know the parameters—
Mr. Andrew Love: I would like to bring my hon. Friend back to the five tests. He made historical analogies earlier when he spoke about the gold standard at $4.80 in 1925, making the point that we joined the exchange rate mechanism at far too high a rate. Is the exchange rate itself important enough to be one of the tests?
Mr. McFall: We heard evidence about that, and one of the witnesses described it as a sixth test. The report also makes considerable reference to the issue. Several witnesses were asked what the most suitable exchange rate would be, and the former Governor of the Bank of England came close to saying that the current level was almost correct. The exchange rate is an important matter. Professor Simon Wren-Lewis, the author of a study commissioned by the Treasury, mentioned 73p as an appropriate exchange rate, but in the Chancellor's response to our report, the Treasury did not—and I am not surprised—tie itself down on that. Several members of the Committee felt that we were roughly at the level at which we should contemplate going in, but that is a matter for the Government.
On public understanding, the polls suggest that people are about two to one against euro entry, but I do not view that as a case for packing up and moving away. Rather, it is a case for having a long and sustained debate. Intelligence from various studies suggests that the UK population is the least educated in respect of understanding of Europe. Being at the bottom of the league is disgraceful. It does not reflect on all of us in this place and it is crucial to aim for greater public understanding.
Mr. Richard Bacon: I am reminded of 1991 when the Maastricht treaty was under consideration and the Deutschmark was effectively signed away. It was said, "What?—you cannot be serious." There was no understanding. Is it not the case that this country's scepticism is not the result of any lack of understanding, but of people's genuine understanding of the intimate connection between losing one's currency and losing control of the political future?
Mr. McFall: I do not believe that 1991 is a very good example. People make up their minds before finding out the true position, and many people in the country do not understand it. The politicians—all of us—have not been good enough at communicating to people in the country. When we talk, people often do not understand our language. We use a Westminster-type language, whereas we should aim for greater clarity in the debate.
I believe that the Government missed an opportunity in the last reshuffle to appoint a Minister for Europe to the Cabinet.
Mr. Laws: Is that an application for the job?
Mr. McFall: Absolutely not. I am delighted to have the opportunity to elucidate and to criticise from my

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present vantage point, but a Minister for Europe would have an opportunity to put the case in the Cabinet. I welcome the new European strategy committee that has been set up by the Prime Minister, but I hope that its members will bear in mind the window of opportunity that we have for joining Europe. Professor Francesco Giavazzi, a former employee of the Bank of England and now at Milan university, has said that if we wish to influence the European financial architecture in the European Central Bank and the stability and growth pact, we have only a period of two or three years to do so. We should remember that the 10 accession countries will also join, so the ECB could have 30 members in just over a year's time. It is obvious that UK political influence will lessen the longer we stay out.
I want the euro roadshow to go on the road. Before the next Budget, the Government need to demonstrate that progress has been made. It was clear to the Committee that the debate on Europe is confusing, complicated and irrelevant to people's everyday lives. It needs to be more intelligible and less arcane. We have a duty to achieve that, and I hope that the Government will undertake the task as soon as possible.
3.1 pm
Mr. David Laws: I am delighted to follow my former colleague and boss on the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), in the debate, and I congratulate him on the report on the euro. I also congratulate him on managing to bind together a coalition of that Committee's members, from all political parties represented on it, to produce a high quality report that has helped to inform the debate in this area.
This is an important debate, but it is not very timely. It is important because, as the Chancellor said to the Treasury Committee, when he gave evidence on the issue, joining the euro is
"perhaps the biggest peace time economic decision we as a nation have to make".
It is not very timely because we know that the decision has already been made, largely for political reasons, and—however much the Chancellor pretends that we are undertaking a serious analysis of the five economic tests, that we will revisit the issue next year, and that we may then have another assessment—we know that the truth is that he has won his battle with the Prime Minister and has succeeded in kicking this issue into the next Parliament at least. Perhaps that is why the Chancellor has failed to attract more Liberal Democrats to the debate today.
Mr. Fallon: What is Liberal Democrat policy on this issue? Does the hon. Gentleman still think that it would have been right to join the euro on 1 January 1999?
Mr. Laws: If the hon. Gentleman—a former colleague on the Treasury Committee—had listened to my earlier comments, he would know that the Liberal Democrats said clearly in 1999, 2000 and 2001 that the pound was overvalued. In fact, we published documents to that effect.
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It is tempting to go through the 18 documents of economic analysis published recently by the Treasury, but that would be to miss some of the serious points that surround what is not only an economic decision but a political issue. The hon. Member for Dumbarton and other colleagues from the Committee will remember the evidence given in a memorandum, as part of their inquiry, by Peter Riddell, the respected economic and political correspondent on The Times. He said:
"The Government's assessment of euro entry is flawed, both in structure and in implementation. The exercise elevates the Chancellor's five economic tests to an exaggerated status and seeks to separate constitutional, political and economic issues, which are, in practice, inter-linked. Therefore, basic structural issues of whether Britain should join the euro are confused with cyclical ones of when the time is right."
I agree with that analysis and we must recognise—it is obvious to those outside the House—that people make their judgments not only on an economic analysis, but on the constitutional and political implications of the decision. I shall therefore concentrate on three issues.
First, I shall probe the rather divisive decision-making process of the Government, to try to explore the real motivations and positions of Ministers, not least on the key issue of whether we will trade in the macroeconomic framework that we have in this country for that of the eurozone. Secondly, I shall consider some of the analysis in summary of the five economic tests; and thirdly, I shall consider some of the political and constitutional issues that the Chancellor alluded to in his speech when he unveiled the decision on the five tests, but which he seems shy of addressing otherwise.
Mr. Redwood: Does the hon. Gentleman agree with the Chancellor that higher stamp duty and capital gains tax on the prime residence are a price worth paying to converge with euroland? If he does not agree, what other higher taxes would the Liberal Democrats suggest, because they would need to raise taxes to converge?
Mr. Laws: That intervention characterises the unbalanced contributions—
Mr. Bacon: Answer the question.
Mr. Laws: I am doing so. The intervention characterises the often unbalanced contributions from the Conservatives on this topic. The right hon. Member for Wokingham (Mr. Redwood) asked which taxes we would increase. He is too intelligent for it to have escaped him that if one were trying to use fiscal policy to cushion an economy, taxes could go down, as well as up. The right hon. Gentleman is scaremongering, and that is one reason why this debate is so ill informed.
If we consider the way in which the Government approach the decision, we can see a division between the various players. The Prime Minister rises above the economic debate, seeing mostly the political issues that arise. Every now and again, he implies that at some stage in the future it will be possible for the Government to make a positive decision. He also urges the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is not in his place today, unfortunately, and my right hon. Friend the Member for Ross, Skye and Inverness, West (Mr. Kennedy) and various business men, to do his work for him, but he is unwilling to lead on the issue. In

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July 2000, the Prime Minister said on "Question Time" that if we carried on running the economy well, the Government would be able to make a recommendation—presumably to join—early in the next Parliament. However, when the next Parliament came along we discovered that we had had no leadership on the issue from the Prime Minister and the Chancellor, and that the issue had been kicked just over the horizon, yet again.
The late Lord Jenkins summarised the Government's approach to this issue, and to many other difficult issues, when he said:
"It is no good just waiting for the weather of public opinion to improve. It is no good just going down in the morning, looking at the rain, gloomily tapping the barometer and saying we cannot do anything today. The great Prime Ministers, those who leave a mark on history, are those who make the political weather and not those who skilfully avoid its storms and shelter from its downpours."
The Prime Minister's view on the euro is that it i s a decision that he wants to make, but not yet—in a couple of years or after the next election.
At the other end of the spectrum is the Treasury view. It is far more sceptical and perhaps owes something to Mr. Balls, the very influential chief economic adviser in the Treasury. He has had extraordinary influence over economic policy in this Parliament and the previous one. He was taken on by the Chancellor in 1994, just after he had written a pamphlet for the Fabian society in which he was especially critical of monetary union. He wrote:
"In short, monetary union in the manner and timetable envisaged in the treaty is an economically and politically misconceived project."
He went on to criticise trading in the macroeconomic model that we have in this country. Elsewhere in the Treasury is the distinctive figure of Mr. Gus O'Donnell. He is now the permanent secretary and was also an important figure in the Conservative years in government. He gave a remarkable speech to undergraduate students a year or so ago, in which he included a series of extraordinary cartoons that I understand he drew himself. I wish that we could put them in Hansard so that we could use them to show his scepticism about the co-ordination of monetary and fiscal policy in the eurozone, compared with the UK.
I accept that I am talking about distant documents and cartoons, but the undertone of scepticism about the willingness to trade in the macroeconomic structures that the Government have set up in this country runs through the chief economic adviser's recent Cairncross lecture, and some of the less noticed documents published when the Chancellor unveiled the decision on the five economic tests. One of those documents was called "Policy Frameworks in the UK and the EMU". The fingerprints of the chief economic adviser are all over it. He goes through the UK macroeconomic infrastructure, which he characterises as a "system of constrained discretion". He contrasts that, in many different areas, with the economic structures in the European Central Bank and in terms of the stability and growth pact.
The Government are raising some legitimate points about the way in which the stability and growth pact has been set up, and the Chancellor did so again today. Those matters include the constraints that the pact
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creates in terms of macroeconomic flexibility, and the ability to borrow money for investment purposes. We agree with the Chancellor that those matters deserve serious attention and that they need to be tackled to help Britain to operate flexibly and in a serious way in the eurozone. However, it is odd that the Chancellor should be keen to draw attention to these very important matters but then move away from saying that they will be fundamental to his decision to join the euro.
That is the first big issue that we must consider—the extent to which the Chancellor and the Treasury are serious about taking the decision to go into the euro. We do not know whether they have yet made the necessary mental leap, or are doing what the previous Prime Minister did. He adopted a wait-and-see policy that kept his options open, and that seems very similar to the position taken today by the Chancellor.
I asked the Chancellor earlier whether he would be disappointed if we were not members of the euro in five years time. As ever, he ducked the question and said that it was a matter of meeting the five economic tests. What does that tell us about the Government's economic strategy and commitment to the euro? There is no real commitment to decide and prepare. The strategy is to put off the decision. There is an unwillingness to acknowledge the potential gains that could arise from joining the euro.
Mr. Kelvin Hopkins: The hon. Gentleman talks about potential gains, but my right hon. Friend the Chancellor of the Exchequer has managed the economy extremely well. The contrast with the eurozone is obvious.
Mr. Laws: The hon. Gentleman makes my point for me—that the Treasury, the Labour party and the Government have not decided whether they want to trade in their UK macro-economic model for the euro model. The hon. Gentleman exposes the uncertainties in the Government's economic policy, and the pretence that the Government have made up their mind about the issue.
Mr. Bacon: Why would the Chancellor want to trade in the framework, when it is plainly doing better than the eurozone framework, as the hon. Member for Luton, North (Mr. Hopkins) noted?
Mr. Laws: I am grateful to the hon. Gentleman for that intervention. He and his party seem to have changed their minds about having an independent central bank in this country. It operates monetary policy much more effectively than was the case in the days of the right hon. and learned Member for Rushcliffe and his predecessors. They used to change interest rates every day, week or month, often to suit the needs of short-term party political management. [Interruption.] The right hon. Member for Wokingham (Mr. Redwood) is making comments from a sedentary position. If he does not believe that that is what happened, he ought to take time to read the memoirs of Lord Lawson. If the right hon. Gentleman has not read them before, I can tell him that Lord Lawson describes in several places the pressure that he faced as

1421
Chancellor, when the then Prime Minister wanted interest rates to be cut to get her out of short-term political difficulties.
Several hon. Members rose—
Mr. Laws: I see that I have stimulated a debate. I cannot resist giving way to the hon. Member for Buckingham (Mr. Bercow).
Mr. Bercow: It is a cardinal principle of the British political system that no Parliament should be allowed to bind its successor. Why then does the hon. Gentleman, on behalf of the Liberal Democrats, think that it is not merely acceptable but desirable to hand over responsibility for the UK's monetary policy to people whom we do not elect and cannot remove and whom, under article 108 of the treaty of Amsterdam, it is illegal to seek to persuade of the British Parliament's point of view?
Mr. Laws: The latter part of that point was used by Conservative Members to keep UK monetary policy under the control of elected politicians—
Mr. Bacon: That is ancient history.
Mr. Laws: It is not ancient history as far as the hon. Member for Buckingham is concerned. I turn now to the first part of the hon. Gentleman's point. Is he arguing that, if we in this House believed that significant economic benefits could be realised for this country by joining the euro, we should take a decision that is completely different from the one taken by other countries in Europe just because we would not want to bind future Parliaments? Even if the benefits were extraordinary—to the extent of 10, 20 or even 50 per cent. of gross domestic product—
Mr. Bacon: Which benefits?
Mr. Laws: Let us say that GDP may be increased by 50 per cent. as a consequence of euro entry—
Mr. Bacon: Dream on.
Mr. Laws: Would the hon. Member for Buckingham say that even then, he would reject joining the euro simply because it would bind future Parliaments? That is a bizarre suggestion.
Mr. Bercow: I would certainly reject any idea that one could be assured that euro entry would be of such permanent economic advantage to the UK that it would outweigh the potential disadvantages of a sacrifice of national control. The hon. Gentleman asks a fair question, but the difference is simple. The Bank of
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England has operational independence, but Parliament can always change its remit. The same does not apply to the European Central Bank.
Mr. Laws: The hon. Gentleman's last comment is a fair point, but his position—and that of his party—has changed greatly on the matter.
Mr. Bercow: Mine has not.
Mr. Laws: I was not aware that the hon. Gentleman was previously an ardent advocate of operational independence for the UK central bank.
Several hon. Members rose—
Mr. Laws: I shall give way once more, to the right hon. Member for Wokingham. Then I shall make progress, as many others want to contribute to the debate.
Mr. Redwood: I am grateful to the hon. Gentleman. I was the chief policy adviser to the Prime Minister in the period that he mentioned, and I gave her advice on economics and interest rates among other matters. I assure the hon. Gentleman that the only consideration in the advice that I gave was improving the prosperity and employment prospects of the British people. I hope that he will withdraw his slur from the record book. The only time that Government's monetary policy went wrong was when we were slaves to Europe in the exchange rate mechanism—something that I opposed.
Mr. Laws: It is not I who wrote that record book, but Lord Lawson. His autobiography is an excellent work, and I recommend that the right hon. Gentleman go back and reread it. If he does, he will see why Lord Lawson recommended that there should be an operationally independent central bank—it was because he was subjected to bullying from the then Prime Minister. The book also shows that Lord Lawson also recommended a constitutional settlement for the EU. I shall deal with that matter in a moment, and try to provoke the right hon. Gentleman further.
Several hon. Members rose—
Mr. Laws: I must make some progress.
The second major area that we must consider is the overall economic analysis—the judgment made within the five economic tests document and the preliminary studies. There, the Government are on better ground. The assessment that they have made and, in particular, their quantification of the potential gains from joining the euro are credible and significant. Some people have suggested that the Government's estimate of an increase in the trend rate of growth of the economy of about a quarter of a per cent. per year, which they claim is possible if we join the euro, is in some ways a trivial amount. People who suggest that do not understand the powers of compound interest and the huge impact that that sort of increase in the trend rate of growth could have on the economy and economic growth over time, or the fact that it could provide the resources that we need to improve our public services and tackle poverty.

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I also find it more credible that the Government should come up with an estimate of that nature than with some of the inflated figures that are often produced by advocates of the euro, who like to pretend that it would be a universal panacea for every type of economic problem. We are more likely to convince people of the value of the euro and its economic benefits if our claims are modest, sensible and well informed rather than over-hyped. The Government have made a sensible judgment by coming up with that calculation. It shows how much wealthier the country could be over the years if we decide to go into the euro and achieve the gains so clearly spelled out in the Government's documents.
Until now, the greatest economic impediment to joining the euro has been not some of the issues that the Chancellor of the Exchequer has mentioned recently—one suspects as a smokescreen to give him time to delay the decision and kick it into the next Parliament—such as the changes in the housing market, but the overvaluation of the pound against the euro. Although the Chancellor insists on implying that the Liberal Democrats have been urging the Government to join the euro at all times in the past few years, he should be fair and admit that we have always acknowledged during that time that the pound has been seriously overvalued and that we could not contemplate going in at that level.
Indeed, the Chief Secretary will no doubt have read the excellent Liberal Democrat commission document to which a number of respected economists including Martin Weale contributed two or three years ago. In 2000, that committee assessed the long-term sustainable rate of the pound against the euro and came up with a range of 1.25 to 1.45, which turns out to be almost identical to the 1.37 mid-point that the Government have come up with in their economic assessment. As we are now much closer to that figure as a result of the appreciation of the euro in recent months, that removes one of the greatest impediments to joining the euro. It should be a reason for the Chancellor to stop finding bogus economic excuses among the five-tests document for delaying the decision as long as he wants for political reasons, and to begin to grapple with the serious economic issues.
Mr. Wilkinson: The hon. Gentleman's comments have been largely confined to the domestic situation. If joining economic and monetary union and participating in the eurozone is going to open up a land of milk and honey and bring prosperity to the British people, why do the core economies of the eurozone have a much higher unemployment rate than ours? They have been in EMU since it started and their work forces do not seem to have done very well out of it.
Mr. Laws: If the hon. Gentleman looks at the performance of the eurozone economies since they adopted the euro, he will find that in seven out of the 12 countries growth has been faster than in the United Kingdom. Also, as many of the problems that those countries—
Mr. Bacon: Germany, France.
Mr. Laws: Such as Germany. Many of the problems may be due to other economic and social issues, not least reunification and the labour market.
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If the hon. Member for Ruislip-Northwood (Mr. Wilkinson) presented an economic hypothesis to any serious economist saying that simply because particular eurozone economies have been growing slowly in the past couple of years it was evidence that the euro would not be in our national self-interest, he would be laughed out of court. That is not a serious economic analysis.
At least the Government have undertaken that analysis, even if the Chancellor of the Exchequer has written in the conclusions for the Treasury economists at the end of the process as a result of a political decision—[Interruption.]It is no use the Chief Secretary pretending that there are no politics in this; of course there are. He leads me nicely to the third and, regrettably, the final part of my contribution, which is about the constitutional and political issues involved with the euro.
It would be naive in the extreme, even though the Chancellor pretends that these are merely economic issues, to think that they do not have political and constitutional implications, as Peter Riddell said in his evidence to the Treasury Committee. It is obvious to anyone who is an elected politician and has to account for his or her views on the euro that most people in this country are immensely confused about the economic arguments for it—that is not surprising, given their complexity. They are tending to make up their minds on the political and constitutional issues associated with the euro.
I welcome the debate that we have had in recent months and the past year or so on the European Convention and constitution, as it gives us the opportunity to do what Lord Lawson recommended in his autobiography—again, I recommend that work to Conservative Members, who seem not to have read it for some time. It gives us the opportunity to define and limit more clearly the powers of European Union institutions and to ensure that in those areas where Europe can play a positive role—trade, the environment and so forth—it does so, but also to ring-fence Europe from those areas in which it does not need to get involved.
As the Chief Secretary knows, unless we tackle that issue and take on the political and constitutional concerns of our constituents, we will not be able to win a referendum on the issue. The real test—the seventh or eighth test, or whatever—that must have been uppermost in the Chancellor's mind when he made his decision was not only the economics and the fact that he still seems uncertain about trading in the UK's macroeconomic framework for that of the EU, but the politics. The lack of leadership on the issue since 1997 and the lack of any convincing European strategy on the part of the Government have meant that they have been entirely unsuccessful in shifting the opinion polls on the euro. Since 1997, we have been stuck at about 50 to 55 per cent. of the public saying that they would not want to join the euro. That must have been one of the overwhelming reasons why the Government did not decide to call a referendum. Presumably, it will remain that way until the Government, or at least the Chancellor, feel that a referendum can be won.
If we look slightly more deeply into the polls, we find that although people on both sides of the argument have entrenched views—as we have heard today—the overwhelming majority of the British people are waverers. They are willing to be persuaded by the

