The Challenge of 1992

HL Deb 03 May 1989 vol 507 cc151-222

3.7 p.m.

Lord Cledwyn of Penrhos rose to call attention to the challenge of 1992 and the implications of the single market for social, industrial and trade policies; and to move for Papers.

The noble Lord said: My Lords, there are certain dates in history that we never forget because of the events we associate with them and their influence on world affairs. But we do not often have precise dates in the future which we know are of equal significance. The year 1992, a little over three years ahead, is one of these. No one in this House or elsewhere doubts its importance to the people of this country.

Between now and the end of 1992 some 300 measures will be prepared and passed to enable the 12 countries of the Community to compete in the internal market. What are these measures intended to achieve? First, they will remove physical barriers; that is, border and immigration controls. Secondly, they will remove technical barriers, which means that products will have to meet the same standards in all countries. Thirdly, they will remove financial barriers.

We must realise that these are huge and complex undertakings. They are not new because they were laid down in Article 3 of the Treaty of Rome, but they are a challenge because they involve a major reorganisation of our affairs. Perhaps it is not an exaggeration to call it an administrative upheaval affecting 12 countries and over 300 million people. Furthermore, Britain is committed to this challenge and we must ask what benefits we are to expect from the new order, what steps we need to take if we are to survive under it and whether the Government are leading us in the best way and in the right direction. It is a challenge to all of us, but especially to our industrial base, for the benefits to be derived from a single market in Europe are, I believe, unmistakable. We are a trading nation. The world is increasingly dominated by blocs of great trading powers. The United States and Japan are the more obvious. Russia is making efforts to grow into that economic league, and China, with its immense resources, will undoubtedly move in the same direction as time passes.

The Community is at least potentially equal to those trading blocs and may be greater. The possible benefits to all EC members of free trade across open frontiers of such a developed continent are manifest to all of us. The new single market should provide freer access to areas of economic activity, especially financial services, professional services, air travel and insurance. These are clear areas where Britain has a competitive edge over most of the other Community members.

In the somewhat longer term there is also the exciting possibility that the single market could help to break down the barriers between Eastern and Western Europe. The benefits for a trading nation with the tradition and skills which our country possesses are therefore obvious but we all know that they will not come without very hard work. European competition is strong as we know only too well from our serious deficits on manufacturing trade with the Community. I shall return to that point in a moment. There are also serious weaknesses in our present stance and they must be laid at the Government's door.

I should like to give two examples of that. First, it seems that the Government are not trying to ensure that the standards set on manufactured goods are British standards. Secondly, the Government, possibly for ideological reasons, appear to be blind to the fact that the so-called "additional measures" for social cohesion are an integral part of the 1992 package and not an optional extra.

As regards the first point, I understand that other governments in the Community have been consulting their manufacturers sector by sector so that, for each measure, they can argue for an EC standard that closely matches their home market's current situation. Why are we not intervening in an equally effective way? But my second point is politically crucial. The achievement of the single market depends on political will. The existing consensus is a bargain between more developed states and less developed members. That being the case, completing the single market goes hand in hand with really significant measures to achieve greater economic and social cohesion across all the regions of the Community

The detailed studies of the regional impact of 1992 do not give great confidence. They show that our industry will suffer a drop in output in every industrial sector and that every region will see a fall in employment. Those figures will be familiar to the noble Lord, Lord Young of Graffham, the Secretary of State, and we shall appreciate his comments on them when he speaks.

I believe that it is better to face up to those figures now than to put them in a pigeon-hole and hope that everything will turn out all right in the end. Is there not a very great danger that if the British Government block the social measures, other states will block economic measures? The Government's policy on that therefore is of central importance.

We have all followed the DTI's advertising campaign with interest and we note that it reminds our small and medium businesses that: Europe is already open for business", and has been since 1973. But what is deeply worrying is the size of our manufactured trade deficit with our Community partners. That is a point to which I referred a moment ago. It is now over £14 billion. Our deficit with West Germany accounts for over half of that; £8 billion compared with £550 million only eight years ago. What was a healthy surplus with the Netherlands in 1980 in now a deficit of £2.7 billion. But today we have a regular surplus only with Ireland and Greece. I must repeat once again that 1992 is not far off and we must face up to the realities now.

There are several other problems associated with the single market but which time will not allow me to develop. We have had recent debates in this House on the industrial base, science and technology, the space programme, fraud in the Community and the implications of 1992 for animal health and the veterinary profession. I greatly hope that the problem of fraud will be tackled effectively well before 1992. I understand that the Prime Minister proposes to raise the issue at the Madrid summit. If the Community continues to develop into a happy hunting ground for criminals that could gravely damage the progress towards the single market.

Another concern must be the efficiency and capacity of the Commission in Brussels. I am glad that the noble Lord, Lord Jenkins of Hillhead, will speak in the debate. The noble Lord Cockfield, has kindly written to me regretting that he is abroad and therefore unable to take part in the debate. I am sorry about that although I am sure that Ministers opposite will be relieved.

Sir John Hoskyns made an interesting speech which we all read very carefully. He has been denounced in some quarters for what he said. But what he said should not be dismissed out of hand. The fact is that Brussels has its serious defects. There have been allegations of over-manning, over-paying and even corruption in some areas of financial subsidy. There is also the inadequacy in accountability to Ministers in Brussels. Part of the challenge of 1992 is to make the Brussels government better, and more obviously there to serve the people of Europe. I hope that the representatives of all member governments, especially our own, will commit themselves to achieve that.

Again there are the implications of the single market for the developing nations. It has been said that the logic of its completion could undermine "the most favoured nation approach" that underpins the Lomè Convention. The Cecchini Report also raises a number of pertinent questions which the noble Lord may wish to discuss in reply. For example, the assumption in the cost benefit analysis that labour saved—that is, jobs lost—is automatically to be counted as a benefit. That is a proposition which we cannot possibly accept.

Again at the heart of the 1992 challenge there is something less precise than these practical problems which is nevertheless more profound and obviously presents difficulties to many people in this House and outside. It is the question of sovereignty. It is clearly troubling the Government, and leading Ministers to transmit some confused signals as 1992 approaches. There have also been nuances as between the speeches of the Prime Minister and the Secretary of State for Trade and Industry.

Is not this the reality? Is not this the true position? Namely, that the unified single market of Europe, towards which the Government led by the Prime Minister are marching, implies major concessions on the sovereignty of decision making. I have the impression that the Prime Minister wants the former without the latter, but I may be wrong. She appears to want the delights of the wedding ceremony without the subsequent obligations of marriage. Or, to change the metaphor, she wants to enjoy eating the omelette without being willing to take the responsibility for breaking the eggs.

I am bound to say with some regret that, looking over the whole field of government activities, there seems to be little consistency in the Cabinet's approach to British sovereignty. In many areas where real British interests are concerned, the Government have shown at times that they do not seem to care whether foreign interests control British destiny. In the media, for instance, our newspapers, television and especially the newer satellite channels, which will be most influential in shaping the culture and education of our people, control is carelessly left open to foreigners.

In the industrial takeover field the Swiss can take over Rowntrees even though they are not members of the Community, and we are excluded from taking over their companies in return. Apparently our water will be handed over to the French if they want it. In other areas the Government obviously find that the developing European Community and its encroachments on British national decision-making are worrying. As the House is well aware, the Government have problems with monetary union and with the EMS. There is no clear indication of a close understanding between 10 Downing Street and the house next door. It must be a matter of concern that the Government lack a united policy upon so crucial a subject.

There is another practical question which I should like to put to the noble Lord; namely, when will the Government decide on the Customs and immigration formalities required to be observed by Community citizens entering the United Kingdom in 1992? The lack of any clear indication of the likely outcome is a cause of concern for airports and seaports throughout the United Kingdom because if there is to be a change in the handling of Community citizens as opposed to non-Community citizens, then substantial terminal facilities will be required.

Perhaps I may return to what is a genuine dilemma especially for the Government who must take the decision and the responsibility. Having committed ourselves to 1992 because we want the benefits, the Government may now be reluctant to shoulder some of the central implications. We are riding on the European tide towards greater freedom of trade, but we are unsure whether we want to go further towards a true economic union including a monetary union with a central currency and a single central bank or, perhaps even more frightening, towards a federalist political union. All those matters are under discussion at present and they are profoundly important for all of us.

I am bound to say that I have some sympathy for Ministers faced with that radical prospect. They fear the slippery slope. They are afraid that in taking one more step forward they are committed to much more beyond that, and I understand that. However, in the end the Prime Minister and her colleagues will have to take a clearer and more coherent and unified view of those matters. It is not good enough to decide to go forward and then to complain loudly about the path chosen.

I read in the newpapers this morning the Prime Minister's rather uncompromising reactions towards a range of Community activities, and I did not find them encouraging. I should have liked a little more thought and a greater attempt towards consensus on her part but no doubt she will enlarge on those in due course and explain them to us. However, I am worried that as the logic of events takes Europe forward, Britain will again be seen to be running behind the European train. We need a clear unified view from the Government of where the train is going and we want Britain to be in the driving seat of that train. More specifically, if there is to be a central bank, we want that to be in London and not in Frankfurt.

The challenge of 1992 is ultimately not a question of ideology and philosophy nor of those petty details of how Brussels works and fails. The challenge facing the Government and this House and the British people is to make Europe a better place for people to live in and not just bureaucratically neater. Therefore, Europe must have a more vibrant economy. It must create higher employment and greater prosperity especially in the depressed areas. I am deeply concerned about the prospects of Wales, the north of England and Scotland.

Its ambition should be the same as our ambition for Britain: a richer, fairer and more decent society in Western Europe. That is the ultimate challenge of 1992. It is a challenge to industry, to the Government and to the British people. They will respond, as they have always done, if they are led with clarity and integrity by a united government. That will be the responsibility of the Government over the next three years. I beg to move for Papers.

3.25 p.m.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My Lords, I am indeed grateful to the noble Lord, Lord Cledwyn of Penrhos, for introducing this debate this afternoon. The noble Lord started by saying that some dates are memorable. I am sure that it must have been the excitement of the moment but in this week of all weeks I am certain that the noble Lord will remember 1979 which is indeed a very memorable date. I look forward to hearing my noble friend Lord Trenchard make his maiden speech. I remember working very closely with his father in the Department of Industry in the first few years of our first term.

This is indeed an opportune time for this debate. Last year I launched my department's Europe Open for Business campaign. We all now know that at that time few people in business were aware of the challenge of the single market. A year on, much has changed. We achieved our target of 90 per cent. awareness well ahead of schedule. We moved on to encourage firms to prepare for the changes to come. We provide the most comprehensive information service anywhere within the Community. As a result about 50 per cent. of British business is now taking action.

Perhaps I may say to the noble Lord, Lord Cledwyn, that the Government have been actively behind the British Standards Institute. We have helped and we have issued an action plan for standards and indeed I have spent the best part of the past two years asking companies to put resources and work behind the BSI as that is the way in which standards are set.

1992 will change much more than standards; it will change business. However, our companies will have a unique advantage. The changes coming into Europe are the changes we have already introduced into the UK during this decade. Increased competition, deregulation and greater openness, the hallmarks of the single market, have already been tried and tested over here. Our companies know how to prosper in an open market economy. They know that greater efficiency enhances competitiveness. They no longer expect to be propped up by government.

Let us not talk about 1992. It is not three years off—it is now. Some 275 single market measures have been agreed, about half from the 1985 White Paper. The process has become irreversible. Let us consider what we have agreed in the past year: the abolition of exchange control, the recognition of professional qualifications and the opening up of public procurement. Lower air fares are already with us.

Much remains to be done. It is not going to be easy or even straightforward. That is not because of British "intransigence", of which we hear so much. On the few occasions where we do dissent from the majority, we are among those who favour a more liberal approach, while some of our partners, who may be making communitaire noises, take a more restrictive stance. Perhaps I may give the example of tax harmonisation. We do not believe that we have to harmonise VAT to complete the single market. We hated the sheer bureaucracy of the proposed clearing house scheme.

But we do not just stand on the sidelines moaning. We question, we consider alternatives, we put forward new ideas. Our practical, realistic approach to this problem has been accepted as a constructive contribution to the debate—which other member states have welcomed. I am pleased that Mme. Scrivener, the Commissioner responsible, has now recognised that other options should be considered.

The same applies to frontier checks. We would all like to live in a world in which drugs were not sold or terrorists did not exist. Until we do we must be able to carry out checks, reduced to the minimum to safeguard these essential interests, and to look for ways to them abolish wherever possible.

I should say to the noble Lord that we have already come a long way. Today we have a single immigration channel for EC nationals and this summer we shall have a "fast-lane" scheme for Community freight. Our proposals on VAT remove all fiscal checks at frontiers.

These are difficult issues with real problems of public policy at stake. They will not be solved by sloganising, but by patient negotiation and a pragmatic approach. That is our way—the United Kingdom way—and the Commission and other member states are responding. For example, last year the Council of Ministers agreed a resolution on deregulation. The Council recognised that the enterprise and enthusiasm of small and growing firms must not be strangled by red tape. We can claim some credit for creating the climate of opinion in which such a resolution was possible.

Success cannot be taken for granted. There is a real risk that the Community is now about to get side-tracked. Distant horizons are attactive to those who are perhaps getting bored or irritated with the nitty-gritty detail of creating a single market. But the single market will not come by itself. It will require all the time and commitment we can afford. We must not be diverted.

The Delors Report contains a valuable analysis of the fundamental nature of economic and monetary union. We have made absolutely clear that we cannot accept the transfer of sovereignty that full implementation of the report would require. What worries me about this issue is that we are losing sight of the single market goal at a crucial time. We must concentrate on first things first—the completion of the single market. This will free the movement of capital in the Community. We will then achieve a free market in financial services and over a period of time—then and only then—will we be able to judge the next moves.

Our single market campaign has emphasised time and time again the need for firms throughout the country, regardless of their size or sector, to prepare for 1992. This message has been repeated across the Community and beyond. It was a message I repeated only yesterday in New York.

The scramble is now on for strategic positioning within the Community as boardrooms around the world assess all the implications of the single market; and the result—which does not surprise me—is that third countries are viewing Britain as the best place for maximising the opportunities of 1992. We are talking about a Britain enjoying its eighth successive year of growth; a Britain in which manufacturing productivity in recent years has been the highest of all major industrialised countries, including the US and Japan; a Britain in which manufacturing profitability is at its highest since 1969.

Do not take my word for it. Look at the way we are regarded overseas. Within the last fortnight we have heard about Toyota's decision to establish a manuacturing plant in Derby. There are 3,000 new jobs for Derby and a further 3,000 will be created in component suppliers around the country. They were not the first; they were the hundredth Japanese company to settle here. They just beat Fijitsu who will be making semiconductors and employing about 1,600 people in County Durham. Bosch of Germany has gone to Wales, as the noble Lord, Lord Cledwyn of Penrhos, will know. So much for concerns about the adverse effect on the regions of a more united and open community.

We have created the climate which makes this investment in Britain so attractive. We have shown that competition and deregulation lead to enterprise, and economic success. Competition, openness and deregulation lie at the heart of a successful single market.

There have been welcome developments recently which show the Community's commitment to open markets: the change of heart in France about allowing in Nissan cars from the UK and the agreement on a broadcasting directive shorn of mandatory quotas for European works. Both show when it comes down to the key decisions that the member states will not tolerate a slide into protectionism.

The Motion refers to the industrial, trade and social impact of the single market and I come now to the last of these. Of course there is a social dimension to the single market. Economic success and social gains are closely linked. The single market will mean more jobs, more choice and greater prosperity for all. But for me, and I hope all in your Lordships' House, the key problem we have to tackle in Europe is unemployment. It is too high and is increasing in many countries in the Community. Merely because it has receded in the UK does not mean that it is no longer the European disease.

My fear is that Europe will attempt to reduce unemployment and achieve social goals in the same way as past British governments. We have had far too much experience of well-intentioned social legislation which had the opposite effect to that planned. That is not to say that we reject ideas on ways to reduce unemployment in the Community. We welcome measures to combat unemployment, to improve health and safety at work, to promote training and to increase the mobility of labour, for instance, by the recognition of qualifications. But there are still too many people in Europe with the spirit of Napoleon in them who equate the social dimension with regulation.

That is quite the wrong approach. Take compulsory worker participation: we are not against the involvement of employees. We have encouraged it enormously and all companies know its importance; but it must be right to leave; decisions about its nature to those most closely concerned—the company and its workforce. That makes involvement meaningful and real.

We have shown here in Britain that deregulation, openness and competition are central to economic success. For Europe to succeed it needs to follow the same approach. We have a vision of a competitive and enterprising Europe: a Europe with open markets in transport, capital, telecommunications and many other areas; a Europe with fewer and lighter restrictions on business; a Europe with tighter controls on state subsidies and a positive competition policy; a Europe which has thrown off the pressures for protectionism; a Europe open to business in the world. That is the Europe in which people will prosper.

3.36 p.m.

Lord Jenkins of Hillhead

My Lords, I begin with an apology to your Lordships. Before this debate was arranged I had committed myself to address the all-party European group of the House of Commons early this evening. I thought that perhaps your Lordships would permit me to discharge that during the course of the debate. I should at least be able to achieve some economies of scale by making two speeches on the same subject on one afternoon.

The noble Lord, Lord Young of Graffham, accused the noble Lord, Lord Cledwyn of Penrhos, of being unaware of the date in relation to 1979. I am most certainly aware of it. At the end of the entry in my diary for 3rd May 1979—since published—I wrote: It is clear that the Tories are set for a substantial majority which will last the full Parliament. I had mixed feelings at the end, though on the whole I think a change of government is better for Britain's relations with Europe". I added that in spite of that the result did not give me any general pleasure. However, I regret to say that looking back after 10 years I retract my judgment of 3rd May 1979 that a Conservative Government would be good for Britain's relations with Europe.

The noble Lord, Lord Carrington, in particular, made a considerable effort and impact right at the beginning. However, we then occupied five years of Europe's time with an argument about the British budgetary contribution. This was at a crucial time from the point of view of other matters because it was precisely the period when Europe began to slip seriously behind both Japan and the United States in modern technologies.

We had right on our side in the dispute but we did not have proportion on our side. At the end of the day—indeed, throughout much of the day—we were arguing a difference between the two sides which was very small indeed (approximately £200 million) and yet we allowed it to obsess Europe for five years. There was a great deal of exhaustion and ill-will about this very small difference.

We then had a better period between 1984 and 1987 when we signed and ratified the Single European Act and endorsed various propositions committing ourselves in principle both to political union and to monetary union. However, now when we suddenly discover that the Community is serious about these matters we not only run away from them but begin to denounce them as well.

That is a complete reversal of what we like to believe is the common distinction between ourselves and our Continental partners. We are always accusing them of being full of airy-fairy general declarations and failing to deliver in practice. In fact, it is now the British Government who are doing precisely that. Having signed the general declarations they are now running away when there is some attempt to put flesh on them. It is also my view that Her Majesty's Government are being singularly obtuse in demanding complete loyalty to NATO. I am certainly in favour of loyalty to NATO though I do not entirely equate that with what we and the Americans—doubtfully even they—want now, as opposed to everyone else. In demanding complete loyalty from the others to NATO it is accompanied by our own right to behave completely unilaterally in the monetary, economic, social policy and political fields.

Therefore I fear that my hopes for the Europeanism of the British Conservative Government have been sadly disappointed over the past decade. Nevertheless, it is a welcome but ironical example of seeing the wheel go full cycle to have the Labour Party putting down a European Motion today which to some extent trumps, I will not say the Government's ace, but at any rate the Government's name, on this issue. Without doubt the European issue had a great impact on the evolution of British politics over the past two decades. I believe it will continue to have that effect. For most of the period it was a difficult issue for the Left and for the Labour Party and a relatively easy issue for the Right and for the Conservative Party. It was this issue more than any other single one which destroyed the effective and pragmatic coalition which enabled the noble Lord, Lord Wilson, to win four out of five general elections.

There was then, as I saw it, the narrow isolationism of the Labour Party's commitment to come out at the 1983 election, and undoubtedly that did it considerable electoral damage. To some extent, but maybe a little less because it was less precise, it was the same situation in 1987. By contrast, the Conservative Party, as long as the imprint of the firm pro-European leadership of Mr. Heath left its traces and was added to and aided by a strong feeling that Brussels might be necessary to save this country from the ravages of insular socialism, and as long as those two factors prevailed, was fairly united on the issue. But as Mr. Heath and the threat of insular socialism have both receded, so natural chauvinism combined with the hubris of successive election victories have reasserted themselves. So it seems that the Conservative Party is set to have as much trouble on the issue as the Labour Party had in the 1970s. The Labour Party per contra now sees that trade unions and social legislation are treated with more respect in Brussels than they are in Downing Street.