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economic arguments and, perhaps grudgingly, by the constitutional and political arguments on Britain's role in Europe.
The Conservative party has undoubtedly played a useful part, even including some of the more outspoken of its members, in highlighting some of the constitutional issues that need to be addressed and dealt with as part of the process of taking Britain into the euro. They have helped to identify some of the public concerns that need to be dealt with before we can win a referendum. My regret is that so many of them insist on doing so from such an extreme and implausible perspective—[HON. MEMBERS: "Rubbish."] The claim made earlier by the right h on. Member for Wokingham that fiscal stability would only mean higher taxes was an excellent example of that perspective.
The current leader of the Conservative party offered a further example of that view when he wrote in 1996—[Interruption.]The hon. Member for Hertford and Stortford (Mr. Prisk) laughs, but I am sure that the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) has not changed his mind since 1996, when he wrote that
"the EU has become the legal framework not for containing Germany but for increasing German hegemony".
That type of extreme attitude to the EU will leave the Conservative party out in the wilderness, until it can enter the mainstream debate and acknowledge the value of our membership of the EU.
I commend to Conservative Members not only Lord Lawson's autobiography—
Mr. Bacon: Oh no.
Mr. Laws: I am surprised that Conservative Members pooh-pooh the contribution—
Mr. Bacon: Have you got shares in the publishing company?
Mr. Laws: I—
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I am sorry to interrupt the hon. Gentleman, but I must remind the hon. Member for South Norfolk (Mr. Bacon) of what was said from the Chair at column 1151 of the Official Report yesterday. It would assist the debate if there were fewer sedentary comments.
Mr. Laws: I am grateful to you, Mr. Deputy Speaker. I understand that these are sensitive issues within the Conservative party and I am trying not to provoke Conservative Members too much. However, I commend the contribution of pro-European Tories: for example, the contribution to the paper on the Convention on the Future of Europe that many Conservative Members of this and the other place signed up to, including the right hon. and learned Member for Rushcliffe. That paper noted:
"Where it can be clearly shown that we can achieve together what we cannot so effectively achieve separately, we have no hesitation in stating that the EU and its institutions must have the competence and the effectiveness to act for and on behalf of the citizens of member states".
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That, politically and economically, is where most people in this country stand. That is what most of them believe in.
Over the next couple of years, I hope that the Government will be more robust on the issue and that they will show some leadership. In some of the documents that they have produced recently, they have set out some of the powerful arguments in favour of the economic advantages of the euro. I hope that they will help to communicate those to the electorate, but above all, I hope that they will lead on the political and constitutional issues on which they must persuade the public if we are to win a referendum on the vital issue of the euro.
3.31 pm
Mr. James Plaskitt: It is a pleasure to follow the hon. Member for Yeovil (Mr. Laws), my erstwhile colleague on the Treasury Committee. I am pleased to note that he is still as concise as he was then. I am struck, however, by the extraordinary lengths to which the Liberal Democrats have gone to ensure unity on their Benches on the subject of the euro.
I applaud the Government's approach to the complex issue of the euro. The analysis that has been provided and the accompanying studies should be praised for their breadth and depth. It is striking that we have not yet heard—at least I do not think we have—what the official Opposition think should be analysed and tested before deciding whether it is right to join the euro. They seem to accept that the issue is complex, but they cannot engage with the analysis of whether entry is in the economic interests of the country. The tests should not be rubbished; they should be studied, and if the other parties do not like the way the Government are carrying out the analysis it behoves them to suggest exactly what should be analysed and assessed, rather than taking such a dogmatic position.
I, too, want to address my brief comments to the report of the Treasury Committee. At the end of our report, we reviewed the possible positions that the Government and the country could reach during consideration of euro entry. Indeed, we anticipated and thoroughly rehearsed the position in which we find ourselves at present: namely, declaring that the Government remain, in principle, in favour of entering the euro; and that the economic conditions, as assessed in the analysis, are not yet right, but that the issue will be revisited at appropriate times in the near future. The Government continue to give positive signals, such as undertaking studies and policy initiatives designed to move the convergence process that has already taken place further along. They are, for example, looking into the mortgage structure and into changing the inflation index to that used inside the eurozone.
As my hon. Friend the Member for Dumbarton (Mr. McFall)—the Chairman of the Treasury Committee—mentioned in his contribution, we are talking about a window of opportunity that opens while we stand in this position and how long that window will remain open. It is a window of opportunity, but opportunity for what? It is the chance to play a leading role in shaping the core institutions of economic and monetary union.
Mr. Redwood: The official Opposition think that the 18 studies are very good and contain some very sound

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advice that points to the obvious conclusion that we have not converged, that we are not going to converge and that is a waste of time and money playing around the pretence that we might.
Mr. Plaskitt: I do not think that the right hon. Gentleman has read the studies carefully enough. If he revisits them, he will find that there is considerable analysis of the degree to which there is increasing convergence—that is very clearly spelt out—while other parts of the studies clearly indicate where convergence has not happened and what might need to be done to encourage it to happen. In fact, they are very balanced studies. That is why his intervention suggests that he may not have read them carefully enough.
Mr. Wayne David: Does my hon. Friend agree that one of the crucial comments in the studies is that on EMU and trade? It says very clearly:
"The emerging research consensus therefore…signals substantial gains to trade through membership of a currency union".
Given the importance that the United Kingdom places on trade, surely that extremely important comment points us in the right direction.
Mr. Plaskitt: My hon. Friend is exactly right and reinforces my point about the importance of the studies and the depth of the analysis in them.
Mr. Wilkinson: Why should we wish to converge with the economies of the eurozone? Would it not be better for our people to become richer than them, with higher employment and a better quality of life in this country? Is that not what our electors want?
Mr. Plaskitt: The hon. Gentleman assumes that he knows what will happen decades into the future. As the Chancellor said, we now have to assess such things in the global context. We have to consider the United Kingdom economy in relation to the global economy and the deepening single market in the EU. If we take any risk or chance over engaging properly with that, the only price that we will pay is sacrificing this country's future prosperity, not enhancing it, as the hon. Gentleman seems to think.
I was talking about the opportunity significantly to shape the emerging institutions of economic and monetary union. Those institutions are in their infancy, and they will be subject to change, despite the language of rigidity that we sometimes hear from politicians and Governments currently in the eurozone. The reality is that the institutions will steadily solidify. Over time, they will become less subject to change and reform. Having adopted our current position as a country that is outside the eurozone, we need to ask how much influence we have in shaping its architecture, for how long we will have that influence and at what rate will it wane the longer we stay outside the zone. Clearly, there is an opportunity cost of not being in the eurozone, or being close to joining it.
Mr. Andrew Tyrie: Will the hon. Gentleman give an example of how those rules and institutions might solidify against Britain's interests?
Mr. Plaskitt: I am grateful to the hon. Gentleman for asking that question: I am coming to precisely that point
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in my speech. First, let me answer in respect of the European Central Bank. It currently has its own definition of price stability, which it sets at between 0 and 2 per cent. That is a non-symmetrical target, and the Committee took a fair amount of evidence on that during our deliberations that led to the publication of the report. We found a lot of evidence to suggest that a non-symmetrical target has a tendency to be too tight and runs a risk of encouraging deflation. I was pleased to note that the Government acknowledge in their response to our report, which they published today, the strength of the point that our Committee made in respect of the ECB's inflation target.
Mr. Hopkins: Is not my hon. Friend understating the point about the ECB's policy being too tight? In fact, the eurozone is on the brink of deflation and a serious depression and would learn a lot from following our Chancellor's view that the asymmetrical inflation target should be rather higher.
Mr. Plaskitt: I thank my hon. Friend, and I think that he reinforces my point. The United Kingdom has an important opportunity to influence the emerging architecture of economic and monetary union. We can be encouraged by a comparison of our architecture with that inside the ECB, and I suspect that many inside the eurozone look at the way that we do things in this country and are anxious to learn from it. My point is about whether we have the opportunity to influence that evolution the longer we remain outside the system.
The European Central Bank has a monetary growth pillar, which is becoming increasingly discredited and which it is likely to abandon. Other problems inside the ECB include the non-publication of votes, for which there is a credible argument: the bank is reluctant to have member states' voting positions revealed, as it is trying to act in the interests of the zone as a whole and not identify itself with country positions. At the same time, however, that creates a lack of transparency, and in contrast with the system that we use, it is a distinct negative for the current arrangements inside the ECB.
Reform of the ECB's governing council is a very important issue. At the moment, a scheme has been adopted that anticipates rotating voting rights, but it is a cumbersome, complex scheme that is yet to be agreed by member states. It creates the position, however, whereby the five largest members in the eurozone will vote on only 80 per cent. of interest rate decisions, which will present something of a hurdle in terms of convincing sceptics in this country about democratic accountability inside the zone. We made that point with some force in our report. I feel that the ECB's current scheme is not altogether credible and sustainable, and I believe that it will have to be subject to further reform. I would like to see the UK Government play a leading part in the continuing evolution of that mechanism.
Secondly, we clearly saw the need for the stability and growth pact. It deals with the potential problem of freeloading inside the zone and provides an essential fiscal framework, which must be aligned with monetary union. The evidence that we gathered in our inquiry, however, suggested that there was more emphasis on stability than on growth, on which there was not enough, which may account for some of the problems that we are now seeing inside the eurozone economies.

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We should be cautious before being too critical of the pact. Pre-entry steps, which were necessary, were not taken by some of the large countries now inside the zone. There was insufficient incentive for them to take measures in their economy before joining, but there is no lack of sanction impelling them to do so now that they are inside. In that sense, the first tests through which the pact is going are likely to be the toughest. Once it is through its initial difficulties, it might work more effectively.
We want to see reform, however, and I welcome the Chancellor's comments today and on previous occasions about the Government pushing for reforms to some of the rules of the pact. It is clear that the pact should allow for debt to be measured across the economic cycle, and it should be more flexible in allowing for borrowing for investment as opposed to supporting consumption. In addition, it needs to allow for short-term borrowing to be geared against the overall level of a country's debt. All those changes are consistent with the underlying rules of the pact but are not yet adopted within the model.
Our position is that staying out of the euro—which is a logical and sensible position at which to have arrived at the moment—but continuing to prepare for entry is not a cost-free option. We have much to offer the eurozone in terms of monetary and financial architecture. My concern, however, is that as an "out" we will probably punch below our weight until we are inside the eurozone.
The system will evolve accordingly and it will gradually solidify, but it will be much harder to negotiate changes or assert British influence in the formation of this architecture in, let us say, five years' time when we might be considering joining.
On the evidence, I believe that the position that the Government have adopted in relation to the five tests is the right one. However, given that we have adopted that position, I urge them to work hard to keep up our weight and influence inside the European Union in the best interests of securing a successful monetary union and ultimately, therefore, in the best interests of our country.

ROYAL ASSENT
Mr. Deputy Speaker (Sir Alan Haselhurst): I have to notify the House, in accordance with the Royal Assent Act 1967, that Her Majesty has signified her Royal Assent to the following Acts and measure:

Appropriation Act 2003

Finance Act 2003

Co-operatives and Community Benefit Societies Act 2003

Marine Safety Act 2003

Licensing Act 2003

Sunday Working (Scotland) Act 2003

Aviation (Offences) Act 2003

Railways and Transport Safety Act 2003

Nottingham City Council Act 2003

Clergy Discipline Measure 2003

Economic and Monetary Union
Question again proposed, That this House do now adjourn.
3.46 pm
Mr. Michael Portillo: During the course of my speech, I shall try not to allude to the Chancellor's five economic tests. The main reason that they were invented was to bamboozle people into believing that the main criteria, on which we should judge the euro were economic criteria, whereas there are, in fact, important political and constitutional matters at stake. As Chancellor Kohl once said, there cannot be political union without monetary union, and vice versa.
I pay tribute to the hon. Member for Yeovil (Mr. Laws) for at least pointing out that political and constitutional factors are at work. It is disappointing that, once again, the Chancellor of the Exchequer failed to admit that such factors are involved. It appears that his principle is that he cannot lose votes by insulting the intelligence of the British people. He not only insults the intelligence of the British people but he insults our European colleagues. There is at work on the continent of Europe a great deal of idealism—people who wish to build a new Europe. They are driven by a wish to avoid the problems that scarred our continent in the 20th century. They believe in creating a country of Europe. We should understand and be respectful of such idealism and should not deny that the euro is a part of that process.
I want to consider some recent political developments. Why did the Prime Minister come back from his leadership of the country in the war against Iraq so full of enthusiasm for the euro? Why did he want to go to the Cabinet as quickly as he could to convince it that it should take the euro to a referendum of the British people at the earliest possible opportunity? The reason was that an important event occurred in January when eight countries signed a letter in which they expressed their support for the United States in the Iraq crisis. However, they did that not only because they were talking about Iraq, but because, more broadly, the eight countries concerned, which included Britain, Spain, Italy and eastern and central European countries, had reached the conclusion that they did not wish to see a Europe in which all the decisions were pre-cooked by France and Germany. They wanted a Europe in which we took more account of the need to be globally competitive, in which we would have more flexible labour markets and in which we would try to have lower rates of taxation. In other words, that is a Europe in which many of its characteristics would be more Anglo-Saxon.
Our Prime Minister saw an opportunity to lead that faction—that large minority or perhaps even small majority—of countries in Europe that wanted Europe to be run differently. He realised that unless he was able to get this country into the euro, he would have no opportunity to offer leadership to that faction. That was what gave him the urgency and why he returned so enthusiastically. Having turned around the opinion polls substantially on Iraq, he believed that the fact that the majority of the people in this country were against entry into the euro would be no impediment to him.

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With his charm and charisma, he would simply be able to persuade the British people of the need to go into the euro. All that was a few months ago; it looks rather ridiculous a few months later.
The Chancellor of the Exchequer stood in the Prime Minister's way and prevented him from realising his European policy. That policy is now in a state of collapse. Indeed, I would go further and say that during the Iraq war the Prime Minister demonstrated enthusiasm not only for leading the country on Iraq and, subsequently, for the euro, but for a new political radicalism on foundation hospitals, student fees and ways to oppose some of the excesses of trade unionism.
The bursting of the Prime Minister's balloon of European policy by the Chancellor of the Exchequer has led to a more generalised collapse of the Prime Minister's morale. He has abandoned his radicalism on hospitals, education and standing up to the trade unions. He has lost the Health Secretary who was going to implement his policy. The Chancellor's opposition to the Prime Minister on the euro is typical of his more generalised position, and it has left the Government in a thoroughly becalmed situation. However, at least the Prime Minister's actions during the past few months demonstrate that he knows perfectly well that the euro is a political issue.
Without alluding to the bogus five tests, I shall deal briefly with a couple of the economic issues. I do not understand why it was expected that applying a single interest rate to all the economies of Europe could ever be successful. Although convergence tests, which were fairly easy to pass, were applied to the countries that joined the euro at the first stage, it was perfectly obvious that Europe was composed of economies that were at thoroughly different stages of development and had different cycles and characteristics.
The application of a single interest rate to all those economies was a guarantee that the rate would be wrong for most places most of the time—and so it has turned out to be. The interest rate is too low for Ireland, which has inflationary pressures, and too high for Germany, which has severe economic problems, as several hon. Members said. I was amused to hear the hon. Member for Dumbarton (Mr. McFall) quote Professor Moore's comment that those who had been in the euro since the beginning would have experienced greater convergence. Tell that to Ireland and Germany, because any convergence that might have occurred has not saved them from the grave economic damage that the interest rate is doing.
The hon. Member for Yeovil demonstrated extraordinary naivety by clutching at the 0.25 per cent. growth rate that has apparently been offered in the Treasury documents. Why should he believe anything that is published in a Government document? How can the Government precisely put their finger on a figure of 0.25 per cent. growth that is waiting to be grabbed if we join the euro? In any case, does the hon. Gentleman have any idea of the impact over time of applying the wrong interest rate to an economy? It is absolutely devastating, as the 4.3 million unemployed in Germany can attest
Mr. Bryant: The right hon. Gentleman is making the argument that one interest rate cannot possibly fit a variety of economies. Surely the United Kingdom consists of several economies. The interest rate that is established in
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the United Kingdom might be right for the housing market in the south-east and his constituency but wholly wrong for the manufacturing industry and my constituency.
Mr. Portillo: If the hon. Gentleman understands that—apparently he does—it is a tragedy that he does not understand that the problem will be worse if one interest rate is applied from Dublin to Athens. Whatever the differences between the north and south of England, more substantial differences exist between east and west Europe and north and south Europe. I am pleased that he intervened because I would otherwise have had to make that point in my own time rather than getting a bonus minute from him.
Hon. Members have discussed the growth and stability pact, which was recently subjected to a most intemperate and vituperative attack by a senior Italian politician. I refer, of course, to Signor Prodi's description of the growth and stability pact as stupid. That is all very well, but the pact was a product of deliberation among many of the wise minds of Europe. People thought that it was appropriate and the fact that he simply called it stupid provides us with no grounds on which this country could contemplate going into the euro. The Chancellor of the Exchequer is thus perfectly right that now is not the time to enter the euro, not least because the growth and stability pact is in such a mess. He offers the prospect that an alternative arrangement might be made over a long time to take more account of cycles, and so on, but we do not have such an arrangement now. For this country to dream of going into the euro when the growth and stability pact is attacked by even Europe's most senior political figures is an extraordinarily stupid thing to do.
Mr. Love: To take up the logic of the right hon. Gentleman's argument, if in five years' time the eurozone has high growth rates and low inflation, will he change his mind about joining?
Mr. Portillo: It would certainly give the hon. Gentleman, the Chancellor and the Prime Minister a sporting chance of persuading the British people of their case. The position at the moment, as the Chancellor of the Exchequer wisely advised the Prime Minister, is that the Prime Minister would have to go to the country and say, "Look at Germany. We want a little bit of their 4.3 million unemployed. We want a little bit of their stagnation." I am a practical-minded person and take account of facts as I find them, and it is clear that even the hon. Gentleman would find it difficult to convince his constituents of such an extraordinary and foolish proposition.
Talking of foolish propositions, people still look for stable exchange rates. It makes me laugh because it puts me in mind of Monty Python and the quest for the Holy Grail. What has happened since the invention of the euro? Have we had stable exchange rates? No, of course not. The euro has varied enormously against sterling and the dollar. Many people who are advocates of the euro are not so much worried about whether they have the right exchange rate, but whether they have a strong exchange rate, so they can feel a certain euro machismo. I congratulate them because they have a nice strong exchange rate. That is very good for euro machismo, but desperate for European industry, which is trying to export with a high euro exchange rate.

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I am also amused by those people—the hon. Member for Yeovil is a good example—who lament that what went wrong in the past is that we joined the ERM at the wrong rate and say we must avoid that in future. That is a complete misunderstanding of what is involved. Exchange rates in different countries mean that if economies move at different paces and in different cycles, some of the shock of the differentials between one country and another can be absorbed by the exchange rate—it is a shock absorber. If we lock all our exchange rates together into one currency, we lose the shock absorber. The shocks that would otherwise be reflected in a rising or falling currency are reflected in higher inflation, higher unemployment or recession. We have good examples of that within the eurozone. It has nothing to do with the rate at which we go in. What it involves is giving up in the long term—permanently—the ability to have an exchange rate that reflects those varied movements.
Dr. Alan Whitehead: Does the right hon. Gentleman accept that exchange rates, which vary for reasons other than those that he suggests, also provide the shocks and are not the unilateral shock absorber that he describes?
Mr. Portillo: Yes, I accept that. It is why I am pleased that we have an independent Bank of England. I am also pleased that I was the person in the Conservative party in the position of accepting an independent Bank of England as a good thing. It is one thing that has provided us with a little more stability. However, the hon. Gentleman has to understand the context. Even if we were part of the euro, it would continue to oscillate against the dollar and other currencies. Those people who believe that stability is available and can be grabbed as a great boon are economically ignorant.
Mr. Hopkins rose—
Mr. David rose—
Mr. Portillo: I want to make progress.
On the political factors, most elections in most countries are held on the subject of economics. I want to stress that to Labour Members. When people vote, they are voting on two different programmes—one that is rather more to the left and one that is rather more to the right—and they make a choice. When people in Ireland go to the polls and want to vote against high inflation, how do they do it? It does not matter whether they vote for Fine Gael, Fianna Fail or the Labour party, because the policy is not made by the Government of Ireland; it is made by the European Central Bank. If people in Germany object to unemployment or being in recession year after year and want to vote against it, it does not matter whether they vote Social Democrat or Christian Democrat, because those parties do not make the policy; it is made by the European Central Bank. Who votes for the European Central Bank? Nobody.
Mr. Laws: And the Bank of England.
Mr. Portillo: I am pleased that somebody has mentioned the Bank of England. I cannot believe that even people in opposition do not understand that the Chancellor of the Exchequer who stands at the Dispatch Box is the man who is responsible for the inflation target in this country. He is responsible to this House for that target and he sub-contracts to the Bank of England the mechanistic task of setting the interest rates that will achieve it. He is responsible to us and we are responsible to the people who elect us, but no such conditions exist in Europe and nobody has any plans to put them in place.
Everybody admits that there is a democratic deficit in Europe, but nobody seems to have any solution to that problem. That is not surprising, because, in order to fill the democratic deficit, there would have to be a European political polity. There would have to be common European political institutions and common specific political values shared between Europeans. On going to the polls year after year, we would have to vote on common points and for common candidates, parties and programmes, and none of those things exists.
The hon. Member for Edmonton (Mr. Love) asked whether I could imagine ever changing my mind about these issues. If all these things changed, we could look at them again, but he will understand that the creation of institutions in Europe that would truly reflect European democracy will not happen overnight. Indeed, such things will not happen in many decades. As a parliamentarian, he should be extremely concerned that economic decision making, which until now has been not only the preserve of democratic societies, but the most important political issue within them, has passed to an institution that is not accountable or democratic, and that nobody knows how it will be made democratic and accountable in the future.
The Chancellor of the Exchequer was right to oppose the Prime Minister. I believe that he knows perfectly well that Labour Governments have often fallen in the past on trying to fix the exchange rate. He is a historian and he understands that perfectly well. He also understands perfectly well the political point that he is not prepared to admit to us and the people of this country—that if we join the euro, he will give up political power. In other words, he will no longer be the person who makes the key economic decisions. He knows that perfectly well and he is not prepared to give up power. At least, he will not do so until he has a new and different address to move to. Perhaps that will not be so very far in the future.
The Chancellor of the Exchequer has, by opposing the Prime Minister's economic policy, dished the Prime Minister and led to a collapse of the Government's economic policy. He has demoralised the Prime Minister to such an extent that we now see a complete absence of radicalism from him across a range of domestic issues, and, thanks to the Chancellor, who in this particular has been right—he has been right to oppose the Prime Minister—he has achieved the broader political result of leaving this Government absolutely becalmed, with nowhere to go and no sense of direction.
4.3 pm
Keith Vaz: What a depressing speech from the right hon. Member for Kensington and Chelsea (Mr. Portillo). I cannot imagine which country he could have been talking about. We have a country that is run by an excellent Chancellor of the Exchequer and the most economically successful country anywhere in Europe. I hope that the right hon. Gentleman picks up his mood before he appears on television this evening in his weekly programme. I shall have words with my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) otherwise, and make sure that she comments on his speech.
I am delighted to participate in this debate. I welcome the fact that we have had so many debates on Europe and European issues over the past month. Opposition Members and those from the Liberal Democrat party—it is a shame that no more of them were persuaded to come to the Chamber—who criticise the Government and the business managers for not providing enough time to discuss European affairs will probably have overdosed on Europe in the past week. We had a big debate on the Convention yesterday and we are, of course, discussing the euro today.
I was one of those Members of the House who was disappointed with the Chancellor's decision when he announced on 9 June that the five economic tests were not met. I had very much hoped that he would say that we had met those tests and were ready to join the euro, but I trust his judgment on these issues. There is no point in having a set of tests, looking at an assessment, having the kind of monitoring and analysis that has been undertaken over the past six years and then disagreeing with the person whose responsibility it is to look at those decisions, examine the detail of the assessments and come to a conclusion. I very much value the work of the Treasury Committee and welcomed the speech by my hon. Friend the Member for Dumbarton (Mr. McFall). Everyone has a role to play in the discussion.
Although I was disappointed with the result on 9 June, I welcome what the Chancellor has said about leaving the door open on reassessment. I hope that the Chief Secretary will be little clearer about the envisaged timetable. I understand that there is to be a review of the reforms the Chancellor has announced over the past few months and that it is possible that a further assessment will be announced at the time of the next Budget. If that happens, we are on track to have a referendum in this Parliament—that is an extremely important possibility. We should try to avoid the kind of pre-announcement hysteria that greeted the Chancellor's announcement on 9 June; that went on for several months and created a great deal of instability.
Mr. Redwood: The hon. Gentleman says that he was disappointed with the Chancellor's announcement. Was that because he felt that the Chancellor was wrong in his assessment or because the Chancellor is clearly not moving the British economy to converge with euroland?
Keith Vaz: I do not think that he was wrong. As I said, I trust his judgment. As Chancellor of the Exchequer, he is far more able to make such decisions than I am, and he has an army of civil servants and an excellent Front-Bench team to assist him. I am happy that they have
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made the judgment, even though I disagree with it. Having done so, however, let us have a clear timetable to facilitate the reassessment, which has not been ruled out. The Chancellor was very firm in what he said to the House on 9 June—that is, that he is very much in favour of the euro if the tests are met and if the conditions are right. That remains the policy of the Government. Certainly, when I served as Minister for Europe for two years, it was precisely the policy that I espoused—when the conditions are right, we will join. Therefore, please let us have a timetable so that we can put the matter to the British people in plenty of time for an all-singing, all-dancing referendum campaign that allows everyone to participate in the discussion. It should not be a three-week campaign—it has to last for months, because it will require us to go round the country explaining the policy and listening to what ordinary people have to say.
The shadow Chancellor reminded us of the bus that I took around the United Kingdom. It was called Eunice. We went to different parts of the country to talk about the importance of the European Union. The shadow Chancellor was wrong to say that our intention was to talk about the euro: in fact, it was to talk about the benefits of being part of the European Union. The only place that we did not visit was Smith square. I would have liked to have the opportunity to convince members of the Conservative party about the benefits of membership of the European Union. My ministerial colleagues and I met thousands of people, the vast majority of whom said that they were very much in favour of the European Union. They wanted us to remain as members of the EU, but did not know enough about the euro. That is why it is extremely important that in the weeks and months until the Budget, and until we know whether there will be a fresh assessment, there should be such public engagement.
On the day after the 9 June announcement, the Prime Minister and the Chancellor said in a press conference at Downing street that it was very important that leading members of the Cabinet should go out into the country and make speeches in support of the euro. I may have missed something, but a month has passed and I have not heard major speeches of that kind. We should not be afraid. The Government are committed to the euro at the right time and under the right conditions. Cabinet members should therefore not be afraid to go out and talk about the merits of Britain's joining the euro. I agree with the right hon. Member for Kensington on one point—
Mr. Bercow: And Chelsea.
Keith Vaz: We should never forget Chelsea. I agree with the right hon. Member for Kensington and Chelsea that convincing people of the necessity to join cannot be left to the individual charms of members of the Cabinet or, indeed, to the Prime Minister, charming though he is. It will require explanation and engagement on an individual basis with people throughout the country. If we do not explain and engage, the tabloid press and Conservative Members, some of whom want us to leave the European Union, will win the argument.
It should not be up to the Daily Mail to conduct a referendum at Welcome Break service stations on the M1. The Government should hold a referendum, not on the Convention, but on the euro. We can do that only if