I am convinced that there will be much trouble on this issue for the governing party in this country. First, Mrs. Thatcher and, as I sometimes think of him, her Bruges herald pursuivant, the noble Lord, Lord Young, in my view do not really comprehend the basic purposes of Europe. If I may say so with respect, I believe it came out very strongly in the speech of the noble Lord, Lord Young, this afternoon. They see Europe as entirely a matter of packages. When Gladstone first took office in the Peel Government he occupied a position less elevated as regards trade than that which the noble Lord has here. He was made Vice-President of the Board of Trade. He wrote complaining, "I hoped to be set to deal with the affairs of men instead of which I am just set to look after packages".

I fear that this Government see Europe as far too much a question of packages whereas it is a matter of men and women, political idealism and purposes beyond that. Even the packages will not be got right unless the further purposes that have always been there and have always been crucial are understood and respected. Secondly, I believe that standing out from the next wave of advance in monetary matters will do peculiar harm to our national interests. It will show an extraordinarily perverse inability to learn from three previous mistakes; namely, always standing out at the beginning; always coming in late; always losing the opportunity to shape the institutions and then complaining that they are not tailor-made for us.

Thirdly, it will guarantee that leadership in Europe is exclusively Franco-German by the fiat not of Paris or Bonn but of London. What is pre-eminently the case is that you cannot exercise leadership in Europe from a semi-detached position.

Fourthly, and most materially, it will strike directly at one of our major assets in the shape of the apparently impregnable financial pre-eminence of the City of London. Already Frankfurt is being increasingly groomed as the official banking capital. If we stand outside the European Central Bank and the common currency moves, this will quite rapidly spread into the private field. Imagine the position of Wall Street if the Governor of the State of New York were to be so perverse as to insist that it operated a little local currency of its own based on Albany and distinct from the dollar area which continued to prevail in Chicago, Washington, Philadelphia, Atlanta and San Francisco. It sounds grotesque, but grotesque examples can sometimes illustrate important truths. One of these is that out of the clashing of Europe's new dynamism and Mrs. Thatcher's determination—so it appears—to set a limit to the march of a Continent can come much trouble both for the Conservative Party and, more importantly, for the country as a whole.

3.47 p.m.

Lord Greenhill of Harrow

My Lords, I greatly regret that I shall not be able to be present at the end of this debate. I therefore apologise to the noble Lord, Lord Young, for my absence and to the other Members of the House who will take part in our discussions. I am extremely glad to be able to hear the maiden speech of the noble Viscount, Lord Trenchard, who brings very recent business experience to this House from the past years that he has spent in Japan. This will be a great asset to us all not least in today's discussion.

I hesitated before putting my name down to speak in this debate because I am not fully up-to-date with the current opinions in Brussels and, possibly more importantly, I am not fully aware of how the general publics of our EC partners regard this question. Are their general publics better informed than our own and how do they regard the question of where present policies are leading? Do they differ from us and are they ready to accept some of the limitations on their own sovereignty, which will certainly come?

I shall very briefly put forward a view which will be considered by many to be somewhat reactionary and based on out-of-date conceptions. I recognise that it may well have been overtaken by events. I do not need to remind the House that there is no unanimity on the Cross-Benches on this particular question. I regard this debate as an opportunity for me to undergo a conversion if my views are incorrect. In the meantime my strong opinion is that we in the UK are attempting nationally, and our EC partners internationally, to change too much too quickly. We both may be disagreeably surprised how difficult the consequences will be to control.

Are we not endeavouring in the EC to push forward on a narrow economic front without giving thought to how these endeavours can and must be simultaneously supported in the political and defence fields? Europe cannot be made solely on the basis of an internal market on which not everyone is agreed on just how beneficial the results of that will be. Some of the forecasts are reminiscent of a South Sea Bubble prospectus; others are disappointingly meagre, especially as concerns this country.

European institutions need to acquire a greater political legitimacy. Can one really say that the machinery of the Commission is equal to all its tasks? The European Parliament is still in its infancy and does not yet command sufficient support or respect, especially in this country. Its role is undecided and unagreed. We have had the great benefit in this House of the presence of the noble Baroness, Lady Elles. I greatly regret that she is not standing again for the European Parliament. I hope this afternoon that she will be able to cast some light on which way she thinks it can beneficially develop.

At the present critical juncture in East-West relations we have yet to see whether a European defence reorganisation can transform the political atmosphere of the whole continent and open up possibilities which have not in my view been sufficiently considered. These uncertainties need more thought and more action. There is another scenario which cannot be dismissed: 1992 is likely to involve great restructuring of European and British industries. Imagine if such a reconstruction coincides with the often predicted recession and Europe is caught politically unprepared in a resurgence of unemployment and recession. Where will the leadership come from? How will it be exercised? Will the selfish rush for the lifeboats destroy all that is being achieved?

I very much agree that it is no good to be paralysed by imaginary worst cases. All European countries must co-operate on a much wider front than at present, but the United Kingdom is the product of many years of history. I do not want to see us hustled into ways incompatible with that.

3.53 p.m.

Viscount Trenchard

My Lords, I am most grateful to the noble Lord, Lord Cledwyn of Penrhos, for introducing today's debate on a subject which, being as yet relatively broad in scope and imprecisely defined, lessens the risk for me in my maiden speech of being corrected on points of detail on which noble Lords' knowledge will be considerably greater than my own. It is with some trepidation and after overcoming not inconsiderable hesitancy that I address your Lordships' House today, for I fear that I am not yet conversant enough with the conventions and manners of the House and I beg your Lordships' licence if I should inadvertently contravene any time-honoured custom.

It is indeed a great honour and pleasure, my Lords, to address you on one of the most critical and important issues of the day. I was most interested in the address of the noble Lord, Lord Cledwyn of Penrhos, and especially in his observation that in the long term the single market can help to break down barriers between western and eastern Europe. My noble friend the Secretary of State has drawn attention to the important point that British companies are more used to operating in a free and open market than some Continental companies. This experience should certainly help them in the future.

I thank him for his welcome. I am also grateful to the noble Lord, Lord Greenhill of Harrow, for his kind words.

When I left England to live and work in Japan more than nine years ago, there was, I believe, little interest on the part of most British companies in potential expansion and development of their business in continental Europe. Since returning to live in this country in August last year, I have sensed an enormous change in the British attitude towards, and awareness of, Europe. If the concept of 12 loosely linked sovereign states joining together to create a single market for goods, services, labour and capital can become a reality, as I believe it can, it will present enormous opportunities and challenges for British and other European companies alike. With a total population of around 325 million, substantially greater than the other two great industrial economies, the United States and Japan, successful companies should be able to grow big enough fast enough to compete with great American and Japanese companies globally. It is to be hoped that there will be many British companies among the successful European companies of the future.

Noble Lords will be aware of the growing tide of investment by Japanese companies in Europe. The recent decisions by Toyota and Fujitsu demonstrate even more clearly that the United Kingdom is winning the lion's share of Japanese investment. The creation of jobs here and the new investment in our manufacturing base must, I believe, be welcomed on all sides of the House. Japanese companies are coming to Britain because English is easier for them than German or French, because they have faith in the quality of the British workforce they can recruit here, and because the British Government are generally more welcoming than the governments of some other EC countries.

But why are they rushing to invest in Europe? They are coming here because they expect the single European market of the future to be an attractive market for their products and because they believe it will become politically more difficult for them to export in the future; furthermore, they fear that after 1992 the barriers will come down and they will no longer be able to invest here either. They even fear that the single market will become Fortress Europe and that possibly third countries' European establishments will not be completely equal citizens in all respects.

British companies that have established operations in Japan have been asking for years for equal treatment with native establishments from a legal and regulatory standpoint, and by and large have been granted it. For example, in the area of financial services, the only remaining discrimination is cultural. I do not think it is easy to bring about cultural changes by legislation. As the House is well aware, there are many different views on the ideal form Europe should take in the future. If Europe should become a closed fortress it will lend support to those factors tending to divide the world into three major trading blocs—the Americas, Asia centred on Japan and Europe. This will bring about different rates of development in the three blocs and will result in growing friction, leading to increasing restrictions on trading and investment flows and the exchange of technology.

The improvement in the British people's way of life would be retarded if they were to be denied access to the higher and higher technology products that are likely to be developed by Japanese, Korean and Taiwanese companies. It is certainly to be hoped that British and other European companies will also be at the forefront of technological advance as we enter the 21st century, but it is a problem that short-term shareholder expectations and high funding costs in this country to some extent prevent British managements from developing and carrying out appropriate long-term strategies and investing enough in the future of their businesses.

Japanese shareholders have allowed managements to take a long-term view and have been content to receive very small dividends by our standards. Japanese company chairmen and presidents are not dismissed if they fail to increase profits and earnings per share every year, provided that there is confidence in the long-term growth and prosperity of their companies. Paradoxically, although Japanese shareholders have been very modest in terms of the value which they have extracted from companies year by year, a combination of constantly appreciating share prices and free capitalisation issues has resulted in their total return over 10 or 20 years being much higher than that of investors in British or American companies. For 1992 to be successful in an offensive rather than in a purely defensive sense, it will be necessary to encourage some change in the priorities of managements of British companies so that they too can plan for the long term with confidence.

If your Lordships will allow me, there are two other points that I should like to make. They concern the financial services industry. The City is now far more strictly regulated than any other European financial centre. The cost of that regulation is high and the customer is now starting to pay for it. While in terms of infrastructure, skills and language, there is no serious challenger to London's position for it to become and remain unequivocally the financial capital of Europe, on a par with Tokyo and New York, the present imbalance of regulation compared with European centres may need some correction. Of course we need adequate regulation to protect investors, customers and participants, but there is a growing belief that we may have overdone it and London has certainly lost some business as a result.

On the other hand, I cannot complain about the fact that the current wave of restructuring of European industry is providing increased business opportunities in the field of mergers and acquisitions for the financial services industry. There has been a marked increase in the number of cross-border takeovers, not only by European Community country companies of other EC country companies but also by non-EC country companies of EC country companies, such as the acquisition of Rowntree Mackintosh by Nestlé. But, because a much higher proportion of British industry is listed on the Stock Exchange than is the case in continental European countries and because it is generally easier to complete corporate acquisitions in this country than for example, in France or Germany, it follows that a higher proportion of suitable acquisition targets in any particular case is likely to be British than, say, German or French. That point is also one which will not escape the notice of your Lordships' House when considering appropriate policies to meet the challenge of 1992.

4.3 p.m.

Lord Barnett

My Lords, I am delighted to have the first opportunity to congratulate the noble Viscount, Lord Trenchard, on a most excellent maiden speech. If I could stop the clock, so to speak, I should be delighted to say more about his speech. I am sure that it will be especially helpful to all noble Lords because it was made with his clear knowledge and experience which will be of great use to all Members of this House who wish to speak on and take an interest in this important subject. I am sure that we are all most grateful to him. Listening to his speech was made all the more pleasant for me because I agreed with so much of what he said. I am sure that all noble Lords will want to join me in congratulating him on his most excellent speech. I hope that we shall hear him speak again on frequent occasions.

I am afraid that I must also apologise to the House because I shall not be able to remain until the end of the debate due to a long-standing commitment. The National Children's Home is giving a special tribute dinner this evening in honour of my noble friend Lord Tonypandy and, as I have a connection in the North West with the home, I should like to attend. I trust that your Lordships will forgive my absence.

I have long had a vision of a Europe which is much more integrated politically and economically. That is why I have always supported our joining the Common Market, as it was then called, and our being an active and supportive member of it. However, I have always recognised that inevitably my vision is a long way from fruition. But the advantages of the single market—which have been well set out by the two opening speakers and therefore, within the timescale available to us, it is not necessary to repeat them—are much closer to reality. Indeed, as the noble Lord, Lord Young, pointed out, they are effectively with us now.

Having said that, much as I have very strong views about the way in which I wish to see the European Community develop, I am bound to say that I do not believe that M. Delors' line at present is especially helpful. I have no doubt that he shares my vision, but I feel that, with the best intentions in the world, the way he puts his proposals endangers rather than advances economic integration by seeking to go faster than is economically and politically possible at present.

The trouble with M. Delors is that unfortunately he provokes a kind of knee-jerk reaction from our Prime Minister. She unnecessarily attacks what may be called his extreme proposals which have no chance of being accepted by other members of the Community. They are happy to let our Prime Minister do her customary nationalistic shouting. Of course it is true—as the noble Lord, Lord Jenkins, pointed out—that the Prime Minister agreed with, and signed, the Single European Act with the objective of a progressive realisation of economic and monetary union. But, much as we may regret it, frankly that is not much more than a useful debating point. We all know that from time to time there are great declarations in the European Council. Moreover, there is the signing of important agreements of principle which are invariably followed by a stubborn defence of national interest in the Council of Ministers and, if I may say so, not just by Britain. Indeed, more often than not it is by those who express themselves as being more communautaire than the rest. At least, that is my experience in these matters, although that experience is a little old now. However, I deduce from the fact that the noble Lord, Lord Young, is nodding his head, that the situation is the same today.

However, M. Delors was right on the one hand to spell out the enormous advantages of economic and monetary union and a single currency. But, as I say, that change is a long way off. Indeed, your Lordships' own Select Committee—which I was able for a short time to attend—pointed out that it needs a degree of economic convergence and political will which is nowhere near present in most of the major Community countries; and, as I said, that applies not just to the United Kingdom.

On the other hand, if we always insist on leading by way of a negative approach and by taking a sort of perverse pleasure in being the bad boy or bad girl of Europe, we shall I fear lose all influence on practical further developments. It seems to me that the time is ripe—if I may use that phrase—for a positive approach. We can, and should, emphasise support for realistic proposals that are in the best interest of the European Community and Britain.

I should like briefly to put three suggestions to the Government. First, I believe that they can and should support most of what M. Delors stipulated in stage one of his plan, and the aspirations set out therein. The other stages have no dates attached to them in any event and there is no need for a knee-jerk reaction to them. Surely we are in favour of moving to greater economic convergence. Again, we are not alone in opposition to an unrealistic idea of a change in the treaty.

I understand why M. Delors wants to force through major changes. I support his objectives; but, unlike 1992, his approach I fear is wrong. It was best summed up for me by part of a leading article which appeared in the Financial Times last week. I think that it is worth quoting. It reads: If one wishes to coax an acrophobic across a rope bridge, one does not tell her that once she has taken the first step she will then have to take hundreds more". I do not think that that line of approach is especially helpful and I hope he will perhaps refrain from pursuing it.

The second positive step I should like to ask the Government to take is that they should show strong support for one of the objectives which we have already discussed; namely, the single market. I note the Government's views, as expressed today and in a previous debate by the noble Lord, Lord Young. Here, unlike M. Delors, the noble Lord, Lord Cockfield, was right to make 1992 an important date, even if in practice it slips a little; because by focusing a day on the single market, as has been said, gives it a real chance of success and of being of enormous advantage to Britain and to the rest of the Community.

On the other hand, like the noble Lord, Lord Young, one should not under-estimate the problems. There are considerable problems to be overcome. There is a need for a greater willingness to compromise than has yet been shown. A sense of reality at least has been shown in the Community in that harmonisation of all duties and taxes is no longer thought necessary for a single market. However, greater approximation of rates is clearly necessary. I of course agree with the noble Lord, Lord Young, that a single currency is not necessary at this stage.

I have one or two questions that I should like to put to the noble Lord. Does he agree with our Select Committee when it says that the abolition of frontiers without first approximating indirect taxes would have unacceptable consequences? If he agrees, is he willing to move towards approximation? If he is not, why did he sign the commitment to a single market? If, on the other hand, he does not agree, how does he expect to be able to cope with wide variations in duties and taxes when there are no frontiers? I accept entirely the point that he made about drugs and terrorism, but that is a separate issue.

The third suggestion that I want to put to the Government is this. If the time is ripe for a more positive approach to unity, the time is surely even more ripe for us to become full members of the European monetary system, although I accept that it is not essential at the start of a single market. It would show the right spirit rather than does a constantly carping and negative approach. Not only that, it would be in the best interests of making progress in the European Community. It would enable us to have some influence not only in that area, but in the financial field about which the noble Viscount, Lord Trenchard, and others have spoken. Above all, it would be helpful to us on an issue that is so vital to the Government—inflation.

I am frankly astonished that the Government, who are so committed to reducing the rate of inflation, are unwilling to recognise the benefits not merely of bringing it down, but as the present full members have shown, of keeping it down—something that we have been unable to achieve. I hope that the Government will think carefully.

I know that there is a slight difference of opinion within the Government. It might be interesting to hear from the noble Lord, Lord Young, which side of the argument he is on. I should be surprised if we do. I look forward greatly to hearing it.

Even if the Government are unwilling, or unable, to accept all my advice tonight on the three positive steps, although I hope that they will, I recognise that my vision of Europe as a truly integrated political and economic unit is much further away than are the unrealistic dreams of M. Delors. However, his steps are steps in the right direction. They are good for Europe, and they will be good for Britain. I hope that we take a positive approach to them.

4.14 p.m.

Baroness Young

My Lords, I welcome the debate and thank the noble Lord, Lord Cledwyn, for introducing it. He has touched upon what is clearly one of the more important political issues before this country; namely, 1992. It is an issue which could not be more topical. I should like to start by sending my congratulations to my noble friend Lord Trenchard on a most thoughtful and interesting speech. We all look forward to hearing from him on many future occasions.

As well as saying to the noble Lord, Lord Cledwyn, how delighted I am that he introduced the debate, I could go on to say how delighted I was to see the conversion of the Labour Party to the importance of the European Community and Britain's place in it. In his party it has a long history of neglect, which was not really settled by a referendum; even as late as 1983, there was a decision to take the United Kingdom out of the Community if elected; and there was an ambivalent view in 1987. It is at least good that the party has come that far along the path.

I listened, as always, with great interest to the speech of the noble Lord, Lord Jenkins. We have heard a great deal from him about the iniquities of my right honourable friend the Prime Minister; but I believe that even he will agree that her strong stand on Britain's contribution towards the Community budget reflected what the people in this country felt, and the unfairness of the large amount that Britain had to contribute. Standing up for Britain's interests in that regard was of value to the country. She stood out to try to obtain real reform of the common agricultural policy which, whatever merits it may have had in some countries in Europe, was an extremely expensive policy. It has unquestionably had most undesirable effects in many third world countries. That is a matter that should be considered. What we have done to bring the budget under control and, in particular, to deal with the CAP, is important.

The debate centres on the challenge of 1992. I should like to start by congratulating my noble friend Lord Young on his department's excellent publicity campaign which is designed to inform Britain what 1992 really means: removing barriers, increasing competition and liberating economic performance. There is a far greater understanding in the country that the challenge of the largest free market in the world—some 320 million people—is an exciting project.

All speakers who have taken part in the debate have made that clear, and I shall not repeat the arguments. Much has already been achieved. The single administrative document has replaced at least 100 forms at frontiers. The Ministers agreed last June on the liberalisation of all capital movement within the Community. The recognition of professional qualifications comes into effect soon in all 12 countries; and there is to be liberalisation of transport. These are all great and important developments towards the ideal of a full, free and open market in 1992.

Those businesses with which I am associated are now addressing the issues of 1992 and are actively preparing for it. It is much more important than packaging anything. It is a challenging and complex task for business, which requires a great deal of preparation. It is important to prepare not merely for how Britain might gain from the big common market but to face the fact that the other countries of the Community will of course be competing with us in Britain. One needs to see how that will affect us.

The Motion calls attention particularly to social, industrial and trade policies. Those are probably the issues upon which opinions differ most and upon which everyone had commented. The Treaty of Rome, after all, speaks of the closer union of the people of Europe. More recently we have the report of M. Jacques Delors. If one looks at the general political situation in Europe, one sees that there are two strands which are pulling in different directions. One in a sense is a historical strand. If one looks at the history of other countries in the Community, unlike ourselves, they have not had a long and consistent tradition of democracy. Nearly all of them have undergone long periods of absolute government. They are much more used than we are to centralised state control, even under a democratic system of government. One has only to look at France which has policies which are completely acceptable to the French, but which would not be acceptable to the British in the same way. That is the reality of the situation.