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we have leadership from the highest echelons of Government. That means that every member of the Cabinet should go out and make a major speech on the euro between now and the Budget.
Mr. Colin Challen: Does my hon. Friend believe that there are lessons to be learned from public participation in discussions on the Convention? My studies of the Convention's internet site show that only hundreds or thousands out of hundreds of millions of people have bothered to participate. The issue has gone right over most people's heads.
Keith Vaz: My hon. Friend is right. It has gone over their heads because of the distortion in the tabloid press—every discussion on Europe has to end in hysteria; we cannot have a sensible, reasoned discussion about the matter. My right hon. Friend the Member for Neath (Mr. Hain) tried to talk about the Convention when he led the British team. The tabloid press subjected him to appalling abuse and attacks. Consequently, the general public misunderstood the debate.
I should like the Government to take a lead on the matter and all members of the Cabinet to follow the example that the Prime Minister set on 10 June. I hope that the Chief Secretary, when he replies to the debate, will give us a list of Cabinet members who have made a major speech on the euro since 9 June, and make a commitment that the Government will continue to push the issue at least until the Budget, when I hope that we will be told whether a reassessment should be made of the tests. I am sure that that will happen.
I want to make two further points about policy on the euro. As usual, the Chancellor made a brilliant analysis of our position on economic reform in the context of the European Union. However, we should pay special attention to the Lisbon agenda, which was a great achievement for the Prime Minister and the Prime Minister of Spain, because their joint initiative allowed progress to be made on it. Lisbon was the first European summit that benchmarked progress on economic reform. It set out a list of dates, targets and tasks for the European nations to make us competitive with the United States. It reminded us that in the previous decade, more than 10 million jobs had been created in the United States of America, whereas the figure for the European Union was just 1 million. It is as a result of what the Prime Minister did at Lisbon that we have, for the first time, a specific set of tasks. I am afraid that we might have lost our focus in terms of what we were trying to achieve at Lisbon, and I hope that, in the run-up to the re-assessment on Budget day next year, we shall adopt a clear strategy on how to ensure that our European partners move as swiftly as we would like to move on economic reform.
Part of that economic reform must also include a discussion on the way in which the European Union itself should be reformed. I remind the House of the joint letter from the Prime Minister and Herr Schröder in February last year, in which they set out about 25 key policy aspects that they wanted the European Union to
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adopt in order to make it a much more efficient place in which to work. Economic reform is possible only with the consent of our partners, but in that regard, Britain has a leading role to play in the Council of Ministers.
The Chancellor also has a leading role to play on the issue. I believe that he is widely respected as the best Finance Minister in Europe. I accept that we are not part of that select little group that makes the decisions on economic and monetary union or on the policy of the euro, but we are part of a much wider initiative to push the European Union towards economic reform. If we do not do that, we shall be letting down the new member designate countries that will join on 1 May next year. They expect something much better from the new Europe that will be created at that time than they would have found in the old Europe that they originally applied to join.
Mr. David: Before my hon. Friend moves on to wider issues, may I ask him a question on economic reform? Does he accept that it is important that the Government should take the opportunity over the next few months to develop a proactive regional policy?
Keith Vaz: I entirely agree with my hon. Friend, and I pay tribute to him for the work that he did in the European Parliament, when he was leader of the Socialist group there, on pushing forward the idea of a Europe of regions to ensure that our regional economies benefited from any changes.
It is a mantra—almost a cliché—that we shall soon have the largest single market anywhere in the world. We shall be able to compete with any economy. When the applicant countries join on 1 May, the business opportunities will be huge for the United Kingdom. Anyone who has visited the central and eastern European countries, as I know that the Chief Secretary has, will know of their enthusiasm to deal with British business. There is no doubt that the opportunities are there, but they will not be seized unless the Chancellor and the Prime Minister push forward the case for economic reform that was clearly set out in the Lisbon agenda.
Sweden is a country very similar to ours in terms of its Government and economic policy. On 14 September, it will go to the polls on the euro. I very much hope that it will vote yes, and that the decision taken by our Government on 9 June will not scupper the Swedish referendum. The circumstances are different there. Sweden has had a very long referendum campaign, but the outcome is on a knife edge. I hope that this Government will show support to Sweden and that the Chancellor has telephoned the Swedish Finance Minister to explain that our decision was quite separate and different from the decision that Sweden is going to make. I want to see Sweden in the euro because it would be good for the country. I believe, having visited Stockholm recently, that it would bring enormous benefits.
Mr. Wilkinson: That is a matter for them.
Keith Vaz: That is a matter for them, but I think that I am entitled to my opinion. I hope that Sweden's joining will create an even greater momentum for our

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Government to take the matter even more seriously, and to be even more committed to that final timetable. A timetable is essential, and I look forward to hearing details of it when the Chief Secretary replies to this debate.
4.18 pm
Mr. John Redwood: I have declared my interests in the Register of Members' Interests.
Yesterday, the Foreign Secretary came to the House to tell us that the Government were minded to accept most of the huge transfer to the European Union of powers and opportunities to govern ourselves that are set out in the draft constitution. Today, a rather reluctant and muted Chancellor of the Exchequer came to the House to tell us of his rearguard action to save the pound—forced, I think, by the political reality that there is no hope of his winning a referendum to abolish it, and by the fortunate fact that some of us have forced the Government into offering a referendum on the currency. The Government will not yet offer a referendum on the even more important issue of the constitution.
That means—unless we can force a change on the constitution—that the Government wish to embark on a most unusual experiment. It is quite normal for a country that wants to be self-governing to keep the powers to govern itself and to have, as part of that variety of powers, the opportunity to run its own currency, settle its own interest rates and make its own monetary decisions. Indeed, I do not think it possible to say that a country is an independent self-governing democracy unless it both retains all its principal constitutional rights and has its own currency.
I can just about understand those who wish to conduct the experiment of having a self-governing country without its own currency, although I do not think that it would work very well. Ireland gave up and wisely decided to have its own currency some years after becoming independent from the United Kingdom, and I believe that that judgment was correct. Never in my life, however, have I heard of, or read of in history books, any group of politicians wishing to run a self-governing currency without a country to go with it. That seems to be where the Government have taken themselves through their asymmetrical approach to referendums, and the political logic that led to their decision that, while they cannot sell the euro to the British people, they can ram the European constitution through the House regardless of opinion in the country.
The arguments adduced in favour of our sacrificing the pound and adopting the euro are extremely flimsy. I give credit to those in the Treasury—they are well-informed economically, and they clearly have a sense of humour as well—who have managed to produce 18 volumes containing all the evidence that people like me need to make a strong economic case against joining the euro today, against joining it next year, and indeed against ever joining it.
We know that, when having conversations in the bar, members of the Government who have not read all 18 volumes try to keep it rather more simple. We are told that joining the euro would be good for all those with mortgages, because clearly mortgage rates would be lower. Yet evidence from these documents, and from the pages of the interesting financial press, shows that
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mortgages are dearer on the mainland of Europe—in euroland—than they are in Britain. It is difficult to see how it can be argued that mortgage rates would fall, as we would be joining an area with higher mortgage rates.
We are sometimes told by Ministers and other campaigners that if we joined the euro there would be what they call price transparency, and that miraculously the prices of all the things that are dearer in Britain than in Germany or France would tumble. Suddenly the scales would be stripped from our eyes, and at last we would understand that cars were cheaper in Germany than in Britain. Then people would no longer put up with the current situation.
That too is complete bunkum. The studies show that in the early stages of currency union there was quite a bit of rounding up in the countries that were abolishing their own currencies and going in for the euro experiment—just as there was a lot of rounding up when we last had a fundamental currency reform in Britain, over the period of decimalisation. It stands to reason that there is a great temptation to round up prices when people are shopping in a foreign currency for a while, as they would be during the painful and difficult transition from shopping in pounds to shopping in euros, were we ever foolish enough to say yes to that.
More important, we could have price inflation if euroland set the wrong interest rates for us. As a business man, before entering the House, I was responsible as chairman for a fairly large industrial conglomerate. I gave careful consideration to the idea of the exchange rate mechanism, and decided that it was definitely against the interests of the business I was leading, and definitely against the interests of my employees. My decision led to my resigning the company from the CBI, which happened at the time to have a policy of urging membership of the ERM. I was able to save my company £20,000 a year in CBI membership fees because we could not see eye to eye on that central policy.
The CBI came to see me in despair, saying, "What do you want, Mr. Redwood? We will come and visit you every week." I said, "No, that is not quite what I had in mind. That would not make my day, or my week. What I want you to do is change your policy, because the ERM will be very damaging." The CBI said that that was the one thing that it could not do.
I tell that story because the entire British establishment recommended the ERM. At the time there were many wrong heads on the Labour Benches, in the shadow Cabinet and elsewhere, as well as in industry and the trade unions. It was a monumental mistake. The first thing that happened on linking our currency to the Deutschmark—as it then was—was that we set interest rates that were too low and we experienced rampant inflation. Subsequently, things turned round, we had to set interest rates too high and we experienced a very cruel recession.
I wrote a pamphlet in the late 1980s—before we joined—in which I said that if we joined, we would end up with either high inflation or a deep recession, because there was no right rate for entry. I said that there would be no common interest rate that would make sense across the ERM area, and that we would end up with the wrong interest rates because we would undoubtedly go in at the wrong currency rate. Even I, in my wildest

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nightmares, did not dream that we would end up doing both, but we did, because people did not understand the economics.
I was therefore delighted to discover that the Treasury officials who wrote the 18 documents have grasped that point. They say that it is quite possible to end up with the wrong interest rate, and that adjustments would then have to be made to the level of employment, taxation or output that would probably be more severe than allowing the strain to be taken through the exchange rate. What they say about exchange rates is particularly interesting. Today, someone expressed a misconception about exchange rate movements by saying that they could be a worse shock than other factors—but the Treasury clearly states that
"exchange rate movements have not been a significant source of shocks to the UK economy as a whole. Instead exchange rate changes appear to have absorbed shocks that might otherwise have had a greater impact on UK output and prices."
Exactly. That was our experience of the ERM, and it would surely be our experience were we foolish enough to join the euro. It is the bitter experience of Germany, which is discovering that now she can no longer set her own interest rates—she needs them to be much lower than euroland rates—or influence her own exchange rate, all of the cruel adjustments to her economy are taking place in lost output, closed factories, bankrupt businesses and lost jobs.
We also hear from advocates of this foolish scheme that we would get exchange rate stability if we joined. Of course it is true that we would have absolute exchange rate stability against the former currencies of euroland, because that is the idea of the scheme. Despairing of being able to bring the currencies together in the normal marketplace through the ERM, which was busted apart by market pressures, such advocates decided on this ultimate ERM—the one that can never be got out of. One locks oneself in the burning building and throws away the key, as one of our right hon. Friends memorably reminded us. The advocates suggest that we would have guaranteed rate stability because there are no longer separate currencies, which in their view would bring business great success and the ability to plan well.
What advocates of the scheme ignore is that it could well produce greater instability for the new, adopted currency against the other very important trading currencies of the world. It so happens that we use the dollar much more than we use the euro for our trade and investment flows. We are an oil producer, and oil is priced in dollars. We are a big producer of high tech, and high-tech products are normally traded in dollars. We deal in all sorts of soft commodities and in investment markets, many of which are priced in dollars. On this issue, the Treasury study tells us the self-evident truth:
"In recent years the euro has been more volatile against the US dollar than the pound…If these trends were typical"—
they are, because they have existed for a very long time—
"then the UK exchange rate against the dollar would be more volatile within EMU than outside."
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Were we to join this silly scheme, we would therefore be opting for far more volatility in the crucial exchange rate that influences our economic policy: the exchange rate with the dollar.
Keith Vaz: I understand the right hon. Gentleman's argument as to why he is opposed to Britain's joining the euro, but is he in favour of Britain's withdrawing from the European Union?
Mr. Redwood: I believe that we need to negotiate a better deal to improve our relationship with the EU. The UK cannot accept the current draft constitution and I recommend that the Government not only hold a referendum, but do a lot of negotiating first, because they will not have a cat in hell's chance of winning a referendum on that unacceptable proposal. I want us to trade with, and be friends with, our European partners, and I believe that we are much more likely to be friends with them if we get the veto back on several important areas. If a veto is in place, we will agree much more with our partners because we will not feel threatened. Losing so many vetoes—with many more to come—creates far more arguments and rows.
Mr. Bryant: How precisely would the right hon. Gentleman set about the renegotiation? Would he threaten withdrawal from the EU, or some sort of associate membership with it?
Mr. Redwood: Powers with nuclear weapons do not usually go around threatening people with their nuclear weapons. I would tell our partners that the relationship has not worked. We have had many Prime Ministers, and our present one, who is very Europhile, will not join the full common defence system and certainly not the euro—one of the main aspects of the whole integration process. So even a Europhile Prime Minister makes the correct—or forced—political judgment that he and the UK cannot participate in big chunks of the Union. We should tell our partners that the relationship is not working because integration is being pursued far faster than any reasonable British Prime Minister could accept. For our partners' sake and ours, we need a new deal, whereby France and Germany and their satellite countries can accelerate their political union, and we can have a relationship with them that is conducted within the single market and according to which we can work with them on a variety of matters— we might want common environmental policies, for example—but under which we retain a veto so that the House can decide what is right for Britain. It would be possible to negotiate that.
Government Front Benchers are always telling us that we can have enormous influence in Europe. I suggest that they go and use that influence to get something that the UK wants. I can tell them that a massive majority in this country want to be friends with and trade with our partners in Europe, but do not want to be bossed around by bureaucrats from Brussels or see more powers taken away from what used to be a sovereign Parliament.
Keith Vaz: I cannot remember whether the right hon. Gentleman voted in favour of the Maastricht treaty or

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against it, but it was his Government who signed the Maastricht treaty and gave away the vote in so many areas.
Mr. Redwood: The important point about the Maastricht treaty is that it retained the veto over the currency. That was the guts of the treaty, and I have always been at the forefront of the argument that Conservative and Labour Governments should use that veto. We are conducting a debate today and have the opportunity to keep the British people out of the euro only because we negotiated that important opt-out. Incidentally, we have learned from the Chancellor today that he has not managed to transfer that opt-out to the constitution, and it could then fall because it is part of a treaty that will be replaced. If the Government have any influence at all in Europe, will they please ensure that our vital opt-out from the euro is preserved in the constitution? When they demonstrate their influence, can they at last renegotiate the common agricultural policy so that it is not so offensive to the developing world and does not do so much damage to those living in poverty in Africa?
Mr. Love: Coming back to the renegotiation, what happens if the European states say no? What evidence does the right hon. Gentleman have to suggest that they would contemplate the sort of renegotiation that he proposes? If they do not, will we not be isolated in Europe and then have to make a fundamental choice between whether to be in or out?
Mr. Redwood: We have many opportunities to persuade our partners, and I would prefer to do it through reason, through strength of character and through the political will of the British people expressed in the ballot box at the next general election, when Europe may be a crucial issue. A referendum would strengthen the Government's hand because it would show our European partners that the will of the people is to have the sort of relationship that I am describing—based on agreement, common sense and not feeling threatened. Our partners could be allowed to proceed more quickly. Under the current system, we can always prevent our partners from proceeding as they want. That is one of the available threats, falling well short of the nuclear option. We send them an awful lot of money, and we could consider how much we should send them if they do not wish to co-operate. However, I would not want to start by threatening them. It would be better to proceed by saying that no matter who is the Prime Minister of the United Kingdom, we could never be a full participant in a scheme of political and monetary union, because we wish to be a largely independent, self-governing democracy, and that is not compatible with giving away our currency or the wide array of powers highlighted in the European constitution.
Mr. Laws: Is the right hon. Gentleman saying that a country such as France, as a member of the euro, is not a self-governing democracy?
Mr. Redwood: Yes, in many important respects, France is no longer self-governing in economic matters. If it signs the draft constitution in its present form, it will cease to be—in any meaningful sense—a self-governing,
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independent democracy. It will become part of a much bigger, proto-United States of Europe, with a huge democratic deficit, which would have to make rapid strides towards developing a proper democracy before many of us who are democrats would be happy with that side of its arrangements.
The EU has put the cart before the horse. It has not built a strong democratic centre first, and then given it some powers—as happened with this House of Commons. Instead it has been done the other way round, which is why it does not work.
4.36 pm
Mr. Brian Sedgemore: The right hon. Member for Wokingham (Mr. Redwood) discussed the economic implications of this issue, but I preferred the approach—although I do not agree with the conclusions—of the right hon. Member for Kensington and Chelsea (Mr. Portillo), who said that it was a political issue; he is right.
It was sad that we did not hear much European idealism from the Chancellor today. We heard much about trade in groceries, governed by the theories of 18th-century liberal economists. At one point, my right hon. Friend even appeared to pay tribute to the free trade work of the classical economists, but the issue is not about that at all. I do not want to get into a debate on the theory of exchange rates, but they were far more useful for nation states when theories of comparative advantage held sway and current account flows tended to produce equilibriums. Exchange rates have been far less useful to nation states when, as in recent decades, they have been governed by capital flows. That is the big mistake that people make when they imagine that it is a great prize to have control over exchange rates. Capital flows do not give the control that used to be achieved.
On 15 June 1990, I made what was probably one of the first speeches in the House on the merits of joining a single currency, which of course did not then exist. I had the luxury of speaking for 40 minutes to set out a position that I still hold. I shall not rehearse my arguments, because I am sure that all those present, including the Ministers, will have spent last night reading that speech. Let us take those arguments as read.
I have always seen Europe as an arena in which a new kind of politics can emerge. Often, in politics, a natural dynamic arises that is crucial to the development of ideas and actions. In the 21st century, the main motivator in Britain for that development could have been the European Union, with the euro at its core. We need a European Union that links global economies and social and environmental problems to the condition of working people. Proceeding through economic and political collaboration, it should be possible to create a Europe in which wealth can be shared. It is not so much that socialists and environmentalists could join together to hijack the European Union, more that it has a naturally interventionist social and political dynamic. I suspect that that is one of the aspects about which Conservative Members, who come from a different tradition, are worried. That, it seems to me, is where the dialectic in the 21st century will be fought. I do not see that dialectic ending in crisis—rather, it will be a way of dealing with practical problems that go beyond the boundaries of the nation state, and of finding solutions that will therefore have to be either regional or global.