Then there is another strand. There are many people in all the countries of the Community and in this country who think of themselves as European and who are completely comfortable with this concept. I think that that is absolutely understandable, and no doubt the number will increase as time goes by. But at the same time, if we consider all the 320 million people, I suspect that there are many groups in Europe looking for even smaller units than the national unit to which they currently belong. We need look no further than Scotland to see what the Scottish Nationalists are thinking of. Although I find extraordinary and a little inconsistent their thinking that they do not wish to be in a union with England, Wales and Northern Ireland but would prefer to be in the European Community, nevertheless it is a feeling shown by the Basques in Spain and the Corsicans in France—to look no further. I have no doubt that there are others.

That takes no account at all of the long historical national differences which go back hundreds of years in Europe, nor indeed does it take account of the two major wars that have been fought this century. To imagine that we can somehow get over all these long historical memories and feelings by a report—no matter how well argued and put together—and ignore them is, I think, flying in the face of reality. It is something to which no honest government could commit themselves without realising the immense difficulties they would have in all parts of the country.

I speak as a committed European, which is what I think I can call myself. I see us in Europe, staying in Europe, and I see us moving continually in that direction. I myself do not think that we shall succeed in Europe by imposing universally applicable social legislation throughout the 12 member states. If one looks at the United States, of course there is a wide variation between the states of the union. It would be deeply resented if all their policies were somehow to be harmonised from Washington. If one looks further on that subject one sees the dangers of, for example, worker directors automatically on boards. The relationship between the workforce and the board of a company is an important issue but it is one to be resolved by the companies themselves and one which they must address. It is not an issue to be resolved by some edict from Brussels.

Again, on the Delors Report, if it were left to me I would very much share the view of the noble Lord, Lord Barnett, that Britain ought to move towards full membership of the European exchange mechanism because I think it would help us with regard to inflation and would help many business people not to have the uncertainty of exchange rates. However, at this stage I would not go further than that because I do not see that it would in any sense be politically acceptable in this country. As one noble Lord said, we should find ourselves simply trying to go too quickly and we should not be able to manage to convince people.

There are two areas where I believe the Government ought to do something to help us in 1992. One which I have already touched on and will not enlarge on today is the help which we should give to businessmen, particularly from middle-sized and smaller firms, when they have to work in the Community, with the education of their children. There is no doubt that other countries do much more to help in this regard. We do absolutely nothing. That is a point to which I shall return on another occasion.

The second point I wish to raise is quite different but again it is in the social sphere. If 1992 means anything, it means that women should be able to help in Europe as well as men. Noble Lords, may well laugh about my raising this, but the fact is that, with the notable exceptions of the Netherlands and Ireland, we make the worst provision for child care in the European Community. I could quote many figures on this, but in France and Belgium 20 per cent. to 25 per cent. of the under two year-olds are catered for and 95 per cent. of the three to five year-olds.

We heard from the Government in answer to a parliamentary Question about a fortnight ago that the number of our children in nursery education is increasing. But it is still far behind what is provided in the Community. Most of it is part time and it does not cover the school holidays. I am not suggesting some great blueprint—or, perhaps, as some of my colleagues might think, a red print—from Brussels to sort the matter out. But it is simply not good enough, if I may say so to my noble friend—and I hope he will pass this on to his colleagues—for the Government to say that this is a matter which can be solved entirely by employers and parents. The Government have an interest in training, in inspection, and they have an interest in doing something about the tax system to help women who have to pay for some kind of child help in order to do a job at all. After all, the Government give an allowance to a man for a housekeeper, so why not to a woman?

I do not necessarily expect an answer on that today, although of course I should be delighted to have one if my noble friend felt able to give it. But I can assure the House that this is a matter on which there is considerable feeling in all parts of your Lordships' House. It has been raised with me extensively in the businesses with which I am connected by a large number of people in the country as a whole. It is a weakness, but one which it is within our power to put right. My time is up so I shall not labour the point. I support what is being done, and I hope that the Government will consider these two further points.

4.26 p.m.

Lord Roll of Ipsden

My Lords, I wish to begin by adding my congratulations to the noble Viscount, Lord Trenchard, on an excellent maiden speech. I do so all the more readily because in another incarnation I had the pleasure of having quite a lot to do with his distinguished father. I am sure that the noble Viscount will make some extremely valuable contributions to our deliberations.

The noble Lord, Lord Cledwyn of Penrhos has given us the opportunity of debating a number of extremely important issues. I make so bold as to say that next to the question of the review of the strategy of the Western Alliance in the light of the changes in the Soviet Union and Eastern Europe, which your Lordships debated quite recently on a Motion of the noble Lord, Lord Home of the Hirsel, the future of the Community and our attitude to it is far and away the most important issue facing us in the international field.

The Motion covers a wide range of economic issues; but as I have to be brief, I shall, if I may, concentrate on the financial aspects, particularly in the light of the recently published Delors Committee Report. Before I do so, perhaps I may just touch briefly on a wider question as well as on one other specific aspect.

Much has been made recently of the supposed pressure for the creation of a United States of Europe which, it is argued, is inherent in some of the proposals for the further development of the Community. When I had the honour a few weeks ago to deliver this year's Sir Winston Churchill Memorial Lecture in Luxembourg, I said that the creation of a United States of Europe was not a practical proposition for a foreseeable future. I added that it was not "on anyone's agenda". I was therefore very happy to note that the Chancellor of the Exchequer subsequently used exactly the same words. However, I also reminded my audience, as I wish to remind your Lordships, that the vision of such a political development is by no means an ignoble one. It was shared by such realists as Sir Winston Churchill himself and by Jean Monnet, that sturdy son of farming stock of the Charente—a Frenchman to his fingertips. No one who knew him could possibly accuse him—as one could not accuse Winston Churchill—of wishing to create what has been called an "identikit European".

The political integrationist idea has a distinguished ancestry, including the originators of classical, liberal British political economy; and more recently, as some of your Lordships may remember, that stalwart with impeccable free-market credentials, the late Lord Robbins. I repeat I am not proposing for one moment such a political development for the practicable future. But we are not doing ourselves much good, nor our advocacy of or resistance to this or that specific development, by constantly pouring scorn on these wider aspirations, however visionary they may seem to us, which mean much to some people here and elsewhere in the Community.

I have just one word in a similar vein to say on the vexed question of the social dimension, particularly in relation to the Community's efforts to reform company legislation. I note that one self-appointed guru has recently referred to it as the "infamous" social dimension. Such language makes one wonder whether the 19th century factory Acts and the employment of children Acts will be proscribed next. If we believe that our system is the best in this regard, we have every right and every opportunity to argue for it and to negotiate to secure its maintenance.

However, again, it does not help to use extravagant language in regard to a different system which countries with a different background, such as Germany, wish to preserve for themselves. I do not think we could say, or even wish to imply, that Germany's system, which is of course the opposite of ours in this regard, has been a hindrance to her economic and particularly to her industrial performance. Indeed, it is a fact that we have often admired that performance and wished to equal it. In a recent speech at Chatham House, the French Prime Minister, Monsieur Rocard, said in referring to this very subject: a pragmatic approach will lead us to take account of the diversity of legislation and of established practices in certain areas". That, surely, offers the hope of a reasonable compromise that would recognise important differences in member countries. Happily, that approach seems to be gaining ground in many matters. It is gaining ground, for instance, in some of the detailed provisions relating to standards in the financial services industries.

In regard to financial matters, the most important new development is the appearance of the report of a committee under the presidency of Monsieur Delors. The committee was composed in the main of Central Bank governors, albeit in what is called their personal capacity. In considering the report, I suggest we should remember its origin. Discussions on monetary union go back to the years before this country became a member of the Community. In 1979, which was a memorable year for a number of reasons, and after we had been a member for seven years, the European monetary system was created. We became members of it, although not full members, as we did not participate in what was operationally the most important part of the system; namely, the exchange rate mechanism.

Now that the European monetary system has just had its tenth anniversary, it is worth saying that with very few exceptions it is regarded as having been a success and to have given substantial benefit to its full members. For us it should at the very least be a source of pride that this important new development of the Community was achieved during the British presidency of the Commission, under the noble Lord, Lord Jenkins of Hillhead.

Six years later the Single European Act was signed by all members and ratified by their legislatures. This Act confirmed the objective of a progressive realisation of economic and monetary union. The European Council meeting in Hanover last June recalled this objective, and set up the Delors Committee with the mandate of, studying and proposing concrete stages leading towards this union". An undertaking was given that the report of the committee would be studied at the forthcoming meeting of the European Council in Madrid.

I recall all this because it was argued, even before the report came out, that simply to consider the further steps towards monetary and economic union was somehow culpable digression from the task of completing the processes leading to the single market in 1992. If that is so, the original sin lies not with Monsieur Delors but with the Heads of Government who signed the Single European Act, who issued the Hanover declaration and who set up the Delors Committee with the terms of reference I have quoted. Incidentally, I am sorry that the noble Lord, Lord Barnett, added some support to the caricature of Monsieur Delors himself which is emerging in certain quarters. I think it is high time that he should cease to be regarded as the villain of the piece and as a dangerous fanatic. I wish to remind the House that in 1983, when Monsieur Delors was French Finance Minister, he was responsible for a remarkable turnaround in French economic policy which was acclaimed at the time as a triumph of pragmatism over ideology. It was not only beneficial for France but it fostered the convergence of French and German economic policy. That is one of the pillars of the European monetary system.

The report itself defines what economic and monetary union means, and sets out clearly the three stages which would eventually lead to it. However, it very wisely does not attach a timetable to that. The report also recognises that important political decisions, and probably new treaty obligations, would be required at certain stages. A very large number of important issues are dealt with in the report's outline of the whole process. These will require very careful study. I propose to deal now only with the most immediate of them.

From a practical point of view, as I believe the noble Lord, Lord Barnett, has already pointed out, stage one is clearly of prime importance. It is to be completed simultaneously with the completion of the single market in 1992. Let us remember that by 1990, with a very few and temporary exceptions, complete abolition of hindrances to capital movements will have been achieved.