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The task for politicians is to bring a sense of idealism and purpose to the opportunism and utilitarianism that might otherwise dominate. We must widen the horizons for minorities and the disadvantaged, and protect the interests of working people.
I am one of those who believe that the nation state is not the fittest body to do that. However, the EU has an important role to play, in both regional and global economics and politics. Inside the EU, the power is bound to lie with those countries that are in the euro. People who do not believe in joining the euro ought to try and negotiate their way out of the EU, or to negotiate which elements they do not want to have any part of while still enjoying a bit of free trade.
I can understand that that approach would be plausible for people who support that sort of basic economic and political theory. However, do we really want to be outside the EU, on the sidelines, isolated and impotent? European unity based on a single European currency could change our way of thinking about Europe, and maybe alter the horizons of the British people. It could even offer a cultural renaissance for this little, backward, fractious island off the coast of north-west Europe. Our culture is becoming increasingly Americanised—on that point, at least, I hope that the right hon. Member for Wokingham would agree—and devalued.
The future does not have to be like the past. It can be better.
Mr. Redwood: What is backward about our country under the glorious Labour Government whom the hon. Gentleman supports?
Mr. Sedgemore: I give lectures and present papers on politics and culture, although I fear that you would rule me out of order if I went down that line, Mr. Deputy Speaker. I will invite the right hon. Gentleman to come and listen when next I give a lecture, or send him a copy of any paper that I publish in future, as I am sure he will want to read it.
It is against that background that I want to say something about my right hon. Friend the Chancellor's five economic tests for the euro. They were introduced for two reasons, and the right hon. Member for Kensington and Chelsea was roughly correct in his description of those reasons. The first reason was to kick the matter into the long grass, as the saying goes, so as to avoid a referendum. The second was to enable the Chancellor to establish five hurdles that would give him a veto on euro entry. I do not know what Opposition Members complain about. Why do they get worked up about a Chancellor who has created five hurdles to give himself a veto, and who intends to see that the veto operates for the foreseeable future?
Mr. Love: Will my hon. Friend give way?
Mr. Sedgemore: No, I will bat on for a moment, if my hon. Friend does not mind.
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That view was effectively confirmed when I spoke to Britain's top civil servant about the matter. The conversation took place in the great hall of St. Bartholomew's hospital. The mandarin in question was Sir Andrew Turnbull, the Cabinet Secretary and a former permanent secretary at the Treasury. I clearly remember—because I have been telling all my friends about it ever since, and have even written about it—Sir Andrew telling me, in an entirely relaxed fashion, that the five tests were sufficiently opaque to allow people to come to any conclusion that they wanted to, at any given time. I believe that Britain's top mandarin is right about that. The conversation reinforced my view that the so-called economic tests were of extremely limited value.
In his speech today, the Chancellor said rather a lot about housing. I found it difficult to pick up on his point, but I understood him to say that one of the tests for euro entry was balancing supply and demand in the housing market. I do not know why he did not use that simple phrase, but that is what he seemed to be saying, albeit in a fairly convoluted fashion. Then, he said something that was almost unbelievable—that the Deputy Prime Minister was working out how to balance supply and demand and his ideas would come to fruition in 2016. That is not the short or the medium term; it is the long term, in which, as John Maynard Keynes said, "we are all dead". If that is correct, I will be 82 years old, if I am alive, before we even think of going into the euro. I find that astonishing, and even that presupposes that the Deputy Prime Minister is capable of meeting that sort of target. If 2016 is the target, we are probably talking about 2025, in which case I certainly will be dead.
Not so long ago, we had a strange display of unity from the Prime Minister and the Chancellor of the Exchequer over the five tests and entry into the euro. Clearly, I am on the Prime Minister's side on this one, so it was sad to see how the egomaniacs at the Treasury outwitted the straw men in Downing street. In consequence, we are now in the position where the Prime Minister's vacillation and delay have made it impossible for this Government to join the euro. Trust in his determination to join the euro has evaporated not only in Europe but among the British electorate. All the good will of 1997 has gone. It is now difficult to find people who are in favour of Britain joining the euro. I have seriously to ask, as someone who really wants to join the euro, how our politicians could betray the interests of our country and our destiny in that fashion.
Some people have rightly talked about having a long and sustained public debate. No one intends to do so. Every three or four months, we have a couple of speeches from the Prime Minister and then the subject is shoved back into the long grass and we can forget about it. I cannot see how we can join the euro in this Parliament, or indeed, how we are going to have the moral capital to be able to persuade the public to join it in the next Parliament.
Fellow euro-enthusiasts have suggested to me— hope this will not be misinterpreted—that if we want to enter the euro, the Prime Minister will have to stand down and hand over to someone else. How on earth can we persuade him to do that? Besides, what is the point? His most likely successor will be the Chancellor. He is a wonderful Chancellor, but he is hopeless on the euro. Now hon. Members are beginning to understand the

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almost impossible task that we face. The Chancellor promised, in that Tom-and-Jerry dance with the Prime Minister, that hereinafter he would argue regularly and publicly for entry into the euro. Of course, he did not mean it. Indeed, only a couple of weeks after he made the pledge, he went to talk to the money-makers in the City of London. Instead of a pro-euro speech we got the usual curmudgeonly stuff about there being no fudge on the five economic tests and no quick fix. He told us in effect that we would not be joining the euro on his watch.
So, we have to get rid of one Prime Minister and then we have to get to work to get rid of his successor. That is not practical politics—it is not a feasible scenario. In terms of practical politics, it means simply this: our Government are never going to take us into the euro and, sad to say, our generation of politicians have let our citizens down.
4.49 pm
Mr. John Wilkinson: What a refreshing contribution that was from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). He not only speaks his mind, but he has a mind. It is a joy to hear a Member speak in that way and, in particular, to be so unashamedly critical of the Chancellor.
I do not have the hon. Gentleman's background. My background is in aviation—you and I, Mr. Deputy Speaker, will understand this metaphor—and to me the Chancellor seemed to disappear into the stratosphere spewing out chaff. I knew where he was going, we could plot his course—it was to an environment of higher taxation, more regulation and more interference, preferably by himself. Of course, he was in his element. As usual, he had set the stage himself. We can see the monument in the pile of Hansards and euro-style dossiers under his arm. After all that, we were none the wiser, except for noting that he was only too delighted to make policy for the Deputy Prime Minister and to expand his own empire. The charge of egotism levelled by the hon. Member for Hackney, South and Shoreditch was valid.
At the beginning of his speech, the Chancellor claimed that he had perceived a global perspective in the European Union. He may have seen it in the EU but the analysis in his speech betrayed no such perspective. The Chancellor claims to be an historian, but if we look at the way that the world is constructed it is notable that none of the other free trade areas has followed the EU's model. The North American Free Trade Agreement does not require Mexico or Canada to give up their own currency merely because they have a powerful next-door neighbour. Those countries would not dream of giving up their currency.
In Latin America, the subcontinent that I know better, thank God Chile never dreamt of giving up its peso in favour of the Argentine one, just because Argentina was next door and had a bigger economy. In Asia, none of the Association of South East Asian Nations countries dreams of giving up their currency. Even outside the free trade blocs, Taiwan would not give up its currency in favour of that of the People's Republic of China.
The only instance of a movement to give up a currency, apart from the determination of many Labour supporters to give up the pound in favour of the euro, is
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in Belarus, where the Belarusians seem to be taking pride in the possibility that they may again adopt the Russian rouble in two years' time. That move is satisfying to Putin and the Russians, as it demonstrates the aggrandisement of the Russian Federation and the extension of its influence abroad.
Mr. Bryant: Does the hon. Gentleman agree that in many periods in the 20th century several Latin American countries gave up their currency, owing to terrible internal economic problems, and took on the dollar? In fact, on several occasions, Argentina gave up not only the peso but also the austral—its created currency—for the dollar.
Mr. Wilkinson: The hon. Gentleman is rather misguided. What happened in Argentina was the monetary dollarisation of its currency; the country locked itself into an uncompetitive situation whereby the peso was overvalued, which was catastrophic for Argentine exports. The case to which the hon. Gentleman should have alluded is, of course, that of Ecuador, where there was a complete implosion of the economy following the election of a clown as president. He raided the state's coffers and the only way to solve the country's economic problems was through full dollarisation.
Mr. Challen: Will the hon. Gentleman give way?
Mr. Wilkinson: No, I shall not give way.
The Chancellor also referred to convergence. Why should we want to converge with an institution as over-regulated, statist, corporatist, over-taxed and bureaucratised as the EU?
We must judge the euro in the context of the proposed European constitution; we cannot assess one without the other. In 1972, I, like you, Mr. Deputy Speaker, voted in favour of our joining the European Community, as it then was, but the Maastricht process was the creation of a single state via economic and monetary union. The proposed Giscardian constitution takes that process further and formalises the EU as a legal entity with all the characteristics of a single state. There would be competences and requirements for member states that no democratic free country such as ours ought, in my judgment, willingly to accept. I do not wish convergence on our nation; I wish the opposite. I wish our country to excel, in the economic field as in the political: a free democratic polity, setting its own laws and its own economic objectives according to the desires of its own electorate, setting an example to our continental neighbours. Taiwan offers such an example to the People's Republic of China, as does Singapore, which only became prosperous when it broke away from the Malaysian Federation, established its own currency and pursued its own economic policy.
The Chancellor also talked about flexibility.
Mr. Love: Will the hon. Gentleman give way?
Mr. Wilkinson: I will not give way.
Flexibility is not obtainable under the EU's current model, which is sclerotic and over-taxed. Although Mr. Prodi may now say that the stability pact is nonsense or

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stupid, or words to that effect, the fact is that it is at the heart of EMU, as laid out in the Maastricht treaty. The fiscal obligations that are now placed on member states are far too onerous in a time of quasi-deflation. We warned about those factors in debates on Maastricht and, time and again, we were told that we were stupid and that price stability was more important than employment. I disagree, and I suspect that the hundreds of thousands of unemployed people on the continent disagree today.
The fact is that is it is thoroughly dishonest of the Chancellor to embark on a campaign to soften up the British electorate, with taxpayers' money, in advance of a referendum on whether the British people wish to join the euro. We ought to have the referendum first. Then, and only then, if there is a majority in favour of our participating in a single currently, should we go ahead with the softening-up and, of course, the decision-making process in government and the approval of Parliament.
People say that these issues are confusing and complicated. They are not—any more than the Maastricht treaty was complicated. I urge my hon. Friends to remember Matthew chapter 22, verse 21. When the Pharisees sought to trick Our Lord by challenging him on whether he ought to pay tribute to Caesar or to God, Our Lord asked for a denarius to be brought forth—a penny, which was the single currency of the Roman empire at that time. It was the unit in which tribute was paid, inasmuch as we will have to pay tribute to the EU if we are part of EMU. Our Lord asked whose superscription was on the penny. That says it all. The superscription was that of Caesar, and on the euro notes it is that of the euro. On our currency, it is that of our Queen, it is she whom we serve in Parliament and it is to her that our people owe allegiance. That is something that I am not prepared to give away.
4.58 pm
Mr. Chris Bryant: On that rather religious note, and on the day Her Majesty has signified her assent to the Clergy Discipline Measure 2003—it sounds rather more interesting than today's debate, but that one passed me by—I would say to the hon. Member for Ruislip-Northwood (Mr. Wilkinson) that the biblical allusion that perhaps more readily springs to my mind is that of the moneychangers in the temple. Perhaps Our Lord had more direct intentions of getting rid of moneychangers, and a single European currency might have appealed.
The debate has been an interesting. I am struck, however, by the fact that every hon. Member who has spoken in the debate has been a man. Indeed, every person who has sought to speak in the debate has been a man. There have been only three women in the Chamber at any point during the debate: one was a Parliamentary Private Secretary, one was a Whip, and the other was Madam Deputy Speaker. I sometimes worry about the nature of the debate in the country, because many people are clearly put off. Every opinion poll says that people, particularly women, feel that they do not have enough information on the subject. They want to understand the subject, but until now we have perhaps used language that has not been very appropriate.
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It is good to be involved in a debate with three of the great beasts of the Conservative party. We have had quite a display of great bestiality from the right hon. Members for Wokingham (Mr. Redwood) and for Kensington and Chelsea (Mr. Portillo) and from the right hon. and learned Member for Folkestone and Hythe (Mr. Howard).
I want particularly to nail one piece of Tory mendacity today, however, which is that the draft constitutional treaty makes no provision for member states to remain outside the euro. Article 1.14(2) makes specific provisions for those who have adopted the euro, and therefore, by definition, for those who have not adopted the euro. We can therefore see an end to that point.
Mr. Bacon: Is the hon. Gentleman saying that the provisions of protocol 11 of the Maastricht treaty are explicitly reflected in the draft constitution?
Mr. Bryant: Indeed, I think that they are admirably met in the draft constitution.
To move on to the debate in the country about the euro, a sharp divergence seems to exist between those who are ideological on the matter on both sides—those who want to join the euro at any price, and those who refuse to countenance the euro at any price, whatever the burden of proof may be—and those who want to adopt a more rational approach. I think that the Chancellor got it spot-on earlier, when he drew the distinction between this Government, who have sought to prove or to make sure that the economics are right before recommending membership of the euro for the UK, and the Conservative Government, whose Chancellor was torn between two different sets of ideologues—those who ideologically wanted us to join the exchange rate mechanism for wholly political and not economic reasons, and those who were wholly opposed. In the ebb and flow between those two ideologies, the then Chancellor ended up taking us into the ERM at wholly the wrong time, and gave us all the economic problems throughout the early 1990s that we know about.
I believe that we should adopt a wholly rational approach to this matter. We should look at the economics, and we should of course look at the politics. It is not solely an economic issue. Several right hon. and hon. Members, including my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), have made the point that it is not purely an economic argument, but if we were to go into the euro solely on the basis of politics, when we were not able to prove that the economics were right, we would have wholly undermined our case. I believe that a combination of the two is required.
The potential benefits of joining the euro for the United Kingdom, however, are clearly laid out in the Treasury's documentation, most notably in terms of increased trade. We need only look at page 59 of one of the documents, "EMU and trade", to see that there are many different estimations of what the potential increase in trade to the United Kingdom might be were we to join EMU, as it says half way down page 59:
"any increase in trade arising from the complete elimination of exchange rate volatility within a given area is not likely to exceed 10 per cent at most…a large body of empirical work shows that the impact on trade of membership of a currency union could be much more substantial."

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I believe that the Treasury has been sage in outlining that it is difficult to be absolutely categorical about what the likely increase in trade would be. It is worth pointing out, however, that not a single economist has suggested that British trade, were we to join the euro, would decline. In other words, there would be some benefit, and it is uncertain precisely how much that would be.
Even if we take the lowest estimate of all the economists who have done substantial work on this issue, the growth in the economy over the next 20 years would be something in the region of 4.5 per cent. That comes out at £50 billion growth in GDP—£16 per head growth in GDP for everybody in the country—and were we to estimate that, say, 40 per cent. of GDP would go to public services, that would mean an additional £20 billion spent on public services in this country. That is a significant benefit, and it is on the basis of the Treasury's lowest estimate of the likely benefit to UK trade.
Of course, there will be significant benefits in terms of transaction costs. Many businesses are already experiencing the problems of all their competitors in Holland, France, Germany, Spain, Portugal and Greece not having to face the problem of transaction costs, and of their business in the United Kingdom being less competitive than those on the continent as a result. This issue is likely to grow over time. Some still believe that Britain is a pre "in" country and they are therefore maintaining their links with British businesses and still buying from them. However, the moment Britain were to say, "We will not join for the next 10, 15, 20 years or ever," those people would start to think that they could not accept the additional transaction costs and that they should take their business elsewhere.
I also believe that there would also be significant benefits for prices. From work that has been done by the venture capital company 3i, we already know that two thirds of all companies that operate across several eurozone countries now use the same price in all those countries. Whenever one goes to shops on the high street in the UK and also on the high streets of Paris, Rome or Madrid, one often sees a single pricing ticket that has been put there by the manufacturer and that shows the euro price and the British price. The exchange rate between the two is the worst in the world.
The people of the eurozone are now getting considerably cheaper products, and prices are going down to the lowest price across the eurozone. We know that the two most expensive cities in Europe are London and Copenhagen. What do they have in common? They are both outside the euro. The transparency of pricing that would come from our joining the euro would have a significant effect not only on the cost of items such as cars, but on all prices and the cost of living.One sad fact that was established last year is that the cost of the gifts that are likely to be given to children is 19 per cent. higher in the UK than in the eurozone. By joining the euro, we would see a significant improvement in the standard of living, because prices would come down.
There is also a significant danger in delay. Although I accept the Government's rigorous assessment of the five economic tests and of the economics of whether we should join at this point, our economy will suffer if we delay for too long. It is not as though the economy will be like a lemming and fall off a cliff, but there will be a gradual and slow deterioration in our economic strength, viability and competitiveness.
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We have already seen that we face problems with the inward investment into this country. Ernst and Young, which is by no means an ardent pro-European company, conducted a survey earlier this year which shows that Britain's share of the inward investment into European countries from 1998 to 2001 fell quite dramatically. In 1998, we took 28 per cent. of inward investment into Europe; in 2000, we took 26 per cent.; and, in 2001, we took only 19 per cent. My worry is that that figure will get worse.
For those hon. Members who think that inward investment is not all that significant, it is worth bearing in mind that 2 million Britons are employed by foreign investors, that 40 per cent. of the UK's gross exports are produced by foreign companies that invest in this country and that, since the euro was founded, 115,000 jobs in the UK have been lost in a variety of industries. In each of those cases, our failure to be in the euro and the long-term prospect of our never joining has been cited as the major problem.
Delay would be a problem for economic reasons, but it would also be a problem for a political reason. The European Union faces dramatic change in every aspect of its workings, from the operation of the Council of Ministers to that of the European Central Bank. The argument of my right hon. Friend the Chancellor on the Lisbon agenda is vital, but it will be difficult for us to win arguments about how the growth and stability pact and the ECB should operate, and about transparency within the ECB, unless we declare our hand and say that we intend to join the euro. As the Treasury Committee pointed out, if we do not move towards euro membership in the near future, we will lose a vital opportunity to affect the European economy that is being built on our doorstep and on which we will be wholly dependent in the coming years.
It would be folly, as ever, for Britain to end up playing catch-up yet again. We have done that so often. We were not part of the common agricultural policy at the start, so we were not able to influence the debate on that and we have spent the past 20 years battling for minor reforms. Although we have won several battles in the past few weeks, there are battles yet to win. If we had been involved from the beginning, we would have ensured either that the CAP did not exist or, if it did exist, that it was in the interest not only of farmers, but of the whole of Europe.
It is likely that Poland, Hungary and the Czech Republic will want to join the euro in the next couple of years. If that happens, we will be playing catch-up with them. The British Prime Minister will have to visit the Polish and Hungarian Prime Ministers to argue about our possible entry rate. That shows a complete failure of political leadership.
There are many nay-sayers—we have heard from them today—who say that there is no reason why we should join the euro and that we would lose out. Some argue that we should not go down the road of joining because there has been dramatic inflation in countries that have joined the euro and prices have been marked up. I spoke to a gentleman in the marketplace in Treorchy two weeks ago who said that it is much more expensive to buy a pint of beer in Spain this year than it was last year, and that that was all because of the euro. I pointed out that the beer was exactly the same price for a Spanish person—it was €3 last year and it is €3 this

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year—but that it cost him more this year because it costs £2.50 to buy €3 this year while it cost only £2.20 last year. The exchange volatility affected the price of his beer, and that is the same problem as British industry faces as it tries to do its business throughout Europe. He said, "That's a very good point; I think you've persuaded me."
I am keen to allow other hon. Members to speak, so I shall not address the one-interest-rate-fits-all problem raised by the right hon. Member for Kensington and Chelsea in great detail. I do not accept his argument that just because the United Kingdom has a problem determining an interest rate that suits the whole of the country, we would have a greater problem determining a euro interest rate that suited the whole of Europe. Most of the economic assessments that have been done show that there is greater convergence of interest rate needs between the United Kingdom and eurozone countries than among many of the eurozone countries, and, indeed, among different parts of the United Kingdom.
I want to put a final nay-sayer opinion to rest; it is prevalent in several of the trade unions that are opposed to membership of the euro. They believe that joining the euro would mean that we could not invest in public services. That is sheer nonsense. France invests 46 per cent. of its gross domestic product in its public services but the United Kingdom invests only 36.8 per cent. of its GDP in public services. We would be able to afford all the significant—and right—extra investment that we want for our public services if we joined the euro. My worry is that if we do not join, our economy will dwindle and die in the long term, which would mean that we would not be able to invest in our public services because we would not be able to afford it.
5.13 pm
Mr. Michael Fallon: We have had a passionate and vigorous debate, but it will not be decisive because there is no motion before us. Given that the Government have considered the issue for six years, in which time they have conducted two major assessments, it is extraordinary that they are not prepared to commend a substantive motion to the House.
Perhaps that is a reminder that the final decision is political rather than economic. Our currency is not only a trading convenience—if it were, we would probably all use the dollar. The decision is not only economic, because if we were just considering our economic interests we would probably not even consider joining the North American Free Trade Agreement—we would want to join the United States of America. It is a sobering thought that if one measures the gross domestic product per head of G8 countries and the 50 individual states of the United States of America, one realises that not one of the G8 countries would rank in the top 40 of the 50 states. The decision is not simply economic. Currency is a definition of sovereignty. It is an expression of our political and economic culture.
I want to deal not with the political tests that the Chancellor set, but with some of the fallacies that have characterised the debate. I have singled out five euro
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fallacies, which I shall tackle one by one. The first is the fallacy of convergence. The extraordinary idea that great economies can be locked together like passing spaceships ignores the reality of the very different and international nature of the British economy. No student of the international structure and openness of our economy could ignore the wisdom of Henry Grattan's dictum that the channel forbids union, the ocean forbids separation. Anyone who believes that convergence can suddenly be attained should look hard at page 71 and what follows in the Treasury's document. It sketches out a horrifying prospect of the extent to which taxes might have to rise to dampen UK inflation or public spending might have to be cut to meet certain scenarios. True convergence—permanent convergence—of the kind sought by proponents of euro entry could take many years, as the Government have begun to realise as they flounder around in housing market reform and regional pay reform. That is the fallacy of convergence.
The second fallacy is what I call magical advantage—that there is some benefit to our economy that can be achieved only by entering into one or other of the euro arrangements. We had that argument with the ERM. There is nothing advantageous about any European discipline that we could not achieve in this country anyway. To their credit, the Government have demonstrated that successfully by imposing a new monetary policy framework over the past six years. Every business man would like more certainty or stability—I remind the House of my business interests—but there is nothing in joining the euro that we could not do here anyway.
Thirdly, there is the fallacy—we heard it sketched out by the hon. Member for Rhondda (Mr. Bryant) and many other euro enthusiasts—of the missed bus. We are always being told that we will be too late and that it will be impossible to mould the arrangements in the way that we want unless we join at a particular time. In fact, the history of European co-operation shows that it has always been possible for different states to join in at different times under different arrangements, as France does even today in its membership of NATO. I cannot believe that the fourth greatest economy in the world cannot make its own way in its own time.
The fourth fallacy is that of influence—only by joining the centrally prescribed arrangement can the UK change Europe to its way of thinking. The Government have tested that theory to distraction. It began when they put themselves at the heart of Europe and ended six years later when the Prime Minister left the last European summit a day early because he was fed up with what was being discussed. Britain is already locking itself out of the key axis of Brussels, Berlin and Paris. The Government are just as far away from influencing or restraining the federalist centralising impetus that derives from that axis as they were when they started six years ago.
Of course there are useful reforms in the European Central Bank and the growth and stability pact that a good dose of British realism can help move along, but we should not delude ourselves that Europe will suddenly be converted to following the UK agenda. The reality is otherwise, as chapter follows charter, convention follows treaty. The drag-along rights are all the other way and Britain, if anything, is becoming more continental day by day.

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Fifthly and finally, there is the fallacy of the single stand-alone currency. As my right hon. Friends the Members for Kensington and Chelsea (Mr. Portillo) and for Wokingham (Mr. Redwood) have demonstrated far more eloquently than I have, no single currency can operate without a common budget or a uniform tax regime. That has not happened or worked anywhere else in the world, and it certainly cannot work here. We see that that is the case even in the Treasury's own assessment and its prediction that taxes might have to be used to regulate our economy at times when the euro interest rate is inappropriate. Having lived through the ERM debacle and the unnecessarily high interest rates that followed it and did such damage to our business, I never want to live in a country that has an inappropriate interest rate. Our interest rate should be in our interest, and if it is not, the single currency cannot be in our interest either.
Of course, I concede that there may well be some marginal trading advantages, particularly for manufacturing companies and possibly even for British agriculture, in eliminating the exchange rate risk. However, I believe that those advantages are far outweighed by the loss of political and economic sovereignty that would be involved in the decision and that they do not constitute the basis for a decision that would be irrevocable.
I wish that there were a motion in front of the House tonight. If there were, I would certainly oppose it.
5.21 pm
Mr. Colin Challen: I have only one test for supporting the European Union—that it should be greater than the sum of its parts, or, as somebody said in another context, that we can achieve more working together than we can alone. In addition, we should never be asked to pool or share our sovereignty if the outcome is no greater than what could be achieved by our acting alone or even bilaterally with other countries.
I am concerned by some of the comments that I have heard this afternoon, especially from the Opposition Benches, as the argument seems to be tending towards the Cubanisation of this island off the north-west coast of Europe. Just as the North American Free Trade Agreement is creating a very large trading area in which Cuba and other small islands could be completely isolated, we could go the same way if we followed the Opposition's line of argument.
There is no doubt that European economic union is an article of faith for the many who share a vision of Europe as a united and strong political body, underpinning what they see must be its renaissance and reinvention as a powerhouse of innovation, productivity and economic growth. I should like to add a few other items to that list, such as care for the environment, our civilised values and the social needs of European Union citizens, as well as respect for democracy. Those are some of the things for which economic and monetary union should provide the foundations, and in the main that principle is worth supporting.
We can clearly see the alternative, which is laissez-faire liberalisation, driving down standards and health and social care for the many, destroying the environment, seeking ever cheaper and nastier solutions
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to all the problems that it encounters and widening the poverty gap in all the societies in which it finds purchase and in the wider world. A short name for that is NAFTA, which does not have a social and environmental context, whereas the European Union does.
Sadly, economic union as it is currently on offer is failing. In the eurozone, it has failed to produce the right answers—the only kind of answers that we should be seeking in respect of the worldwide economic downturn. If anything, it has probably exacerbated those problems, with the European Central Bank stuck like a rabbit transfixed in the path of deflation. Its monetarist nostrums have been of little use in helping member states to escape from their recessionary tendencies. The growth and stability pact is widely derided and now seems more obeyed in its breach than its observance. For the third year running, Germany is likely to break the 3 per cent. deficit rule, France likewise, and Portugal, which had a good dose of the pact's remedy, is reportedly ready to slide back over the 3 per cent. level. A recent article in the Financial Times claimed:
"Many analysts have welcomed the acceptance of the Pact's uselessness as a necessary condition for more stimulative policies for Europe."
Thus, following the flawed George W. Bush approach to boosting the US economy, the Germans are considering massive tax cuts. It is to be hoped that if they do so, they will not follow the US's regressive tax changes, but will at least seek to be progressive in their approach. However, the other side of the coin is almost certain to be regressive—that is where the cuts in spending will bite.
What is happening in Germany is a direct rebuttal of the oft-repeated argument by EMU enthusiasts that membership of the euro will not invalidate or limit the spending choices that are open to Governments. They say that the rules of the pact limit only borrowing—on the face of it, that may be true—but they do not admit that one policy will have consequences for others. In this case, radical fiscal policies are being implemented because of reduced freedoms and stagnation in others. It is ironic that the Germans are following the United States down that route, because the US's tax-cutting policy has been attacked by the Bank for International Settlements for creating the danger that Government debt could reach unsustainable levels and may be followed by a painful correction. However, at least the Americans have their hands on all the economic levers and may be able to use them all to avoid such a boom-and-bust scenario. They also have more freedom than we do to move more regional assistance around, so deprived areas may have some protection. By comparison, the European Union's regional budgets pale into insignificance, and cannot realistically be seen as sufficiently effective tools to even out the damage of a one-size-fits-all monetary policy in more than a handful of cases.
Enlargement spreads that support even thinner. That is not to oppose enlargement, but merely to recognise the basic truth that unless we are prepared to put a lot more money into the EU, we will not see many more transformations like that of the Irish Republic. It may prove excessively ambitious to have enlargement take place so early in the life of the eurozone. There are already plenty of strains in the European Union, and it

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would have been better to ensure that enlargement bedded down well before embarking on the single currency. I place more importance on enlargement than on the expansion of the eurozone. It is far better to engage with those further 10 countries and to help their development in all the areas that I have mentioned than to force them swiftly into an as yet unproven experiment, especially since we do not yet feel confident enough to join the single currency despite being in a stronger position.
It would be advisable to consider another impact of enlargement on the eurozone—its impact on democracy. The European Central Bank has already looked to its future enlarged structure, and has concluded that the only way in which it can cope with enlargement is by restricting the participation of national representatives through a system of rotation on its key rate-setting committee. That is highly undemocratic. It is already difficult enough for the ECB to be influenced by events—hence its sloth-like responses to the current downturn—but for it then to deny a vote to member countries would be appalling. That is not pooling sovereignty, but losing sovereignty.
Moreover, the ECB is speculatively seeking to introduce ideas that go way beyond its remit. During a recent Prime Minister's Question Time, I drew the Prime Minister's attention to the suggestion in a recent ECB bulletin that in future countries may not be able to afford to run health services, so Governments should perhaps consider a system of co-payments. That runs absolutely contrary to this Government's policy. However, although we may look on the policy wonks at the ECB with haughty disdain, there is no denying that when such ideas are combined with the tax-cutting agenda in Germany, people may begin to wonder whether two plus two equals four, and to suspect that the ECB is influential in unintended ways.
Another, entirely intended, feature of monetary union is that it should be a major plank in constructing the single market. I suspect that many citizens originally believed that the single market meant simply removing some tariff barriers to shifting a container-load of widgets between one country and another. The more naïve may have fondly imagined that it meant simply reducing some paperwork on cross-border trade. If so, they will have long been disabused of that misconception, which Margaret Thatcher and her band of scheming acolytes nurtured assiduously.
The single market, of which economic union forms such an integral part, means removing every obstacle to free trade. For example, although we currently find the phrase "tax harmonisation" difficult because we want to retain control of our tax policies, it is increasingly obvious that that objective does not appeal to everybody. Companies such as Marks and Spencer that trade in more than one country and want to offset their losses in one country with their profits in another are wont to go to the European Court of Justice to seek the removal of tax regulations that prevent them from shipping their losses around the European Union. I assume that the same principle would apply to a company's profits and that the least onerous tax regime would be sought.
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That leads to tax harmonisation not though the front door, with countries agreeing a common rate, but through the back door, where judicial decisions are to taken to remove so-called barriers to the single market. There is an inevitable drift in one direction.The European Court of Justice, through implementing economic union bit by bit, may have more to say on the matter than, for example, the European Parliament. The court is making far-reaching decisions, which cut across the powers of elected representatives.
I recently highlighted the court's decision that Governments may not own golden shares in companies. The decision, especially its effect on Royal Mail, shows that the court is finding an ever wider role in determining the detailed application of what stands in the way of a true single market. In the light of that decision, the Government are reviewing the status of 25 British enterprises.
Some decisions may appear peripheral to the central theme of the debate. However, I highlight the way in which the detail of the grand vision is increasingly determined outside the democratic arena. The further the European Union enters economic and monetary union, the more the European Court of Justice will be employed to interpret its implementation. If Governments can be told to sell strategically important assets, what next? How does the project enhance our democratic rights? Are we meant to admire only the grand vision, and never mind the detail? What will be national Parliaments' ability to pass legislation that may challenge the European Court of Justice's decisions?
I said that economic union had a duty to underpin a wide range of goals. National Parliaments must therefore scrutinise the institutions that implement the single market to ensure that definitions of the public good that are too narrow or run counter to democratic expectations are not used. We must answer for the consequences, just as some elected representatives on the continent are grappling with the European Central Bank's failures.
5.33 pm
Mr. Andrew Tyrie: Today, my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) is making a speech, the central theme of which is that if the European Union is to be relevant to its electorates in the 21st century, it must abandon its old agenda of deeper integration in favour of the construction of an intergovernmental Europe. He is right. Europe's leaders have behaved myopically since the fall of the Berlin wall, and there has been scandalous foot-dragging over enlargement.
I agree with my right hon. Friend that most of the old European integrationist agenda needs to be ditched, along with much of the regulation and most of the EU budget. However, as I shall try to explain, although I strongly oppose joining the euro now, I would be wary of throwing it out with the rest of the integrationist baggage for ever.
Economic and monetary union is part of the global logic for fewer currencies. Currency instability costs countries dear. Since international trade took off in the 19th century, periods of free floating among major countries have been rare and some form of currency arrangement and stabilisation has been common

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Global financial deregulation will make setting monetary policies increasingly difficult, especially for smaller countries.
Mr. Hopkins: Does the hon. Gentleman agree that having a stable world currency regime with occasional relocations or adjustments is very different from having a single currency?
Mr. Tyrie: Over the last century and a half, we have had a mixture. We have had the gold standard, which was a reference standard currency, and we have had Bretton Woods, which was a fixed and adjustable peg system, to which the hon. Gentleman appears to be alluding. The problem with a system such as Bretton Woods is that once the capital account has been liberalised, very heavy speculative flows can be generated, which make the system very difficult to run. That is why a number of countries in Europe started to discuss something like what we have now. There are many other approaches to currency union, apart from the one that we have. If I have time later, I shall allude to the fact that EMU was perhaps designed not with the best economic interests in mind, but with too many political interests in mind.
I shall complete the point that I was making a moment ago. In the absence of a massive global shock in the 21st century, there will definitely be fewer currencies around the world. There will probably be more countries, however. The number of countries is growing all the time; half a dozen new ones have been created on Europe's doorstep over the past decade. The first thing that many of those countries have done—paradoxically, after they have created a currency—is to find ways of abandoning their monetary independence, because they have needed to find a way of stabilising their exchange rates.
I certainly do not think that Britain should join the single currency at the moment, but before setting out my reasons for that, I should like to address some of the more strongly put arguments that have been adduced for never joining. First among them is the idea that joining a monetary union involves an irrevocable loss of sovereignty, and that it would be the end of Britain as we know it. That is utter nonsense. If a country wants to withdraw from a monetary union, it can. I am sure that, sooner or later, a member of the EMU will withdraw, and there will be no Panzers rolling anywhere to prevent that.
Currency unions come and go. That has been the history of all previous currency unions, and there have been a lot of them. All the same, there is a quasi-constitutional issue at stake, which is whether monetary policy should be determined by an unaccountable and undemocratic body. We have already enabled that by the Bank of England Act 1998. We put in some safeguards, including a section in the Act, to enable us to claw back monetary control—at least in theory. I think that it would be very difficult to exercise that power in practice without triggering a colossal speculative run in the bond markets. Of course, reclaiming one's currency from the European Central Bank would be an altogether bigger job than exercising a power under the Bank of England Act, and I do not underestimate how messy it would be. It would certainly be possible, however.
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A second major argument for never joining the euro travels under the guise of "one size fits all", a concept about which we have heard a great deal today. The theory is that at any given time, a single interest rate cannot be right for everyone. Stated in those terms, it is irrefutable. If we can set the optimal interest rate, we will, by definition, achieve an optimal result. If we scratch that argument a little, however, it is nothing like as strong as it looks.
The argument makes a number of assumptions, the first of which is that our monetary authorities will always set the appropriate interest rate. The second is that markets—particularly exchange markets—do not overshoot. Of course, we know that they do. Most importantly of all, the argument assumes that there is a clear and single answer to the question, "What is the right size for the currency area?" Well, there is not. Each economic shock or problem that might come our way might best be handled by a different size of currency area. The optimal size might not coincide with a country's frontiers. No doubt the English regions could, from time to time, have put up a good theoretical case for having their own currency or for calling themselves an optimal currency area. From time to time, an area larger than Britain could have benefited from being in a currency area as well.
Mr. Bacon: Does my hon. Friend agree that one way of dealing with problems in the English regions, for example, is to have fiscal transfers within the country from poor areas to rich areas? By analogy, the same applies within Europe, except that it is necessary to have the political integration and authority at the centre to establish the taxation to make that possible. That is one of the fundamental problems.
Mr. Tyrie: In theory, fiscal transfers can be used to assuage the impact of one-size-fits-all interest rates. In practice, however, what has happened in the United States shows us that only about a quarter of the shock that might hit a particular state ends up being assuaged through federal transfers. Three quarters of the burden is borne by the state or region. Fiscal transfers play a much smaller role in the effective working of currency unions than is commonly supposed.
I was saying a moment ago that the English regions themselves might decide that they wanted their own currency to absorb a particular shock, but the best way for a region or part of a currency area to absorb a shock is to introduce supply-side reform, and to have flexible labour markets. That is what the Chancellor should be calling for when he talks about regional pay initiatives, and that is what Germany needs if it is to absorb the shock of an entry rate that was undoubtedly too high. "One size fits all" is a very good rhetorical line—indeed, it is a bit more than that—but it is a long way short of a knockdown argument against the euro.
There are also some largely bogus arguments. I will not devote too much time to knocking them down unless I am challenged. We hear, for example, the argument that we will inevitably pick up the German economy's pension bill, the argument that the European Central Bank will steal all our reserves, the argument that EMU will inevitably mean the EU's setting our direct tax rates or even our spending levels, and, most

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extraordinary of all, the argument—we have heard quite a lot about it today—that we will end up importing continental levels of unemployment.
Mr. Wilkinson: I am sure that my hon. Friend has read the proposed European constitution. At its heart is the theme that there should be an approximation of economic policy, that that should be an explicit objective of the Union, and that everything possible should be done to promote it. What Brussels calls unfair tax competition—we regard it as a competitive advantage for the United Kingdom—is not something that the Convention would bless.
Mr. Tyrie: We have a veto, and if the Government do not exercise it they will be colossally at fault. Ministers have said at the Dispatch Box that they will exercise it, and they had better do so. It would be crazy to consider direct tax harmonisation.
Those who argue that employment may be affected in the long run by a single interest rate and "one size fits all" are really making a Keynesian point. They are suggesting that somehow there is a Phillips curve—that there is a trade-off between interest rates, and thereby inflation, and the level of employment. Even this Labour Government have ditched that idea, but amazingly a small chunk of the old left and a small chunk of the new right seem to have alighted on the same territory in order to oppose EMU.
What are the strongest arguments for not joining EMU? There are two, the first structural and the second semi-political.
The structure is faulty in several respects. We will find out just how faulty it is only in the face of a serious economic crisis, but there is plenty of evidence that it is not right at the moment. The stability and growth pact, for instance, has more or less crumbled between our fingers at the first whiff of trouble.
Secondly, it is simply not possible to divorce monetary policy from fiscal policy in the 21st century, as it was in the 20th. We may be creating institutions with completely separate monetary and fiscal policies at the very time when more fiscal and monetary co-ordination is needed. We may have created an independent Bank of England while looking at the rear-view mirror when we should have been looking at the windscreen. I am not predicting deflation, which would of course mean our needing much more fiscal and monetary co-ordination; but it is a risk. The ECB is out on a limb as a model of almost complete monetary independence. Fiscal and monetary policy are made in virtual isolation. The ECB is even more independent than the Bank of England is now. We do not have to join EMU now, so why take the risk? Let us wait and see. Let us watch for a while.
A third structural weakness is that, as the Chancellor has rightly pointed out, the ECB's methods of democratic accountability leave a great deal to be desired. The Treasury Committee may get only half a loaf from the Governor each month or two, but at least it is half a loaf. On current form, Parliament will be lucky to get a crumb from Wim Duisenberg or his successor.
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The second big argument for being careful about joining EMU at this time relates to my previous point about politics. Even if there are clear economic gains to be had from a single currency—or from a global currency, for that matter, in the long run—can we take our electorates with us on this issue? Democratic legitimacy does not flow from Brussels, and no amount of institutional reform will divert it there; I do not even want to try. When the next major financial crisis occurs, people will turn not to Brussels for protection and guidance, but to this place.
Let us imagine a serious economic crisis that hits some countries more than others. What would happen? The stability pact would collapse altogether—of course it would, because it is a very weak instrument—and then,one or more countries might get themselves into very serious financial difficulty. A debate would then take place as to whether that country should be bailed out or allowed to go bust. Nobody raises these issues at the moment because we are a long way away from such a situation. The credibility of the treaty's no-bail-out clause has received far too little attention. Virtually no mention of it is made in the 18 studies—some 1,000 pages, with almost nothing on it. Sooner or later, we may be facing just such a crisis, and whatever we do we could end up facing a large bill. If the EU bailed out the country in question, we would have to help write the cheque; if we did not bail it out, huge instability could arise in our bond markets anyway, as the contagion effect in those markets got through to all other members of the eurozone.
It is possible to imagine currency unions that do not have the political and structural flaws that I have just discussed. The fundamental problem with EMU is that it was not designed primarily to maximise the global benefits of free trade and investment. It derives from a grubby political deal. It was a child of the Franco-German alliance—a deal through which the French would get their hands on the Bundesbank; they were sick of being told what to do by Frankfurt—and of Helmut Kohl, who wanted to edge Europe towards an ever-closer Union in which the German problem, particularly after unification, could be subsumed in a wider European framework.
In the short term, the French have won. For now, they have got much of what they want—such as a measure of control over monetary policy, where before they had none—without having to sign up to a superstate. The truth is that they are as intergovernmental as we are, but they know how to do euro-rhetoric much better than us. However, I am not so sure that the French have won in the long run. Charles Powell, Margaret Thatcher's foreign policy adviser, once described the relationship between France and Germany as like that between a stoat and a rabbit. The trouble for France is that the rabbit is gradually turning into a stoat. That is why France wants Britain in EMU: they want two medium-sized stoats to deal with Germany.
I am sure that the French and the EU will be able to ward off a superstate. The pressures for a superstate are overwhelmed by the key players, who want to prevent it and who want an intergovernmental structure. The old