Stage one will not require any changes in Community treaties. The specific steps envisaged in stage one amount essentially to a strengthening of the existing methods of economic and monetary policy co-ordination within the existing institutional framework including, however, a strengthening of the functions of the committee of Central Bank Governors. The concepts and procedures involved are set out in some detail. As they do not require any major institutional changes, they do not in my opinion raise issues of special difficulty.

More novel are the committee's views on the relation between stage one and subsequent stages. These include, first, a statement that if the initiation of stage one carried with it a clear political commitment to the final stage, it would, lend credibility to the intention that the measures which constitute stage one should represent not just a useful end in themselves, but a firm step on the road towards economic and monetary union. It would be a strong expression of such a commitment if all members of the Community became full members of the EMS in the course of stage one". It is easy to see that in the light of the already expressed attitude of the British Government, implementation of the first proposition but perhaps also of the second proposition would present problems. I shall very briefly give your Lordships my own conclusion against the background of a number of debates we have had on these matters, particularly the most recent one on 23rd January on the Motion of my noble friend Lord Kearton. Quite apart from its relation to any future monetary and economic union, a regime ensuring a high degree of exchange rate stability is not only a desirable element but, in the view of many people, an essential condition for the effective implementation of a single market.

It is therefore high time that our attitude to membership of the exchange rate mechanism, which I fear is increasingly taking on the character of the tragi-comic, was abandoned in favour of early membership. While I do not necessarily take the view that that would in itself consititute a commitment to all the subsequent stages outlined in the Delors Report, it would certainly make an enormous difference to our credentials in subsequent negotiations. A commitment now to the completion of the whole process is clearly a matter of some difficulty, even if no timetable is laid down and even if progress at each point is hedged round with powerful reservations.

It is quite clear, to me at least, that for a long time to come some degree of flexibility of exchange rates will be necessary to cure the misalignments that will occur. I believe that at least the kind of flexibility, although not necessarily the precise margins, that are allowed in the EMS now will be required. A move towards completely fixed exchange rates would involve a much more powerful institution for producing collective monetary policy. Its timing will depend on the progress in convergence of economic policies, both deliberate and those which will be generated almost automatically from the commitment to stable exchange rates. How long this half-way house will last is hard to say. However, the other day I came across something that was said 30 years ago by Lionel Robbins, who addressed himself to this very question. He concluded that, the half-way house is something which must be conceived as being essentially temporary. In the end you must go forward or go back". He may be right. We shall find out.

However, given the commitment in the Single European Act and the Hanover declaration, the absence of a timetable as well as the known views not only of ourselves but of at least some of our fellow members of the Community, I myself would not shrink from accepting that in the monetary field at least the first step would lead at some time in the future to the next. I would be somewhat doubtful about the elements of economic union and their relation to the monetary arrangements as laid down in the Delors Report, not only on practical or political grounds but also on analytical economic grounds. But this is something that will be argued for a long time to come. The most important question now is our entry into the exchange rate mechanism. If we want to be participants with full credibility in the discussion with our partners which will clearly, whatever we say, from now on be a continuous one, I think we must take this step now.

There is one more reason why I believe that we must be full participants in whatever regional European monetary arrangements are made. If your Lordships will bear with me, some 18 years ago, before we were even members of the Community, I drew attention in a public lecture to the question, much debated at that time: whether the creation of a European Monetary Union would be helpful in regard to strengthening the world monetary system and encouraging worldwide monetary integration which seems to me to be essential". I went on to say: An affirmative answer is much more likely if we are members", not because we are, specially unselfish or endowed with a specially enlightened vision, but simply because our experience and our interests in international finance have worked and must continue to work in that direction". This still remains as true today as it was 18 years ago. But how long will it go on being true if we continue to exclude ourselves from active participation?

4.42 p.m.

Baroness Lockwood

My Lords, like many noble Lords who have taken part in the debate this afternoon I too am committed to the concept of a united Europe. However, my detailed interest stems from my membership of your Lordships' sub-committee C of the European Select Committee. That is the committee concerned with social affairs. It stems also from my earlier experience as a member of the European advisory committee on equality between the sexes. This afternoon, therefore, I shall be concentrating on the social implications of 1992.

No matter how the Government might try to resist the idea, an economic community, with a single market and a free flow of capital, goods and labour, must inevitably lead to community developments in the social field. This trend is already very evident. If we examine the work of your Lordships' European Select Committee, particularly sub-committee C, it is clear that a whole range of subjects are being considered with important social implications for member states.

Many of the issues arise from the employment clauses of the Treaty of Rome. They are based on the assumption that a free movement of labour calls for certain common principles of protection of workers' rights and conditions of employment, interchangeability of professional standards, and a mutual recognition of education and training standards.

Britain's position in these respects is ambivalent. Many of our national protections are being eroded under the guise of "lifting the burden". At professional level our standards are high, although we need a larger intake into higher education if we are to maintain our position as a leading country within Europe. At the technician and other skills levels we lag behind many of our partners both in our output and in the quality of our training programmes. Therefore, any impetus from Europe in the field of training is likely to be to our advantage.

It is anticipated that whatever movement of labour there might be in the early stages after 1992, that movement is likely to be in areas of high qualifications and skills. Again this is an area where Britain is vulnerable. One of two things could happen. We could find a brain drain of highly-skilled professional workers in search of higher standards of living in terms of salaries and social conditions provided in other countries. Or we could find a drain of capital in search of the highly-skilled manpower so necessary to modern industry. Either eventuality we need to avoid: I suggest that this can best be done through greater investment in training our manpower and greater investment in our capital and social infrastructure.

The demographic factors in the United Kingdom underline the importance of training and the retraining of mature people. Women constitute the largest pool of untrained or undertrained personnel. European legislation has benefited British women in many fields, particularly training. The social programmes for training have included, and continue to include, emphasis on women's training needs; likewise, the action programmes for women.

The impetus behind these moves springs largely from Article 119 of the Treaty of Rome which is concerned with the elimination of sex discrimination in terms of pay and conditions of employment. This is a matter that relates to sex equality, but there are wider implications for social affairs generally. Article 119 has led to a series of directives—the equal pay directive and the equal access to training and employment directive—which in turn have led to changes in our own equal pay and sex discrimination legislation. The directives have also taken us into the field of employment-related areas such as social security. The first example was the directive on equal opportunities in social security in 1979, which covered short-term benefits (such as unemployment and sicknesss benefits and benefits for the disabled) all of which, if provided, had to be available equally to both sexes.

The inter-relationship of European and national legislation has also led to interpretations by the European Court of Justice on how British legislation complies with European legislation. In this connection we must not underrate the European Court of Justice as an important institution in the Community. The European Court can be the ultimate court of appeal for individuals seeking to establish their own rights under European law. It can also be used by the European Commission seeking a legal judgment on whether or not national legislation complies with directives.

The United Kingdom Government, and also, the noble Lord, Lord Young, will be relieved to know, most other European governments, have had to appear before the European Court on both counts. But the matter does not stop with appearances before the court and the court's findings. Out of the judgments other legislation, both national and European, has followed. As my noble friend Lord Cledwyn said, there must be concessions to national sovereignty; and we can see this as the court cases develop.

The point I am making is that we have moved from an article on equal pay and equal terms and conditions of employment in a logical and, to use the term of the noble Lord, Lord Young, pragmatic way to wider related areas. Social security, occupational pensions, retirement age, part-time employment, parental leave, training, self-employment and equality in taxation matters have all been considered by sub-committee C of this House. Not all of the issues are yet embodied in European legislation. Some, I regret to say, have been blocked by the UK Government. But there is a momentum that will continue. It may be difficult for the Government to accept, but the Community will develop its own momentum. We must recognise that.

The issues that I have illustrated have been concerned with sex equality matters. But the same principle applies to other areas of policy. If we try to impede those developments or stand on the sidelines and opt out of some of them, then, as a country, we shall fail to meet the challenge of 1992 and fail to get the best out of our Community membership.

4.51 p.m.

Lord Wolfson

My Lords, I too should like to thank the noble Lord, Lord Cledwyn of Penrhos, for initiating and so ably introducing this debate. Perhaps I may also congratulate my noble friend Lord Trenchard on his thoughtful and informative maiden speech. I apologise to the House that a long standing commitment make it difficult for me to remain to hear the final speeches.

In any great enterprise, there is bound to be a mixture of risks and rewards, but I am among those in business who believe that the advent of the single market in 1992 presents a unique opportunity that we should seize in a wholehearted and enthusiastic manner.

The history of the European Community is one of gradual evolution, as indeed has been our own growing feeling for membership. The same gradualism is the way forward. The Messina Conference evolved into the Common Market of the Six and then the Twelve. The Common Market is now evolving into the single market of 1992. We have willed the ends; to make the concept work effectively, we must now will the means. A single market requires a suitable and flexible framework of financial exchange and London is the financial centre of Europe.

I agree with other noble Lords that, as a first step, we should consider early entry into the EMS and then negotiate the practical way forward with our partners, as we have done in modifying the CAP and, to a larger extent, the budget contributions. We shall of course continue to emphasise our own priorities, many of which are now the priorities of our partners; namely, open markets in goods and services, minimum bureaucracy, cutting waste, attacking fraud and the delicate issues of sovereignty and our different approach to VAT and excise duties. In all those matters, we shall find much agreement and common purpose.

For some years, the Government have told us that, when the time is right, we should join the EMS. I should like them to be more specific as to the terms and conditions considered appropriate to do so. I hope that it will be in the reasonably near future, for the present members of the EMS have, by and large, enjoyed greater currency stability with lower rates of inflation and interest than we have achieved on our own. These are of course matters of vital importance to the prosperity of British business.

I have seen the EMS described as a form of gold standard without gold"; in effect, a co-ordinated system that seeks to steer economic policy between the shoals of inflation and deflation in order to sustain sound economic growth. Is that not our aim? Why walk alone when one can have friendly company? The European Community is by far our largest market for both imports and exports and over two-thirds of our excessive trade deficit is with our partners. While many elements in the supply side of the British economy have considerably improved, with a number of significant growth areas, there are still structural weaknesses, particularly in automobiles and related products, semi-conductors, household durable goods and machinery and machine tools. That situation can be attributed to a variety of well-catalogued causes, some of which, but by no means all, are to a degree behind us.