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federalist German vision, such as it is, is in any case being overtaken in that country by its own domestic worries.
Mr. Andrew Rosindell: My hon. Friend is outlining a number of instabilities, uncertainties and vested interests that surround the entire debate on the euro. Does he agree with me that the best thing for our country is for this debate to be ended as soon as possible and for the British people to make a decision, so that we have some certainty about the long-term future?
Mr. Tyrie: No I do not, but explaining why to my hon. Friend would take time out of my speech, so I shall do so later over a cup of tea, if I may. The French may find out that once enlargement beds down, the disproportionate influence that they have exercised over Germany for nearly half a century simply will not be there.
Did the Government get it right in publishing the material that they did and in taking the position that they have? Who really is right: the Chancellor, whose 1,000-page study has kicked the ball into the long grass, or the Prime Minister, who has been looking for the ball ever since he got to No. 10? I think that the Chancellor has it, but he has done the right thing for entirely the wrong reason. One cannot help sensing that he kicked the ball into the long grass precisely because he knows that the Prime Minister wants to get his hands on it. There is hubris, I am afraid, on both sides. The Prime Minister thinks that EMU might give him a bigger place in history, but of course, the Chancellor seems to believe that blocking EMU might give him a bigger place in history.
Fifteen years ago I saw from the inside a first-class row between No. 10 and No. 11. It was about monetary policy and the eurozone, and it literally ended in tears. I do not know who will end up crying, but if the Prime Minister persists in trying to get Britain into the eurozone quickly, I would not bank on a happy ending.
5.50 pm
Dr. Alan Whitehead: During my long sojourn on the Back Benches during this afternoon's debate, my spirits were somewhat lifted by the thoughtful contribution from the hon. Member for Chichester (Mr. Tyrie), which stood in some contrast to the rather miserable fare offered from the Conservative Benches during the rest of the afternoon. Conservative Members have joined in shouting to each other, "Never, never, never"—I cannot do the accent—without any indepth argument in support of the proposition beyond an inference that terrible things will happen. Exactly what, we do not know.
One feature of the Conservative argument has been to dismiss the idea that any serious analysis of this country's interest in economic and monetary union in Europe should be conducted. The issue is presented as a tussle between No. 10 and No. 11, or an entirely bogus exercise. The nadir of that approach came from the right hon. Member for Wokingham (Mr. Redwood), who has given his leader a lovely little present for when he returns from Prague. The right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) spent the day attempting to convince people that the Conservatives
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were in favour of Europe and not about to back out. He will enjoy reading the comments of the right hon. Member for Wokingham on his return.
The truth is that if we are serious about assessing the implications, conducting something like the five tests is a good way to proceed. As the hon. Member for Chichester mentioned, one starting point is optimal currency area theory. If we are serious, we should reflect on it; the theory has been around for much longer than the current debates on economic and monetary union. Roughly speaking, the theory states that two countries will benefit from sharing a common currency if the micro-economic benefits of lower transaction costs and exchange rate risk and greater price transparency exceed the macro-economic costs of adjusting to country-specific asymmetric shocks in the absence of the ability to set national interest rates or the possibility for the nominal exchange rate to adjust. That is a pretty exact description of what the five tests have been trying to achieve.
Indeed, that rather sets the seal on the frankly inane riposte of the shadow Chancellor to the Chancellor's statement a few days ago and in today's debate. The shadow Chancellor sought to make fun of various inter-country currency areas—a joke he thought was so good that he repeated it twice. It is perfectly logical to examine experiences in history in order to develop a serious case for deciding how best to proceed. I have already expressed my disappointment at the contributions of Conservative Members this afternoon, and the shadow Chancellor's speech had something of the slight about it.
If we examine the benefits and costs in respect of how that theory has developed, we see that lower transaction costs—perhaps saving between 0.1 and 0.2 per cent. of gross domestic product, or £1 billion a year—are not insignificant. In that context, it is extraordinary that the right hon. Member for Devizes (Mr. Ancram) said today on the BBC that he was in favour of a European Union with a single market, but did not even mention the issue of transaction costs. We can also put on the plus side of the micro-economic benefits that the theory suggests the potential increase in trade, of perhaps 50 per cent. over 30 years, a cut in borrowing costs, on a sustainable basis; and better investment. Against that is the question of the sustainable convergence of the economy and the ability to withstand country-specific asymmetric shocks without exchange rate protection, which are the macroeconomic consequences.
The decision must, however, be based on other factors. Some critics of the theory have suggested that its limitations include the fact that in reality most decisions are made under changing circumstances. That is true, and circumstances are changing fast at present. It is significant that we have had a mea culpa—I welcome that—from the Conservative party on the previous Government's entry into the exchange rate mechanism. We have also heard several claims from Conservatives that they were right all along, but the record demonstrates that they have been systematically wrong about how things would develop and how the changing circumstances would affect the question of whether to join EMU.
Conservative Members initially said that the single currency could not be achieved, when the idea was suggested. After the framework had been agreed, they said that no detailed agreement could be reached and the

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member states would not be able to agree a final modus operandi to make it happen. When a detailed agreement was reached, the Conservatives said, "Well, it may have been agreed in theory, but it will not happen in reality. The currencies will not be converted in time, the cashpoints will run out of money, it will descend into chaos and the economies simply won't work." Of course, from the first day, the economy worked well, the currencies were converted and the new currency worked fine. Then the Conservatives said, "Ah yes, but as soon as there are any strains, it will all collapse, like the ERM." But it has not collapsed under the first strains. Then they said, "Well, it hasn't collapsed, but the rate will sink inexorably against the dollar, and that will be the end of the single currency." Of course, not only has the euro not collapsed against the dollar: it has improved against the dollar in recent months.
The Bank of England has said that the technical success of the single currency was greater than anyone could have anticipated. That is the reality, and that is an important factor in consideration of the tests. We now have a single currency in the single market of which we are part. Even the Opposition now say they are happy for us to belong to that single market, and that is a central plank of their new pro-European stance, as described in Prague. We are in a single market with a single currency that operates in the majority of states that make up that single market, and that has implications for our decision on whether to join. The likely outcome is that foreign investment in the UK will start to slip. How long will our trading partners continue to believe that we will join eventually and therefore give us the benefit of the doubt? The evidence is that doubt is beginning to creep in. Some hon. Members have cited a survey by Ernst and Young. More recent figures released by Invest UK and the OECD show a 7 per cent. fall in projects between 2001–02 and 2002–03 and a 60 per cent. fall in foreign direct investment in 2002. Figures from EUROSTAT show that foreign investment in Britain from outside the EU fell by no less than 73 per cent. in 2002. We are therefore seeing the real effect of the ground moving under our feet. In my view, it is essential that we should have the tests, and that they should be applied properly and rigorously, but additional factors must be taken into account.

BUSINESS OF THE HOUSE
Motion made, and Question put forthwith, pursuant to Standing Order No. 15 (Exempted business),
That, at this day's sitting the Motion in the name of the Prime Minister may be proceeded with, though opposed, until Seven o'clock.—[Charlotte Atkins.]
Question agreed to.

Economic and Monetary Union
Question again proposed,That this House do now adjourn.
6 pm
Dr. Whitehead: I therefore welcome the Government's announcement that they are going to campaign vigorously for the benefits in principle of the single currency and, more importantly, for a combination of those benefits and the benefits that accrue from membership of the EU and the single market. In the end, the single currency and the single market are not distinguishable. It is in our strong long-term interest that Britain join European monetary union as soon as that is compatible with our interest. I shall certainly support the Government strongly in their efforts to bring that about.
6.1 pm
Mr. Barry Gardiner: Before I begin my speech proper, I wish to join my hon. Friend the Member for Southampton, Test (Dr. Whitehead) in paying tribute to the hon. Member for Chichester (Mr. Tyrie) for his absolutely excellent speech. I can only imagine that the Conservative party's present difficulties will continue for as long as he remains on their Back Benches rather than being on their Front Bench.
I speak from the perhaps quaint premise that it ill behoves Members of this House to be either pro-European or anti-European. The only thing that Members of the British Parliament should be is pro-British. That is why I reject the Conservative dogma that says that EMU should be opposed even if it were good for Britain, and the Liberal Democrat dogma that would insist on joining EMU, even if that were bad for Britain.
Of course, Conservative Members would respond by saying that EMU could not be good for Britain, and Liberal Democrat Members would say that it could not be bad. That is the trouble with fundamentalists—one cannot hold a rational argument with them because they refuse to consider possible anything that might expose their position as flawed.
When the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), the shadow Chancellor, spoke in the House on 9 June, the whole House laughed. It was a genuinely funny speech, with some excellent gags. I cannot claim that the speech has since been forgotten, as the right hon. and learned Gentleman has committed the mistake of repeating most of the gags several times. However, the shadow Chancellor experienced something worse than laughter today: his speech was ignored. He singularly failed to win the attention of the House.
By contrast, the statement by my right hon. Friend the Chancellor contained no quips or gags, and no polished delivery of a line. However, it had a very clear line. The message was, "Not now, but not no." The euro will be good for the UK. It will reduce long-term business costs, and act as a spur to economic dynamism in this country, but we can join only when there is real convergence with the European economy.
I am sorry that the hon. Member for Sevenoaks (Mr. Fallon) is not present. He spoke about the fallacy of convergence—the notion, as he put it, that economies

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could become linked together like spaceships floating in space. His view has been widely held. It is a classical one, in the sense that it was held in great esteem in the 18th century classical period, when cities had walls around them. The thought that economic decisions could be taken that would work as well for both Bremen and Bonn was deemed to be ludicrous. What made that view outdated was greater communication, improved technology and better transport. It is technology, transport and communication that render the classical view that he espoused equally inappropriate when considering independent nation states today.
The business community welcomed the Chancellor's message. Digby Jones, director general of the CBI, noted:
"The process for review on convergence and flexibility will be welcome to businesses that need certainty to plan ahead. We are pleased the government is doing nothing to harm the hard-won economic stability that has made the UK the most successful economy in Europe",
while the leader in The Economist that week concluded:
"the main thing to understand is quite simple: the policy is right, politically and in economic terms as well."
Business welcomed the statement because it showed the Chancellor's determination to ground the decision in economic fact and not in political dogma. The Chancellor's announcement that a draft referendum Bill would be published this autumn and the release of further details about the UK's preparations for adopting the euro sent a clear message that the decision of principle has already been made. What remains, of course, is the need to satisfy the economic tests. Businesses need clarity and they need transparency. That is what the Chancellor's statement offered—a clear road map to euro entry and an assurance that his sound economic policies will not be diminished. So we can continue with the record levels of investment in the public services and with the clear long-term fiscal and monetary policy, but in addition when we enter the eurozone, business should reap the benefits of lower transaction costs, diminished exchange rate volatility and substantially easier cross-border trade.
The 9 June statement was about more than the decision to enter the euro, momentous though that is. It was about dealing with systemic problems in the British economy as well—problems that we need to deal with regardless of whether we join the eurozone. Under the Conservatives 300,000 families were in negative equity as the economy went through cycles of boom and bust—not an impressive record. That is why today the Chancellor has set out his vision of a sustainable housing market: one that would ensure added personal economic security for home owners and sustainability for the impressive economic framework that we have established. Those are the domestic prospects that EMU membership holds out. Attaining the goals set down by the Chancellor will ensure that home owners have long-term security with the increased use of fixed-rate mortgages.
The Chancellor also made it clear that he will seek reforms to the stability and growth pact so that when Britain enters the eurozone it will benefit from reforms to the structures that govern Europe's economy. There is growing agreement that the current structures are not right and that there needs to be reform if the UK and the rest of Europe are to benefit from our joining the
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European economy. It is because Britain has a policy of engagement with the EU that we can expect movement on that issue.
On jobs and prosperity, investment may produce a short-term increase in employment, but Europe's labour markets are far more restrictive than the UK's. Ultimately, that may present problems. As for convergence with the eurozone economy, our GDP growth, unemployment and the output gap are not aligned, although they are closer than they were six years ago. Tackling that problem is difficult, because on all those indicators Europe is lagging behind the UK. In effect, we have to wait for Europe to catch up with us. If we want to join in the near future, the economy cannot afford to grow too much. Growth of even 2.5 per cent. while Europe is in recession will mean large gaps opening up and causing real problems in meeting the convergence criteria. Convergence is, of course, about cycles. It is not just about having the same vital signs at the point of entry; it means having the same cycle and experiencing and responding to the same shocks and stimuli thereafter.
Mr. Portillo: Will the hon. Gentleman give way?
Mr. Gardiner: If the right hon. Gentleman will excuse me, I will not, as a number of other hon. Members wish to speak and I was about to conclude my remarks to allow them to do so.
The final test, flexibility, poses the greatest challenge. I doubt that our economy is flexible enough at present to lose the shock absorber of its own exchange rate. Fiscal constraint to stop the public sector borrowing requirement running at more than 3 per cent. of GDP would severely restrict the Chancellor, irrespective of the overall level of debt. I suspect that that loss of flexibility, so necessary to our economy, as the Red Book figures on the public sector net cash requirement show, means that the UK economy must continue outside the eurozone for a little while longer.
It is clear, however, that the course is set. We should go in when we can go in, and when we do, it will be because it is right for Britain and the British economy.
6.10 pm
Mr. Kelvin Hopkins: I shall speak briefly because much of what I wanted to say has already been said by others, probably better than I could say it.
I congratulate hon. Members on making good speeches, whether or not I agree with them; for example, the hon. Member for Chichester (Mr. Tyrie) seems to be in favour of EMU, while I am against it. His speech convinced me that I was right.
I take issue with the hon. Gentleman on his dismissal of the need for fiscal transfers and provision for subsidiary fiscal transfers in a single currency. That is mistaken. More than 20 years ago, the McDougall report stated that the European budget would have to be multiplied many times if the European economy were to work under a single currency.
Mr. Bacon: I was a little perplexed by my hon. Friend's comments, too. Does the hon. Member for Luton, North (Mr. Hopkins) agree with Hans Tietmeyer, the former president of the Bundesbank, that greater fiscal harmonisation is essential in a single currency?
Mr. Hopkins: Indeed. McDougall argued that, in essence, one would need a single government and a single economy, with a tax and benefits system, which would automatically make for big fiscal transfers—plus regional policy and government, locating industry in the regions and so on.
The hon. Member for Chichester mentioned America. Federal spending is vital to keeping the American states together and helping the poorer states to survive. If the Americans wanted to reduce the differentials in living standards between rich and poor states, the fiscal transfers should be even bigger.
Mr. Tyrie: Fiscal transfers play a role in narrowing income differentials between states, although in the United States that role is relatively small. The important point is to identify the flows that may take place as a consequence of a shock hitting one part the US, creating asymmetric performance between regions, and the extent to which the federal budget can compensate for that. That issue has been extensively studied and the conclusion is that federal transfers provide only limited protection—about 25 per cent. The main study has been carried out by Barry Eichengreen.
My general point in response to the hon. Gentleman's remarks is that many currency zones with free trade and high investment flows have no fiscal protection at all—the gold standard being the clearest example.
Mr. Hopkins: We could, no doubt, debate those points at great length. The hon. Gentleman denies the efficacy of the new deal in America in the 1930s and the post-war period—the Bretton Woods era, to which I refer time and again—when we had the fastest growth, the highest employment, the greatest equality and the development of a full welfare state. For most people, living standards rose as they had never done before. Throwing away the gains of that period was a great mistake.
In effect, EMU will marketise the economy and will give away even more of the gains a the immediate postwar period. Former Chancellor Erhard must be turning in his grave. The miracle that he guided through, based on an undervalued Deutschmark—allowed by the west as a shining example of how capitalism could work across the border from where communism did not work—is being reversed.
I was interested in the suggestion made by the hon. Member for Chichester that it would not be difficult for a member state to withdraw from the EU. That would be likely to cause problems. It is at least possible, indeed some people might say it is likely, that EMU will soon run into serious problems. Germany is a case in point. Portugal will try to tough it out by using flexible labour markets or whatever, without any attempt to change its macro-economic variables. While on holiday in Portugal last year, I saw a notice at a building site, put there by trade unionists, that said. "No to flexible
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labour." Well, that is what I thought it said—it was in Portuguese—but I think that my translation was pretty accurate.
Last year, a study said that if interest rates were appropriate to the national economies of the member states, we would have a vast range of interest rates. At that time, Germany would have required an interest rate of 1.5 per cent. Ireland was at the other extreme, at 6.5 per cent. Spain was at 4.5 per cent. and France at 3.5 per cent. Those are big differences in interest rates, and I cannot envisage the appropriate interest rates converging. Indeed, as the hon. Member for Chichester and others have said, Ireland is booming and Germany is going into serious recession and is in serious danger of deflation.
A year from now, we may have to assess not whether we join the eurozone, but whether the eurozone will survive and whether major countries will abandon the euro and reinvent their own currencies, as has been done in recent years. When the Soviet Union collapsed, all its member states took up their own currencies. We have recently seen the dissolution of Czechoslovakia into the Czech Republic and Slovakia, and they have their own currencies.
I am fearful about losing our own currency because we would lose control of macro-economic policy, which is of fundamental importance to ensuring that we can retain full employment and growth in living standards and that we can manage our own economy in the way that we want, according to the democratic dictates of our population. Every other country in the EU ought to have that as well.
My concern is that EMU might destroy the EU, with serious political consequences. In previous generations, economics was always called political economy, and economics and politics are inevitably locked together. When economics go wrong, we get dictatorial regimes, and there is an uncomfortable growth of the extreme right in Europe at the moment. If German unemployment went up to an even more frightening level and deflation occurred, some rather unpleasant political groupings could grow in popularity in Germany, and that could happen elsewhere. One or two hon. Members are concerned about that, because they are perhaps somewhat older than I am and have longer memories and can remember what happened immediately before the war. Serious political possibilities arise from the problem that EMU will cause all the member states.
I want Europe to work, and I dislike being told constantly that I am anti-European because I am anti-EMU and anti-euro. No one is more pro-European than me. I am culturally European; I go there for my holidays; I try to speak European languages. I am not from any other continent. I am deeply involved in European culture and life, and I go there regularly. I want to have good, friendly relations with all my European colleagues and to talk about politics and music, and, indeed, to drink their wine. Europe will not work if we smash its economy by driving forward the euro, the eurozone and EMU. I have possibly spoken for too long, and I hope that I have not taken up other hon. Members' time.
6.18 pm
Jon Cruddas: Thank you very much, Mr. Deputy Speaker, for allowing me to make a few comments at the end of the debate. In echoing the comments made by my hon. Friend the Member for Luton, North (Mr. Hopkins), I want to explain briefly where I am coming from. I am not anti-European. Indeed, I am very much pro-European. I am not anti-euro in principle. I was elected on a manifesto that supported the principle of joining a successful single currency.
I feel that I am quite pragmatic about entering the euro, but I cannot understand how we can join in the immediate future, for two reasons: first, the structural reforms necessary to live permanently with eurozone interest rates, and secondly, the scale of reform needed to the policy framework that operates in the eurozone. To date, the debate about monetary union has tended to be dominated by caricature. On the one hand, pro-euro advocates are seen as selling out our history and traditions and propelling us towards a superstate, governed by an elite. On the other, those who are anti-euro or cautious about early entry are seen as little Englanders and as road blocks standing in the way of the inevitable laws of history and of our political and economic destiny.
For me, the main problem for my party is that over the past few years we have given the impression of appearing to collapse two separate issues into one: first, that we are a pro-European political party; secondly, that we are in favour of joining the euro as soon as possible, irrespective of political and economic context. The consequence of that is that for some in the party, preparedness to join the euro is seen as a hallmark of their pro-European—and new Labour—bona fides. At times, it has appeared that anyone who is cautious about early euro entry, and who wants to see some of the policy frameworks and institutions reformed before we join, is in effect perceived to be an "outer", a non-believer, and almost an opponent of a modernised Labour party: a de facto member of the Bruges group. In that sense, some pro-euro enthusiasts have done a disservice to their cause, as their lack of pragmatism has distorted the debate and served to underplay the profound and complex issues at stake.
For me, the real significance of the Government's recent announcements on the euro is that they decouple those two positions: on the one hand, our general pro-European position, and on the other, a cautious approach to early euro entry. As such, our pro-European bona fides have been re-established while simultaneously mapping out a major agenda for reform, both here and within the eurozone. The approach is to consider the issues around prospective entry through the grid of self-interest rather than a determinist assumption about destiny and inevitability.
In terms of the five tests, I want to focus briefly on the issue of convergence, as in 1997 it was determined as the critical test. It pivots on the fundamental questions: are our cycles and economic structures compatible so that we can live comfortably with euro interest rates on a permanent basis; and what are the risk factors for sustainable and settled convergence? It seems to me that, alongside that, a political test should be related to convergence: is the euro interest rate on a permanent
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basis compatible with our domestic political agenda? Without the monetary policy flexibility that we currently maintain, emphasis is placed on the operation of a more discretionary fiscal policy to enhance economic stabilisation. That means discretionary direct and indirect taxes and temporary tax credits either to cool down or to stimulate the economy. Those issues are covered in the interesting Treasury discussion document, "Fiscal stabilisation and EMU".
There is no doubt that if we were to join the euro now this discretionary fiscal policy would have to kick in to raise taxes significantly. Let us imagine what would happen if interest rates were cut by 1.3 per cent. now. We would see another bout of consumption and a surge in the housing market, reinforcing the way in which the housing market in the south-east constrains our macroeconomic performance. In Dagenham, for example—the area that I represent—the lowest-cost housing market in Greater London, house prices have virtually doubled over the last three years. Of the 39,000 council dwellings, 17,000 have been sold off over the last 20 years. We currently have 6,000 applicants on the waiting lists, last year there were 2,000 homeless applications in the borough, and there is a chronic shortage of social housing. Many find it very difficult to enter the private sector. At the same time, it is estimated that the population of London will grow by some 750,000 over the next 10 to 15 years, and it is assumed that much of that will be handled on the east side of the city. In the borough that I represent, we are talking about some 25,000 extra dwellings over the next 10 to 15 years.
The simple points that I am seeking to make are as follows: first, pressures exist on the housing stock at the moment; secondly, tensions are at work even within the lowest-cost housing market in London; thirdly, pressures on the demand side are going to intensify; and fourthly, we need to acknowledge that there is a long-term supply-side plan to hand. The scale of this project of economic restructuring cannot be overstated, however; nor can the implications of significant interest rate cuts and the abolition of national level monetary policy to regulate these markets before structural reforms kick in.
Let us consider this: we join the euro, we trigger another boom in the housing market, but we have not sorted out the supply side issues, and we have no national control over interest rates to constrain this renewed consumption. The solution would be significant increases in tax rises through this discretionary fiscal policy. Two words jump out—stop-go. However, the situation could be worse. The Treasury discussion paper suggests that there is no guarantee of success: witness the failure of discretionary fiscal policy in the 1950s and 1960s under Bretton Woods.
At the same time, this discretionary policy sits uneasily with the Government agenda of tax rises that are levelled for investments in public services. This strategy is politically acceptable only if the tax rises are transparently linked to investments in public services. That is the implied compact that we have with the British people. Without major structural reform, we would join the euro and would put up taxes to cool down the housing market in the south-east. There is little evidence that that discretionary fiscal policy would work, yet we would have undermined the compact with

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the people regarding a general transfer of any new revenues into public service investments. Any Government who proposed such a package would develop a pretty uncomfortable relationship with the electorate.
The situation could be worse, however. At the moment, we are in the mid-term of the agenda for refinancing public services. Cumulatively, there will be a £61 billion increase in public service investment by 2005–06. That is having an effect at a local level and change is occurring. Yes, it is uneven and at times slow, but it is occurring and that is the agenda that we were elected on. I think people will be patient provided that we preserve the link between the tax rises and the expenditure plans. That could be derailed in one of two ways: first, if we had to push up the discretionary tax rises that I mentioned earlier or, secondly, if we were to enter a system whose rules would bring into question this strategy and imply spending cuts to restrict borrowing.
Under the stability and growth pact, the objective was balanced budgets by 2002–03. Late last year, that was changed to an objective of 0.5 per cent. cuts off borrowing for the next three years. Simply on the Red Book numbers, that would imply cuts of £35 billion. The excessive deficit procedure has been triggered in Portugal and Germany, as has the early warning system in France. There is also trouble in Italy. It is vital that we resist pressures to compromise our domestic strategy.
We have had to revise our borrowing estimates upwards over the last year. The estimates for 2003–04 to 2005–06 are cumulatively some £74 billion, 2.4 per cent. to 1.9 per cent. of GDP in terms of Government net borrowing, or what the Red Book describes as the treaty deficit. Any further downward revision of our growth estimates will push us very close to the 3 per cent. levels introduced at Maastricht.
Even to preserve our spending plans, we could fall foul of the current budgetary rules of monetary union while having to signal more tax increases before the election. Therefore our compact with the electorate could be more difficult to sustain over the next few years, irrespective of euro entry. Inside the euro, our spending plans could well be compromised. Moreover, the discretionary tax rises that would be needed if there were no substantial structural reform could rupture this compact.
Overall, the Government's recent statement has rebalanced debate in the Labour party by separating our pro-European agenda from an early rush into monetary union. It is a rational and pragmatic position to take. The structural reforms needed before we again contemplate entry are significant. Without the reforms, the discretionary fiscal policies needed are not necessarily workable or politically desirable, given our domestic strategy to rebuild public services. Notwithstanding this, our current approach to revenue raising and expenditure will itself require renewed work over the next few years. The present rules of the eurozone regarding borrowing would compound rather than resolve these problems.
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The rational position, therefore, is a cautious one. That is why I fully support the Government agenda. We should concentrate on the manifesto we were elected on: rebuilding our public services and linking any tax rises specifically to that project.
6.28 pm
Mr. Mark Prisk: I draw the House's attention to my entry in the Register of Members' Interests.
This has been a timely debate, although perhaps not if one is a Liberal Democrat. I was not sure whether the hon. Member for Yeovil (Mr. Laws) was acting as spokesman for the Liberal Democrats or acting as a literary agent. His endless references to biographies and so on seemed something of a distraction.
This has been an informed debate and we have heard some excellent contributions from both sides of the House. Indeed, I commend the contributions of the hon. Members for Warwick and Leamington (Mr. Plaskitt) and for Hackney, South and Shoreditch (Mr. Sedgemore). As we came to end of the debate, we heard the contribution of the hon. Member for Luton, North (Mr. Hopkins). Perhaps more than any other speaker in the debate, he showed that one does not have to be in the euro to be a good European.
We heard tremendous speeches from Conservative Members. My right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) gave an eloquent exposition of the reason why the economics and politics of the euro are inextricably interwoven. My right hon. Friend the Member for Wokingham (Mr. Redwood) made a typically robust speech in which he drew out the central question of volatility. I was sorry that I missed the speech made by my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), although I am told that it was both humorous and honest. It is interesting that he and my hon. Friends the Members for Sevenoaks (Mr. Fallon) and for Chichester (Mr. Tyrie) were able to encapsulate all the key issues that we are considering in their short yet strong contributions. I enjoyed not only the rigour of the speech made by the hon. Friend the Member for Chichester, but his comparison involving stoats, and I shall remember his speech in that context.
Conservative Members welcome the debate on the Government's policy on the euro because it relates to perhaps the single most important decision to face this country for a generation. It is important because of economic and constitutional implications and because such a decision, once taken, is irreversible. Although we have largely focused today on the broad monetary and fiscal aspects, the real significance of the euro is that it affects each and every Member of the House and all those whom we represent.
With a single currency, of course, would come a single interest rate, which would set the cost of borrowing for home owners and business and the value of savings. It would affect the cost of the goods and services that we buy and the worth of our assets. Thus no one in the House or beyond it is immune from the decision. That was why everyone was hoping that after months of Cabinet wrangling, the announcement on 9 June would provide clarity and certainty. Indeed, as the director general of the British Chambers of Commerce, David Frost, said a week before the announcement, on 1 June:

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"Any euro verdict that can be reopened and reviewed, within 12 to 18 months, will be potentially destabilising and will lack credibility."
Sadly, the Government were not listening. Instead of a clear and unambiguous decision, we got a political fix. The Chancellor announced that four of the five tests had failed, but then said that the Government would go out and promote the case for the euro anyway. Worse still, he announced that the whole process would be rerun in a year's time, thus creating maximum uncertainty. As the highly respected chief executive of Next plc, Simon Wolfson, pointed out:
"Business wants certainty, so that it can plan ahead with confidence. What it does not want is continued speculation over whether the Government intends to take risks with the British economy in order to pursue its political ambitions."
What of the famous five tests? As several hon. Members said, the first and most important is the need for sustainable convergence—the stability test, as the Chancellor put it. The former Governor of the Bank of England, Sir Edward George, said that there was a risk if countries' economies were not convergent:
"The risk is that a single interest rate, which has to go with the single currency, is not going to be appropriate for all the member countries at the same time."
Indeed, the problem is ideally illustrated by the current combination of a boom in Ireland and the record unemployment in Spain and Germany to which hon. Members in all parts of the House referred.
According to the Treasury's analysis, convergence of the UK economy and eurozone economies is likely to be especially difficult. As the shadow Chancellor told us, the document "Analysis of European and UK business cycles and shocks" says:
"It is generally recognised that fluctuations in UK GDP are…idiosyncratic in certain respects, when compared to behaviour in the euro area countries."
However, most tellingly of all, the study concludes:
"It remains true that the UK's cycle is strongly correlated with that in the US, somewhat more so than with those in Europe."
There is, however, a second aspect to convergence that is equally important: sustainability. Even if, at a particular moment in time, this country's inflation rate, interest rate, growth rate, unemployment rate and so on were similar to those in other European economies, it would be wrong to assume that that was sustainable. Given the Treasury's view that the UK economy is idiosyncratic, it is far more likely that our economies would be like ships passing in the night, coming together momentarily before moving off in different directions. The chief economic adviser to the Treasury, with whom I assume the Chancellor is familiar, Mr. Ed Balls, stated:
"If interest rates and the exchange rate come down sharply, you haven't got a settled and durable convergence."
It is clear why the Government thought that the test had failed.
The second failed test related to economic flexibility. Following the Conservative Government's reforms of the 1980s and 1990s, this country's ability to respond to mobile and price-sensitive capital and labour movements was transformed. In spite of this Government's best efforts to weigh British business down with 15 new regulations every working day and additional annual taxes of £15 billion, this country is still managing to compete.
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What is of equal concern, however, is the lack of flexibility in the eurozone economies. Indeed, in April the Treasury Committee stated that
"insufficient progress has been made in the Eurozone in making labour markets more flexible."
Even the Prime Minister conceded, in a recent review of progress on the Lisbon objectives, that
"there remains a daunting amount to be done."
On the third test of investment, to which several hon. Members referred, the Chancellor stated:
"If sustainable and durable convergence is achieved, then we can be confident that the quantity and quality of investment would increase, ensuring that the investment test was met."
Note the all-important word "if". As we have learned in the debate, no such sustainable convergence has been achieved and nor is it likely to be achieved. One thing has become clear, however. Three years ago we were warned that if we did not join the euro we would lose inward investment. Yet, as Barry Bright, head of Ernst and Young's UK location advisory team, says:
"The issue of euro membership appears to be a bit of a damp squib, as far as inward investors into Europe are concerned."
Indeed, Ernst and Young's latest figures show that Britain's share of EU inward investment projects rose from 26.5 per cent. in 2001 to 28.4 per cent. in 2002. Conservative Members will be aware that that is still significantly down from the 40 per cent. achieved under the last Conservative Government.
Of course the one test that the Government reckon did succeed related to whether entry would have a positive impact on our financial services industry. Apparently, the Government's answer was yes, it would. Yet at the same time the Treasury's paper "The location of financial activity and the euro" conceded that
"the euro has not affected London's ability to compete in international wholesale markets."
That simply affirmed the earlier report by the Bank of England in 1999, when it stated:
"The evidence indicates that, since the launch of the euro, the City has maintained its market share."
That raises an awkward question, to which I hope the Chief Secretary will respond. If it makes little difference to financial services whether we are in or out of the euro, what function does the test serve?
The final test on employment, which the Government declared failed, seems similarly inconclusive. While some people like to claim that joining the eurozone would immediately and significantly boost jobs, a large part of the evidence seems to disagree. Even the Chancellor has admitted that
"macroeconomic stability would be harder to maintain inside EMU than outside, were the UK to join at the present time",
and of course stability is crucial to growth and jobs.
A number of hon. Members have rightly highlighted the findings of the 18 documents that accompanied the Chancellor's statement—and yes, I have read all 1,700 pages or so, which is a good comment from a professional point of view, although I am not sure whether it says much about my social life around 9 June. Nevertheless, I have read all the documents, and I should like to consider an issue that applies to a number of them.

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In their study of housing consumption and the euro, the Government recognise that housing has a vital influence on whether the UK meets the key test on convergence, not least, as hon. Members have pointed out, because of an historic preference by British homeowners for short-term variable mortgages. The Chancellor told us on 9 June that it was his intention to review the mortgage market. He has affirmed that today. He also told us that he would accelerate the rate of house building. Given this Government's record in that regard, that will not be very difficult.
In the accompanying document, the entertainingly entitled "Fiscal Stabilisation and EMU", we were treated to what I can describe only as a psychedelic trip back to the 1960s, with an agenda of active Keynesian-style fiscal regulators that would enable the Government to vary indirect taxes several times a year, and also in different parts of the country, in order to stabilise the economy. According to the Treasury,
"investment in housing is relatively lightly taxed by comparison to other investments".
Of course, that ignores the small fact that, for most of us, our house is our home. However, as my right hon. Friend the Member for Wokingham rightly highlighted, the document goes on to look at other issues about property taxes and how they could be used to dampen the housing market in raising stamp duty land tax or imposing capital gains tax on our homes. Naturally, many people following this debate will be deeply concerned by those statements—[Interruption.] If the Chief Secretary could stop listening to the Chancellor for a moment and listen to the debate, perhaps I could ask him to reassure the House on these questions. Does he believe that housing in the UK is lightly taxed? Does he support the statement that taxing housing has some immediate appeal; and which—stamp duty land tax, capital gains tax or even VAT—does he think would be preferable?
The decision whether to join the euro is vital to this country's future direction. It is an issue that affects us all, and as it is irreversible it is a decision that must be based on clear and unambiguous evidence. On 9 June, the Government had a wonderful opportunity to end the backstairs bickering and Cabinet squabbles and give us a clear direction. Instead, we were told that while four of the five tests had failed, the Government were going to go ahead anyway and promote the case for the euro. Instead of a firm decision helping investment and jobs, we got a threat of endless uncertainty undermining business confidence. Instead of a principled decision in the country's best interests, we got a political fudge in Labour's best interests.
As on so many issues, this Government are failing to provide either the direction or leadership that they promised. What a breach of faith, and what a wasted opportunity.
6.43 pm
The Chief Secretary to the Treasury (Mr. Paul Boateng): The debate that we have had today is one of fundamental importance, and hon. Members on both sides of the House have made a number of valuable and interesting contributions.
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I thank my hon. Friends the Members for Dumbarton (Mr. McFall) and for Warwick and Leamington (Mr. Plaskitt) for their contributions. In particular, I thank them and all members of the Select Committee on the Treasury for their sixth report, to which we responded today and which we recognise as an important contribution to the debate that we are having about the euro. I have no doubt that we will return to it from time to time in the coming months.
The debate has not lacked passion. I was struck by the speech of my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore). He made the case for passion in our discussion of these issues. That passion was reflected on the other side of the debate by my hon. Friend the Member for Luton, North (Mr. Hopkins). We had passion, too—of a slightly different sort, but equally so—from the right hon. Member for Wokingham (Mr. Redwood), who, at a stroke, undid any good that the Leader of the Opposition might have been doing in Prague. When today is remembered, in so far as it is remembered at all, it will be for Wokingham, not for Prague, because Wokingham reflected the true nature of the Conservative party and the Conservative Opposition—they have an almost tangible animus against Europe. Indeed, it was almost tangible in the Chamber.
Mr. Redwood: Will the Minister give way?
Mr. Boateng: In a moment.
I pay tribute to the thought and care that went into all hon. Members' contributions, whatever their perspective. I certainly sensed that in the speech by the hon. Member for Chichester (Mr. Tyrie). My hon. Friend the Member for Hackney, South and Shoreditch was good enough to give me a copy of the original speech that he made in 1990. I found the first iteration of his thoughts more acceptable—no wonder, because it consisted of a diatribe against Treasury Ministers and officials. Given the then role of the hon. Member for Chichester, I fancy that he would have been obliged to sit in the box and listen to that speech.
We want the debate to be reflected more widely in the country because of the great significance not only of the decision that we are considering, but of the radical programme of reforms that my right hon. Friend the Chancellor announced to the House on 9 June. Those included a new inflation target; reforms to housing and planning; reforms to achieve greater flexibility in markets for products, capital and labour; and a consultation on a new fiscal policy regime—reforms that are essential to Britain's economic success inside or outside the euro.
In today's debate, as in my right hon. Friend's assessment of the five tests, we made clear the strength of our commitment to and support for the principle of joining the euro and our determination to base a decision on EMU on Britain's long-term national interest. The assessments show that if durable convergence and flexibility can be achieved, the potential gains from joining to trade, business and living standards are, if anything, greater than previously anticipated. But the potential benefits cannot be captured unless we achieve settled convergence between the economies of the UK and the euro area and the UK economy has sufficient flexibility to respond to economic shocks.

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It is therefore essential that the five tests be met, because they are the guarantee that joining the euro will not prejudice growth, business investment, jobs or our radical agenda to deliver better public services. That point was made clearly and helpfully by my hon. Friend the Member for Dagenham (Jon Cruddas). He stressed the central importance of convergence and structural reform of the policy framework to our approach to these issues.
Mr. Redwood: Given that the pensions tax has destroyed many pension funds and the telecoms tax has destroyed many telephone companies, does the Chief Secretary worry that extra housing taxes will destroy the housing market, and with it much consumption? Is that a price worth paying for the euro?
Mr. Boateng: The right hon. Gentleman reverts to a favourite theme. I do not know why he attacks the windfall levy and denies the importance of the corporate taxation reforms. The reforms have been well received by those who want to remove distortions in taxation. I believed that that was a concern of the right hon. Gentleman's.
The hon. Member for Hertford and Stortford (Mr. Prisk) suggested that we had a hidden agenda on taxing property. That is nonsense. Only the Conservatives, when they had stewardship of the economy, used stamp duty as a regulator in that way.
Mr. Prisk: Will the right hon. Gentleman give way?
Mr. Boateng: I shall finish my argument first.
No one who has listened to the debate could be in any doubt about the dividing lines on the issue. Some would rule out membership of the single currency on principle, even if joining were in the national economic interest. [Interruption.] Opposition Members cheer that. They reveal themselves through their own mouths. I fear that that approach was characterised by the speeches of the right hon. Member for Wokingham and the right hon. Member for Kensington and Chelsea (Mr. Portillo), from whom one would have hoped for better. His blithe dismissal of the five tests as irrelevant and a cover for a political decision did not do the arguments justice.
Let us consider the Liberal Democrats—at least I can now use the term in the plural. For almost the entire debate, the hon. Member for Yeovil (Mr. Laws), with whom we spent many happy hours in the Committee that considered the Finance Bill, was entirely alone. However, Liberal representation has doubled: two members of the party are present. They urge us to join the euro, regardless of the five tests. Such a course would prejudice our stability, risk repeating past failures of exchange rate management and could return us to the days of stop and go, at the expense of our ambitions for high investment, full employment and high and sustained growth.
We are considering not the "now or never" options that Conservative Members represent, but what takes forward our agenda of concrete, practical reforms that promote stability and dynamism and are right for Britain's future. As my hon. Friend the Member for Brent, North (Mr. Gardiner) said, it is not a question of
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being pro or anti-Europe, but of being pro-Britain. The pro-Britain approach is also right for Europe, which can benefit from our reform agenda.
Many hon. Members, especially my hon. Friends the Members for Dagenham and for Leicester, East (Keith Vaz), spoke about convergence. Hon. Members asked what could change in the year before the next Budget, when the Chancellor will revisit the matter. As my right hon. Friend made clear, the Government are not in the business of giving a running commentary on that. However, we have also made it clear that we believe that there is a realistic prospect of making significant progress in the next year. We will outline the implementation of several step changes in policy in the pre-Budget report.
Mr. Prisk: Will the Chief Secretary give way?
Mr. Boateng: In a moment. My hon. Friend the Member for Leicester, East requested such a timetable. The Chancellor outlined it in his statement to the House on 9 June.
Mr. Prisk: The Chief Secretary has referred to the need for reform and to the changes that will take place over the coming year, yet he has made light of the question that I and others have asked about whether he believes that property is lightly taxed. The matter is dealt with in the Treasury document to which I have referred, and the Chief Secretary is a Treasury Minister. Is it true or not?
Mr. Boateng: I refer the hon. Gentleman to section 6.102 and 89, which make it clear that there are no proposals for new taxes in the fiscal stabilisation paper. How many times do we have to say that there are no proposals here for new taxes? I have given the hon. Gentleman the answer to his question; he really needs to grasp it.
Important issues relating to the housing market must be addressed. Our agenda is not to attain market structures identical to those of other countries. Every country's market will have unique features, but history shows that the combination of house price inflation and volatility has been a problem for stability. We all know that, and we are determined to do more to entrench stability and to reduce the risk of inflation, irrespective of the decision on the euro. That is right for Britain, and for those who look to the housing market to meet their needs and aspirations. That is why we have asked Professor David Miles to examine the obstacles to the development of a bigger market in fixed-rate mortgages and to make recommendations on how the obstacles can be removed.
That review is taking place alongside major reforms to speed up the planning process to ensure that we give more certainty to developers and businesses, and that we meet the housing needs of the regions, backed up by £22 billion of investment over three years through the Deputy Prime Minister's sustainable communities plan. The Conservatives never put such investment into housing when they had stewardship of the economy. Outside EMU, our reforms will enhance the stability of the housing market and of the wider economy, and, if the UK were to join EMU, a more stable housing

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market would increase the compatibility of UK and euro business cycles, facilitating sustainable convergence. That must be right, and we are doing the right thing. It is right for Britain, right for our future, and right for the needs and aspirations of our people.
At the same time, we are taking the necessary steps to set the Bank of England a new inflation target based on the harmonised index of consumer prices, which is a measure of inflation that has much to commend it. The HICP provides a more accurate reflection of consumer behaviour than RPIX, and allows for consumers substituting cheaper goods for more expensive ones when relative prices change. This more accurately reflects people's spending behaviour, and is in line with international best practice. That ought to be welcomed by Conservative Members. It gives a more complete picture of spending patterns, as it takes account of spending by all consumers, including the richest earners, foreign visitors and all pensioners. It is the most comparable international measure used by our neighbours in Europe, and it enables people to make sound decisions on pricing and investment in the context of increasingly integrated global markets.
Our objective is to ensure that Britain, as a nation, benefits from those markets, from European reform and from the steps that we have taken to build on the framework of macro-economic stability that has characterised the Chancellor's stewardship of the economy. Conservative Members have made great play of the horrors that they say lie ahead in terms of closer working with Europe. In so doing, they reveal their blindness to the benefits of reform. The Government have consistently supported a prudent interpretation of the stability and growth pact. We have also consistently supported reforms designed to meet the objectives of the Lisbon agenda, for which my hon. Friend the Member for Leicester, East specifically called.
We are determined to safeguard the UK's stability and prosperity, and to ensure that they go hand in hand with a readiness to play our part in Europe's reforms and to build a modern, pro-European political consensus at home. That is why we, as a party, have the confidence to say that our future lies in Europe and that we should lead in Europe, and why the conclusions of the assessment and the package of reforms presented to the House on 9 June represent the right way forward as we work to build greater flexibility and higher productivity, growth and employment in Britain, and a more prosperous and successful Britain in Europe.
It being Seven o'clock, the motion for the Adjournment of the House lapsed, without Question put.