Because attitudes and performance have improved and enterprise has been encouraged, and, equally, because of our EC membership, we are attracting an increasing variety of inward and home-based investment of an ongoing nature which, in time, will correct some of the deficiencies to which I have referred. That will, in turn, improve our trading performance. I say "ongoing" because we have had disappointments in the past as a result of some of the large-scale investments in the 1960s and 1970s proving unviable in more competitive conditions.

Investment, per se, is not enough. A single market of 320 million people with a high degree of skills and rising living standards is a magnet for business investment and activity. This country has become a prominent base for both and we must maintain and build on that confidence.

I share the belief that, in the long term, British industry, commerce and tourism will benefit from a single currency area, but that has yet to be negotiated with the Commission on acceptable lines, as I hope it will be in time. In the meanwhile, to facilitate further the free flow of goods and services, a financial clearing house should be established on the lines of the old sterling area or the current Benelux union which has proved successful for over 40 years. Such an arrangement would put into perspective trade balances between partners and allow business expansion to proceed with assurance uninhibited by the present constraints.

The wealth that could be created from sustainable growth in the single market—the immediate benefit is calculated by the Checcini Report to be an additional 5 per cent. of Community gross domestic product—would enrich all sectors of society among the members, give hope to the emerging nations of Eastern Europe and provide opportunities and aid for the less fortunate countries of the world. At the same time, we must continue to maintain our close and amicable relationships with the other industrial powers, for we know from experience that prosperity is indivisible. We also know from experience that we can influence affairs only if we are active participants. Europe, both East and West, is on the move and we must continue to play a leading part in that dynamic momentum.

The Government are to be congratulated on the major part that they have played in the establishment of the single market. They have had a powerful influence in breaking down barriers, ending exchange controls, increasing competition in services and public sector purchasing and harmonising standards. Europe has learnt the sombre lessons of history and, as a result of the single market agreement, now represents a consumer orientated society seeking peace, respect for heritage and widely based prosperity. It has renounced the internecine wars that so nearly ruined us all. It is a dream coming true.

The political parties in this country are now unanimous in accepting that our future is within the framework of the EC. The governments of the Community should catch the tide that is flowing so strongly and resolve the outstanding financial and social issues so as to maximise the potential of 1992 and, beyond that, to the 21st century.

4.59 p.m.

Lord Cobbold

My Lords, I participate in this interesting debate as a representative of the banking and financial services industry. The industry, centred on the City of London, looks upon the European single market as a huge and exciting challenge. We see the Community as a market of 320 million savers and consumers generating gross savings of more than 850 billion dollars, nearly 40 per cent. more than the United States and 10 per cent. more than Japan.

The goal of being able to offer financial services throughout the Community and of combining the domestic capital markets in equities and bonds of the whole Community into a single market centred on London is a thrilling prospect, well worth fighting for in an open, competitive environment.

Banks and City institutions have been at the forefront of planning for 1992 and of encouraging their customers to be alive to the opportunities and the risks. My own bank, Hill Samuel, is proud to be one of the 10 founder members of the CBI's Initiative 1992 which, as the noble Lord, Lord Young, well knows, has been alerting British business across the country to the facts of the single market and offering more detailed advice to those who seek it.

Creation of the single market in Europe places the Community firmly in the big league with the United States and Japan. Together the European nations can provide the capital resources needed to fund the development of technology and the industrial investment for the 21st century. The single market is the best hope for the people of Europe to create the jobs and to sustain a standard of living comparable with those of its major big league competitors. The banking and financial services industries are ready to accept the challenge.

However, there are two serious concerns that we have in the City which I should like to bring to your Lordships' attention and in particular to the attention of the noble Lord, Lord Young. First—and this is a concern which has already been mentioned by the noble Viscount, Lord Trenchard, in a maiden speech on which I should like very much to congratulate him—we are concerned that the regulatory environment in the United Kingdom should be no more restrictive than that prevailing in other countries of the Community. Inevitably business will be lost to British banks and institutions if the complex web of regulation that has sprung from the Financial Services Act proves to be more restrictive than the rules applying in the home bases of our Community competitors. I urge the Minister to take note of that.

Secondly, we are concerned by the Government's attitude to European monetary integration, which has been mentioned by many noble Lords this afternoon. If the Government decide at the Madrid Summit to reject the Delors Report, whatever its defects in content to which noble Lords have referred, and to stand aside from the process of monetary integration in Europe, they will expose the country and British industry to a whiplash existence on the fringe of a huge domestic market. No doubt our foreign exchange traders would welcome the continued volatility but it would pose a major threat to the competitive position of British industry and to the dominant position of the City in European financial markets.

The Government's monetary record in the recent past gives little encouragement to the view that we can survive quite well on our own. The Single European Act, if it is to to work and provide a free market in goods and financial services in an environment free from all restrictions on capital movements, presupposes a degree of economic and monetary policy harmonisation between member governments considerably greater than that which exists today. To argue that the achievement of a common monetary policy is a diversion and involves too great a loss of sovereignty is itself to threaten the foundations of the single market that have already been laid and is contrary to undertakings already given.

Should we not ask how independent we are in monetary policy in the first place? The experience of the 1970s and 1980s suggests that small and medium-sized economies have very little freedom of manoeuvre in monetary affairs and that such independence as they have tends to be a freedom to do damage. Democratic governments do not have a very good record in money management. The merchants who founded the Bank of England, the founding fathers of the Federal Reserve system and the experts who wrote the post-war constitution of the Bundesbank were all concerned to keep the process of money creation out of the hands of the politicians. There are thus well-established precedents for monetary policy being at one removed from political authority.

Of course much further debate is needed on the Delors Report and on the structure and mechanics of monetary integration but it is essential that we face up to the need to participate in the process if the full benefits of the single market for this country are to be realised. I had the honour today of being a guest at a luncheon hosted by BAT Industries following the first meeting in this country of the Association for the Monetary Union of Europe, which is an association founded by leading European industrialists under the leadership of Mr. Van der Klugt of Philips, Mr. Agnelli of Fiat and Mr. Ortoli of Total. The aim of the association is not just to promote the debate on this important issue but more specifically to take practical steps within European industry toward its solution, for example by developing and encouraging the use of the ecu throughout industry.

European industry sees the benefits that are to be gained from monetary integration. It will be a sad day for British industry and for the City if the British Government decide to stand aside. I urge the noble Lord, Lord Young, to press upon his colleagues in the Government the importance of the issue and the seriousness of our concern.

5.5 p.m.

Baroness Elles

My Lords, I should like to thank the noble Lord, Lord Cledwyn, for having introduced this Motion at a singularly appropriate time; namely, five weeks before the European parliamentary elections. I take this opportunity of also thanking the noble Lord, Lord Greenhill of Harrow, for making his kind remarks. I assure noble Lords that I am not making a pre-election speech as I am not standing for election.

From time to time the European Parliament is somewhat disparagingly referred to as being a talking shop. On the other hand, when it is effective and makes a statement which becomes a matter of Community law, it is immediately accused of interfering in national sovereignty. Whatever the perceptions of the European Parliament, there is no doubt that the 518 representatives who will be elected from 12 member states on the 15th June will be concerned precisely with our concerns today. What kind of Europe do we want? The European Parliament undoubtedly will play a role in deciding the future of Europe.

It is not often realised that since the coming into force of the Single European Act on 1st July 1987 over 30 per cent. of all amendments adopted in the European Parliament are subsumed either verbatim or in substance into Community law. That is of course a far higher proportion than any amendments that are taken into government Bills in any national parliament. So the role of the European Parliament, whatever people may think of it, cannot be neglected and cannot be denied in the ongoing process of the creation of whatever kind of Europe individuals or societies may choose to seek.

I should like to take this opportunity of recalling that if it were not for the European Parliament we should probably not be debating 1992 today. I should like to pay tribute to the energy, devotion and determination of my colleague Basil de Ferranti who died in December last year and who played such a leading role in bringing about this concept with his pragmatism and devotion to his own cause. Indeed, accompanying him was Madame Christiane Scrivener who, as noble Lords will know, is now a distinguished member of the Commission, and the idealist Mr. Spinelli, with whose ideas, I confess, I did not agree. Nevertheless it was his idealism and pressure for change in the relationship between the institutions which brought about the realisation of the 1992 concept, because, on the one hand, there were the pragmatists and, on the other hand, the means whereby these proposals could be put into Community law and eventually implemented in national law. So I should like to pay tribute to those members of the European Parliament and to their determination, as well as the support they received from all members of the Parliament.

The 1992 programme was an eight-year programme to cover from 1985. It meant two terms of the Commission, which is why of course December 1992 was chosen by the noble Lord, Lord Cockfield. It is monumental in its effect in creating a single European market, but it does not pretend to create a new Europe in itself. The 1992 programme is a legal framework within which governments, industry and individuals have both a freedom and a responsibility as well as the opportunity to create their own future. Already many of the directives adopted—about half the programme so far—are opening up opportunities for industry and individuals. I shall not mention again those that have already been referred to by my noble friends the Minister and Lady Young.

It should perhaps be noticed en passant that all the directives which were referred to have passed through the European Parliament and have been amended from the original Commission proposals in the light of improving the legislation and, it is to be hoped, in the interests of Britain and the European citizen. So it is in fact nonsense to speak of the failure of the single market, as some people have been doing in speeches recently. I do not believe that there would be £5 billion of inward investment during 1988 into this country alone if outside third countries believed that this programme could not succeed either for the benefit of Europe or for global trade and interdependence in creating prosperity at global level.

The most controversial area to which many noble Lords have referred is the so-called social dimension which represents 80 proposals from the Commission. These are being debated at various levels of the Community's institutions. Some will be sensible. I hope that the Government will not take the attitude that because it is called the "social dimension"—an admittedly unattractive Euro-jargon piece of vocabulary—it should be dismissed out of hand. There will be many proposals that are totally intolerable, unacceptable and indeed would be harmful. But we would surely agree that those that deal with safety and health at work cover an area in which the United Kingdom has a good record. Others are neither relevant nor necessary in each and every member state. Each country has its own priorities based on its own traditions, structures, and wide variations in social standards.

There is, for instance, a proportionate difference in prosperity of one to 15 between Greece and Germany. Therefore one cannot have precisely the same rules or obligations dealing, for example, with wages. The number of trade unionists in Denmark comprises about 70 per cent. However, in France it is only 15 per cent. Clearly therefore a Community level of law is inappropriate in the circumstances. One does not need to be against it, or for it, but one has to recognise what is appropriate or inappropriate at Community level.