DRAFT MENTAL INCAPACITY BILL (JOINT COMMITTEE)
Ordered,
That the Lords Message of 12th June relating to a Joint Committee of both Houses to consider and report on any draft Mental Incapacity Bill presented to both Houses by a Minister of the Crown be now considered.
That this House concurs with the Lords that it is expedient that a Joint Committee of Lords and Commons be appointed to consider and report on any draft Mental Incapacity Bill presented to both Houses by a Minister of the Crown, and proposes that the Committee should report on the draft Bill by the end of November 2003.
That a Select Committee of eight honourable Members be appointed to join with the Committee appointed by the Lords to consider any draft Mental Incapacity Bill.
That the Committee shall have power—

(i)to send for persons, papers and records;

(ii)to sit notwithstanding any adjournment of the House;

(iii)to report from time to time;

(iv)to appoint specialist advisers;

(v)to adjourn from place to place within the United Kingdom; and

That Mr John Bercow, Mrs Angela Browning, Mr Paul Burstow, Jim Dowd, Stephen Hesford, Mrs Joan Humble, Huw Irranca-Davies and Laura Moffatt be members of the Committee.—[Charlotte Atkins.]

DRAFT CIVIL CONTINGENCIES BILL (JOINT COMMITTEE)
Ordered,
That the Lords Message of 12th June relating to a Joint Committee of both Houses to consider and report on any draft Civil Contingencies Bill presented to both Houses by a Minister of the Crown be now considered.
That this House concurs with the Lords that it is expedient that a Joint Committee of Lords and Commons be appointed to consider and report on any draft Civil Contingencies Bill presented to both Houses by a Minister of the Crown, and proposes that the Committee should report on the draft Bill by the end of November 2003.
That a Select Committee of eleven honourable Members be appointed to join with the Committee appointed by the Lords to consider any draft Civil Contingencies Bill.
That the Committee shall have power—

to send for persons, papers and records;

(ii)to sit notwithstanding any adjournment of the House;

(iii)to report from time to time;

(iv)to appoint specialist advisers;

(v)to adjourn from place to place within the United Kingdom; and

That Mr Richard Allan, Mr Adrian Bailey, David Cairns, Mr James Clappison, Mr Kevan Jones, Mr Elfyn Llwyd, Patrick Mercer, Chris Mole, Dr Lewis Moonie, Kali Mountford and David Wright be members of the Committee.—[Charlotte Atkins.]

DRAFT GAMBLING BILL (JOINT COMMITTEE)
Ordered,
That the Lords Message of 2nd July relating to a Joint Committee of both Houses to consider and report on any clauses of a draft Gambling Bill presented to both Houses by a Minister of the Crown be now considered.
That this House concurs with the Lords in their Resolution relating to the said Joint Committee.
That a Select Committee of eight honourable Members be appointed to join with the Committee appointed by the Lords to consider any clauses of a draft Gambling Bill.
That the Committee shall have power—

to send for persons, papers and records;

(ii)to sit notwithstanding any adjournment of the House;

(iii)to report from time to time;

(iv)to appoint specialist advisers;

(v) to adjourn from place to place within the United Kingdom; and

That Janet Anderson, Mr Tony Banks, Jeff Ennis, Mr John Greenway, Mr Alan Meale, Mr Richard Page, Dr John Pugh and Mr Anthony D Wright be members of the Committee.—[Charlotte Atkins.]

PETITIONS

  Trade Justice Movement
  7 pm
  Ian Stewart: In recent weeks the Trade Justice Movement has been running a campaign to raise awareness of the issue of trade justice throughout the world. During the campaign Members of Parliament have been asked to participate in what has been an excellent exercise. During the week in which I was involved, I visited Wentworth high school in the city of Salford, in my constituency.
  A five-hour session during which the pupils took no prisoners and asked pertinent and pointed questions developed into a dialogue about how young people could take part in the political process. As part of their campaign for trade justice, the pupils at Wentworth high school have asked me to present a petition signed by 586 people.
  The petition of the pupils, teachers and helpers of Wentworth High School declares our concerns about unjust rules that are weighted towards the benefit of rich countries. We would like to see changes made to the trade rules such that instead of "free trade" which keeps countries poor, that we have "trade justice" meaning that rules will benefit the poor people of the planet.
  We request the House of Commons to urge the Government to raise our concerns at the World Trade Organisation Ministerial meeting which will take place this September in Mexico and we would request that our concerns are raised with the Prime Minister and the Secretary of State for Trade and Industry before this meeting.
  As supporters of the Trade Justice Movement which is campaigning for trade justice and not "free trade" we believe that the world leaders should use this vote to:—
  Stop forcing poor countries to open their markets and champion their right to manage their own economies.
  Regulate big business and their investments to ensure people and the environment come before profits.
  Stop rich countries promoting the interest of big business through trade interventions that harm the poor and the environment.
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  Ensure trade policy is made in a fair, transparent and democratic way.
  And the Petitioners remain, etc.
  To lie upon the Table.

  Further Education (Hemel Hempstead)
  7.3 pm
  Mr. Tony McWalter: I wish to present a petition from 2,132 constituents and people in areas neighbouring Hemel Hempstead, where a further education college was merged with Watford college in 1992 as a cost-saving exercise. Since then there have been successive depredations of the Hemel Hempstead site and the building up of the Watford site, as a result of which many of my constituents now have no access to further education.
  The Petition of West Herts College Students Union and concerned residents and parents of Hemel Hempstead
  Declares that West Herts College plans to close the majority of courses for 16–18 year olds at its Hemel Hempstead campus and move them to Watford; that the petitioners oppose this move and contend that there should be a college located in Hemel Hempstead that is large enough to suit the needs of the borough of Dacorum.
  The Petitioners therefore request that the House of Commons ask the Secretary of State for Education to urge the West Herts College Corporation to maintain its current provision for 16–18 year olds at its Hemel Hempstead site,
  And the petitioners remain, etc.
  To lie upon the Table.

  Humberstone Village Post Office
  7.5 pm
  Keith Vaz: I wish to present a petition on behalf of 180 of my constituents who are outraged at the Post Office's decision to close Humberstone village post office. They are particularly outraged at the behaviour of the local official, who refused to meet my constituents and me before the post office was closed. I hope that Mr. Paul Masey will look at this petition in Hansard and recognise that there has not been proper consultation. I present it on my and my constituents' behalf, and particularly on behalf of Cynthia Bunton and Sharon Clarke, who collected the signatures.
  The petition states:
  The Petition of the community of Humberstone village declares
  That the post office in Main street is vital to the local community.
  The Petitioners therefore request that the Secretary of State for Trade and Industry call on the Post Office to keep open the post office in Main street, Humberstone village.
  We believe that the closure would be detrimental to the community of Humberstone village.
  And the Petitioners remain, etc.
  To lie upon the Table.

  Tetra Mobile Communication System
  Motion made, and Question proposed,That this House do now adjourn—[Mr. Jim Murphy.]
  7.6 pm
  Jim Dowd: I wondered for a moment whether the Members presenting the petitions were attempting to talk out the Adjournment debate. However, they made valid and valuable contributions to the work of this House.
  I am deeply grateful to Mr. Speaker for allowing me this opportunity to express the concerns that a substantial number of my constituents have about this issue. I should also mention my constituency neighbours—my hon. Friends the Members for Lewisham, Deptford (Joan Ruddock) and for Lewisham, East (Ms Prentice)—who are suffering similar problems and doing the best that they can on their constituents' behalf. However, I shall confine my remarks to the issues confronting my constituents as they relate to the Tetra mobile broadcasting system.
  This is my first formal opportunity to welcome the Minister to her new post; I am sure that this is just the first of many journeys around Whitehall before she ends up at the Cabinet table. She will readily appreciate that this issue has a deeper resonance across the country because of the nature of the system in question. In fact, a Minister from the Office of the Deputy Prime Minister or from the Department of Health could easily have responded to this debate, because this issue falls into the category of what we in this House have recently come to know as a cross-cutting issue. I am certain that, because of the nature of it, the Minister will be unable to answer all of the several questions that I shall ask, but I hope that she will answer what she can.
  Mobile communications was just about the fastest growing sector of British industry in the past decade and a half. Oftel estimates that, from a figure of virtually zero 15 years ago, there are now 50 million mobile phone subscribers in this country. It is obvious that this is an irreversible trend in modern society. There are those who regard mobile communications as the greatest curse of our modern world; equally, many others find it difficult to imagine how we ever got on before we had them on their current scale of availability.
  I do not want to talk about the general issue of public mobile phone networks, however, because the Tetra system—it was originally known as the terrestrial trunk radio system—is actually a private network, and it is the specific technology that it employs that is a matter of concern to my constituents and many others. It falls under the public safety radio communications project—now known, more easily, as Airwave. It is a £2.5 billion investment in providing a nationwide digital voice and data communication system for the police. It is a private, closed system, so it is not immediately comparable with the mobile phone networks that most of us use.
  Let me say from the outset that I am strong supporter of what the Government have done, both in increasing spending and investment in the police so that their numbers have reached record levels, and the concomitant of giving the police the best equipment to help them in their valiant and valuable fight against
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  crime in our community. No one in my constituency—or, I suspect, anywhere else in the country—would do anything needlessly to hinder their efforts on behalf of the community.
  Experience with the contractor for the system—O2 Airwave—in my corner of south-east London has, however, been deeply troubling. In the Metropolitan police area alone, it requires 91 sites for transmitters: I am informed that 60 have been completed and that 28 are, as quaintly described, "in build", leaving only another three sites to find. I do not know whether the experience in my constituency is unusual or atypical. The figures that I have been given show that rapid progress appears to have been made elsewhere. In our part of the world, however, it has been a different story.
  A site for the system was identified late last year on a building owned by Lewisham borough council. There is some dispute between the company and Lewisham borough council's planning department as to who said what to whom, and how much public consultation was engaged in. Suffice it to say, the site directly overlooked one primary school and another school was nearby. I shall not go into the dispute between Lewisham council and O2 Airwave, because I was not party to those discussions. However, it is self-evident that O2 Airwave did not follow the code of best practice on mobile phone network development, to which it is a signatory, to any degree at all. The company is not a member of the Mobile Operators Association—even though it is part of the greater O2 empire, it is not signed up to the 10 commitments of the MOA—but it is a signatory to the code of best practice.
  If the code of best practice were followed—the traffic-light model is contained in the MOA's 10 commitments—the site would clearly have been revealed as a red zone and the company would have been required to engage in far greater community involvement and far more consultation than it actually achieved. The local community was alarmed at discovering the company's intentions. Following a fairly stormy public meeting and strong local opposition, the company decided to move to a nearby site. In fairness, that site is an existing transmission site for the Metropolitan police—it has been since the second world war—and falls under the permitted development provisions that the company believes apply to it. I am not saying whether that is right or wrong—it is for my learned colleagues to pick the bones out of that—but the second site was chosen not far from the first without consultation, without acknowledgement of the traffic-light model, and without any attempt to establish contact with the local community.
  Lest I be accused of special pleading, let me say immediately that I live near the chosen site. However, I am not speaking on my own behalf, but on behalf of my constituents. On this occasion, they also happen to be my neighbours. At the first public meeting, O2 Airwave at least had the decency to apologise for its oversight, but made no attempt to clarify how it would deal with it. What is the point of the detailed code of conduct, to which it has freely put its name, if it takes not the slightest notice of it and simply maintains that it has a job to do and will get on with it, regardless of the views of the public in the area?

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  I call on O2 Airwave to halt all the work that it is doing on its new site, until proper consultation and explanation has taken place with the local community, and in particular with the staff, pupils and parents of Horniman primary school, which is opposite the site. By its own ineptitude or an oversight—I do not wish to impute malice—O2Airwave has made a delicate and difficult situation much worse.
  Some 200 people—from a small community, so they were representative—attended the public meeting when O2 Airwave announced its decision on the new site. The main concern was the health implications of Tetra. The arrogance and incompetence of O2 Airwave was irritating enough, but it was clear that my constituents and neighbours were most concerned about the unique technology used by Tetra, and their perception of it. They readily understood that it met the guidelines published by the National Radiological Protection Board and the fabulously named ICNIRP—or the International Commission for Non-Ionising Radiation Protection—but they felt that those guidelines did not go far enough.
  A few years ago, the then Minister with responsibility for public health—now Secretary of State for Culture, Media and Sport—commissioned a report on the concerns about radiation from mobile phones from an independent expert group. It was chaired by Professor Stewart, and the report is known as the Stewart report. However, that report principally addressed the issues of the thermal effects of mobile phone technology. I readily accept that the most dangerous part of the system is the handsets, and that they are a far greater risk than the transmitters. However, my constituents—and those who share their concerns about Tetra—worry about the biological effects. I hope that my hon. Friend the Minister can confirm that, with the time division multiplex access system that Tetra uses, only the handsets pulse at what Stewart perceived to be a dangerous frequency, not the base stations.
  According to the Library, 176 Tetra systems are in use across the world in 46 countries. It is not new technology. Those who fear that they are being used as guinea pigs to determine the effects of the system are misled. However, public fears do exist. I am grateful to my hon. Friend the Minister for supplying a written answer in which she confirmed that 14 forces in the UK already have the system, and that the Metropolitan police will acquire the full system in October. The answer also directed me to the Home Office Tetra website, which I found helpful.
  I have some questions that I hope that the Minister will address in her reply. I note that the Home Office commissioned the NRPB to report on the implications of using the Tetra system. The report was published in July 2001 and made eight recommendations for further testing and examination of the system. By my calculation, the first experiment has been completed, but I do not understand the chronology used in the section of the report headed "Current Status". The website states:
  "The second experiment concerns the behaviour of calcium ions in heart cells…measurements will be completed in March."
  I am not sure which March that is. The site goes on:
  "The third and fourth in vitro experiments, on brain slice electrophysiology and epileptiform activity respectively, are expected to be completed in summer."
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  On the fifth experiment, the website states that the Defence Science and Technology Laboratory is also setting up a human volunteer study and that the work is expected to start in April. Will my hon. Friend the Minister say which March, summer and April are meant? When will the evaluation be made?
  On the base station audit called for by the NRPB, the site said that tests had already been carried out in Lancashire and that 10 further measurements were planned before the end of March. I am not sure whether I was looking at an old site that had not been updated. Have the tests been carried out, or is the site talking about next year and not this year?
  I hope that my hon. Friend the Minister will be able to give me whatever undertakings she can in respect of her Department's knowledge of future reports and developments, as more science becomes known. What troubles my constituents is the fact that this is a new technology that has burgeoned in a way that no one imagined when we set out on this path a decade and a half ago.
  My constituents want to support the police and the systems that they need and rely on for the valuable work that they do on behalf of the community. However, I am sure my hon. Friend the Minister will realise that there is a specific and considerable public concern about the system. I hope that she can provide the assurance that all our constituents want.
  7.22 pm
  The Minister for Crime Reduction, Policing, and Community Safety (Ms Hazel Blears): First, I congratulate my hon. Friend on raising an important issue that is of concern to his constituents and to those of all hon. Members. Certainly, we have all received correspondence and representations from members of the public who share some of the concerns.
  I should also like to thank my hon. Friend the Member for Lewisham, West (Jim Dowd) for his kind welcome to me in my new post. I am perhaps slightly better able to answer his questions than another Minister would be, as until six weeks ago I was Minister for public health, and responsible for some of these matters. I shall do my best to respond in detail.
  My hon. Friend the Member for Lewisham, West has outlined the basis of Tetra. I am delighted that he knows that it stands for terrestrial trunked radio. He described how the technology has been developed, and was right to say that it is not brand-new. It is in operation in various countries: Tetra systems are deployed for emergency services in Austria, Belgium, Denmark, Finland, Germany, Iceland, Italy, the Netherlands and Norway. I am sure that the concerns that my hon. Friend set out are shared in those countries.
  Tetra has some specific advantages over the old-fashioned police radio systems. It is a modern digital technology, which means that it offers much more accurate voice recognition. Gone are the days of hiss and crackle, when police had to turn their radios up to maximum volume to work out what messages were coming through. Tetra also allows for quite sophisticated encryption techniques, which stop people

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  hacking into the police radio system and ensures that information is secure. It can also provide very high capacity when needed. Given the necessity to get all emergency services involved in the major incidents that take place these days, that high capacity is increasingly vital. I am sure that the public are very keen to support the police in tackling crime, making communities safer and responding very quickly to incidents as they occur.
  However, people are also right to be concerned about their health and that of their families. This is complex and detailed new technology, so it is right for us to address as many of people's concerns as we can.
  I am delighted that Airwave is now available to 15 forces, which is one more than when I answered my hon. Friend's question last time. The system will be rolled out across the country by mid-2005.
  Police officers are pretty keen on the system. They feel that it has given them a greater ability to do their job. I am told that they no longer get into black holes where they cannot communicate, so their personal safety is increased as they can call for help on the ground. Also, for the first time, police helicopters can communicate directly with the police attending an incident, so the police are pleased about that.
  On the health concerns, my hon. Friend is right to say that as the technology has developed there have been concerns not only about Airwave but about mobile phones in general. That is why the Stewart report was commissioned. It was a detailed and comprehensive examination of all the existing health evidence and it was published in 2000. That report primarily focused on general mobile phone technology; it was not aimed in particular at Airwave or Tetra. It identified the latter as just one form of technology that it was considering.
  In particular, the report looked into work on pulsing signals, which is one of the key arms of concern. It noted that some researchers had found that biological effects could arise from pulsing signals even at weak powers. The experiments were carried out in the 1970s and it has since been virtually impossible to replicate them. The report was based on the precautionary principle of trying to deal with every eventuality. Whether or not they had any scientific basis, it decided to take account of some of the tests that had been carried out. The report concluded that the existing research was inconclusive and that no obvious health effects had been suggested. However, it recommended that as a precautionary measure, and those are the important words, modulation, the pulsing sensation at around 16 Hz—signal patterns that repeat them selves at a pulsing rate of 16 times a second—should be avoided if possible for future systems.
  My hon. Friend is right to say that it is the handsets that pulse and not the masts. The masts do not pulse, and independent evidence has confirmed that to be the case. Many communities have perhaps become seized of inaccurate information, which has led them to be concerned on a false scientific basis. I can offer that reassurance to people everywhere that the pulsing identified in the Stewart report comes from the handsets, not the masts. We need to be clear about that.
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  On the Home Office response to the Stewart report—these were important issues for us—we took advice from the National Radiological Protection Board on the health implications of the Tetra technology. As my hon. Friend said, the advisory group on non-ionising radiation, AGNIR, published a report in July 2001, which said:
  "Although areas of uncertainty remain about the biological effects of low level…radiation in general, including modulated signals, current evidence suggests that it is unlikely that the special features of the signals from TETRA mobile terminals and repeaters pose a hazard to health".
  The report was reassuring, but it is right that we recognise that further research needs to be undertaken because this is a developing and emerging technology.
  That report suggested further research and we have set up a comprehensive research programme to take those recommendations forward. We have commissioned studies to be undertaken by the Defence Science and Technology Laboratory. My hon. Friend referred to those reports. I can confirm that those experiments and studies show that Tetra has no effect on the calcium exchanges in brain and heart cells. That was the main concern of the Stewart report. I should not be delighted that the website is out of date, but I am delighted to be able to say that all the dates to which my hon. Friend referred were this year, and the studies have come up with that evidence.
  The Stewart report also recommended that all mobile phone masts should be included in a database so that we know where they are and can see how they are spread across the country. The Sitefinder database has now been established. The first upload of Airwave base stations on to the database takes place next week, so we are keeping good track of them.
  We have also set up a national health monitoring study of police Airwave users. Obviously, the Police Federation was concerned on behalf of its members. Although it welcomes the practical improvements, it also wants to ensure that there are no health risks. We have awarded a £5 million contract to Imperial college. A study of 10,000 police Airwave users will be undertaken to monitor their health in the next 15 years. That is a good long-term research study to find out what the implications are. Therefore, we are taking proper precautions to ensure that the impact is not untoward.
  I shall comment on the Lewisham situation, as I am aware of the concern that has been caused to local people because of the lack of consultation. I understand that my officials are meeting the chief executive of O2 Airwave next Monday. I will ensure that the matter is raised and will emphasise the company's responsibility to consult local people.
  The Office of the Deputy Prime Minister code of best practice is not just a piece of paper; it requires everyone involved to take their responsibility seriously. Where there is good community consultation, people understand the issues and reach a proper view, so it is important that such matters are open and transparent, and discussed in a mature and adult way. Local people need access to the best scientific information for reassurance for them and their families.

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  The code of practice states that companies should be especially careful about siting masts in the vicinity of schools and hospitals. The situation in Lewisham fell firmly into that category and we shall ensure that the company is fully reminded of its responsibilities.
  My hon. Friend indicated the importance of all Departments working together to ensure that we take effective action. I am delighted to confirm that we shall continue to take an active interest in the health implications of the Tetra system, but I emphasise that
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  the introduction of that new technology will help us to tackle crime more effectively and to build confidence that our communities are safer places to live, work and bring up families. We shall, however, always be conscious of the health implications. I am delighted that my hon. Friend has raised the matter. We shall continue to focus our efforts on it.
  Question put and agreed to.
  Adjourned accordingly at twenty-nine minutes to Eight o'clock.