In my opinion uniformity is nonsensical. However, there are areas where it is essential to make great efforts. For instance it is estimated that by the end of the century 80 per cent. of jobs will be connected with electronics. Training and re-training during the lifetime of a working person must be readily available. Industry will lose out if employers do not recognise their obligations and responsibilities in this field. The Commission has already launched an excellent programme, COMETT, which is contributing to recognition not only of training and re-training, but training at European level on a European-wide dimension. A project called Target, with which I have been concerned in my former Euro constituency, has already played a leading role in linking up industrial training between different parts of the Community. This must be related to modern industrial development.

Again, social security provisions enabling easy transfer of acquired rights for employees throughout the EC is another area needing improvement. Demographic imbalances differ widely in the 12 member states and therefore different measures to deal with social problems arising will require different policies according to the member state and to the birth rates in those member states. Those social problems could be a shortage of young people entering the workforce, as in the United Kingdom, or an increasing need for older people to remain in the workforce to fill the vacancies already available. I give these as examples where a social dimension must not be ignored but must be looked at critically and in accordance with the needs of the area and the problem that it seeks to solve.

Industry will need to undergo a radical change in attitude. The words "exporting to Europe" must be banned from the vocabulary of all businesses. If that is the vision of a single European market, there are actions that government and industry need to take. Greater circulation of goods and persons—this seems rather obvious but sometimes one has to state the obvious—demand better infrastructures comparable with those on the Continent. If one drives from the south of Italy to Calais one is on a motorway. The minute one reaches Dover one is off a motorway. Especially if the North and Scotland are to benefit from this increase in trade, and with the arrival and completion of the Channel Tunnel, better and more motorways and high speed trains must be a major government priority. The lack of competition created by poor road structures today are no service to British industry.

Another area—no doubt controversial—is the question of the volatility of sterling. Many noble Lords have spoken on this issue. I join with all those noble Lords who say that we must join the exchange rate mechanism to help with our trade deficit, our exchange rate volatility and to deal with the rate of inflation. However, there is an important political point of which those of us who move in the European field are only too conscious. Over and over again we are accused of being non-European because we are not members of the ERM. I believe that joining the ERM would completely change the attitude of others to the United Kingdom and give us that opportunity for leadership in the European Community that we so badly need.

I leave out the various arguments that have already been so well rehearsed. However, with the liberalising of the financial services sector—to which the noble Lord, Lord Cobbold, referred earlier—already partly achieved, membership of the ERM would give British financial services more competitiveness than they have now.

Breaking down our internal barriers is no excuse for putting up external barriers against those who seek to trade with us under fair and equitable conditions within the GATT rules. Our own economies have been weakened over the years by protectionism and excessive regulation. I do not of course refer only to the United Kingdom. The advent of a single European market has forced businesses and government to look more clinically at traditional policies that have been hampering and distorting free competition. For instance, let us consider the volumes of forms and red tape for the setting up of small businesses. The recent advice of a Customs and Excise official, on being asked, "What should I do to start a small business?", was, "Don't". I know that my noble friend Lord Young of Graffham has indeed set up a very useful and important committee to look at de-regulation, and to help in this area.

It is not in the interests of Britain or the European Community as a whole to set up new barriers against trading partners. Not only do we therefore remove internal barriers but we must not set up new external barriers. The European Community's share of world trade is 20 per cent.; that of the US is 15 per cent.; and that of Japan is 9 per cent. but increasing. There is legitimate concern that if we are an open market—a world shop window, as has sometimes been said—then others must also be prepared to open their own doors. The concept of reciprocity, which was proposed in the second draft banking directive, must be optional and not mandatory. It looks now as though there is a move in that direction. It must be a barrier against protectionist measures, but one which hopefully may not be used.

In conclusion, there has been much discussion about the kind of future that we shall have in the European Community, whether we shall be a united Europe, a federal structure, or whatever it may be. I believe that that is all in the future. I only beg of noble Lords that we do not close the door so that the choice remains available for the next generation.

5.17 p.m.

Lord Monson

My Lords, I too am grateful to the noble Lord, Lord Cledwyn, for initiating this debate. Some of the ground has already been covered in the Motion of the noble Lord, Lord Ezra, on Britain's manufacturing base a week ago. There is therefore no need to cover that again in detail this afternoon. Perhaps I may also add my congratulations to our maiden speaker.

Obviously a certain amount of hype was necessary to galvanise small and medium-sized companies into making the minimum of essential preparation for a single market, not least an effort to attain some minimal fluency in a foreign language—Britain's Achilles' heel—although it has to be said that it is a trifle late for that at this stage. Having said that, I wonder whether the Government are wise, from the point of view of their long-term popularity, to build up people's expectations of the joys that will flow from 1992 to the extent that they have.

So much of the rationale for 1992 seems to be based on the rather outmoded 1960s' idea that "big is beautiful" and that economies of scale are almost automatically guaranteed. This may perhaps be so in, say, pharmaceuticals, food processing and volume car production—although British Leyland was not exactly a good advertisement for that theory. However, the British experience shows that the reverse is often the case with regard to other industries. One thinks of some domestic appliance manufacturers and a number of specialist chemical companies. All of them are efficient, but I am not so sure how well they will do post-1992. Nor, like some commentators much more experienced than myself, do I think that our financial service companies will have the easy ride that they seem to be anticipating.

There is then the danger of protectionism, a phenomenon that always disadvantages more people than it benefits but which has a chronic, fatal attraction for Continental countries by virtue of the fact that they are Continental. I was delighted to hear the noble Baroness, Lady Elles, assert how opposed she was to protectionism.

A more serious danger that we face is this. Those who enjoy exercising power over others—an all too common human failing—will seek to use 1992 as a pretext for interfering with our strictly domestic affairs by imposing harmonising measures that have nothing whatever to do with creating the "level playing field" needed to facilitate fair competition. That is what many years ago Professor Ralf Dahrendorf termed "obsessive harmonisation".

People worry about creeping federalism. Creeping federalism is bad enough, but the constituent states or provinces of genuinely federal systems have far more autonomy in many matters than is being allowed to the supposedly self-governing nations composing the European Economic Community. There are times when the Commission, aided and abetted all too often, it has to be said, by elements in the European Parliament, seems hell-bent on turning the EC not into a mere federation, but into a highly centralised unitary state.

One might, for example, give examples of proposals to harmonise speed limits and seat belt laws, to require veterinary surgeons to be present at a shoot and to restrict the shooting of pigeons and other vermin. None of this has anything to do with a level playing field.

Then there is our drinking water. I feel as passionately as anybody else in this country about the need for pure drinking water; but what earthly business is it of Brussels? To rely on unelected external powers to protect us from the inevitable failings of one's own government may occasionally be insidiously tempting. It has to be said that I sometimes yearn for the much stricter French and German standards applied to chocolate, beer, jam and ice cream. But this is a temptation which must be resisted because to succumb is to tread on a very slippery slope indeed.

How insolent of the Commission to make it illegal, indeed a criminal offence (at one remove) for a greengrocer to sell an old lady a pound of potatoes after 1994! George Orwell was 10 years too early. This kind of thing may be acceptable in countries which are not certain of their own identity: those countries which are 19th century creations, such as Belgium, Luxembourg, Italy or Greece or 20th century creations such as West Germany or the Republic of Ireland, but it is not acceptable to ourselves.

As the noble Lord, Lord Deedes, wrote in the Daily Telegraph two days ago: for a while in 1940 we stood alone"— while most of the rest of Europe was willingly or unwillingly under the sway of dictators. For that reason alone, our deepest instincts are bound to differ from theirs.

About six weeks ago a Conservative Euro MP, Mr. Richard Cotterell, pointed out in the Financial Times that: The Commission has always regarded the Treaty of Rome as an interventionist instrument. Post-1992 that same Commission elected by no one, will enjoy unrivalled powers over all our lives and supply its president with as much power as any head of state or prime minister in the member countries". That is a worrying prospect indeed.

It is true that there are other proposals, in theory much less unreasonable, and some of which may even be desirable in themselves, but which are still not essential for the effective functioning of a single market. The abolition of frontier controls is one example. Here I agree with the Government. A single economic market operates efficiently throughout southern Africa, despite strict border controls. One also might cite the immigration controls that exist between Melilla and Malaga, both classified as part of metropolitan Spain.

Then there is the proposed abolition of duty free allowances for travel within the EC—a move seemingly designed to benefit the tourist industries of Austria, Switzerland, Tunisia and Turkey. Yet travellers can buy duty free goods when flying from Martinique or Guadeloupe to Paris—all considered metropolitan France. And what about the Greek Dodecanese islands (duty free in their entirety) as indeed are the Canary Islands, as a reward for having helped Franco at the outset of the Spanish Civil War?

Then there are time zones. Australia, Canada and the United States have achieved enormous prosperity with several time zones apiece, so that the contention that the EC cannot function with more than two time zones is sheer nonsense. Over 46 degrees of longitude separate El Hierro, the westernmost extremity of the EC, from Rhodes at the easternmost extremity. Even if the Canaries are treated for some reason as a special case, there is still about 39 degrees of longitude separating Killarney from Rhodes. Only 37 degrees separates Perth from Brisbane. Australia, correctly, has three time zones: so should the EC within its present boundaries.

The much weightier matter of the social market has already been touched on by other noble Lords. I add only that any attempt to harmonise wage rates and social security benefits throughout the Community would concentrate industry still more within the Birmingham-Lyons-Dortmund golden triangle and would magnify unemployment and distress in the peripheral regions. After all differential wage rates, differential local taxes and, to some extent, social security benefits in the United States have helped to revive dying industries in New England and the deep South, while taking some of the pressures of overheating off California.

On the question whether a single market requires a common currency, the European Monetary Union in this case, experiences elsewhere tell us that the answer is no. The EMS is perhaps a different matter. Here I find myself agreeing, with considerable reluctance, with the noble Lord, Lord Barnett.

What is the answer to the problems I have outlined? Mr. Richard Cotterell in his Financial Times letter seems to hint that devolving more power to the European Parliament would improve matters. I think the phrase is "more democratic accountability". But, given the different histories, perceptions and interests of the constituent nations, I wonder. I also wonder whether there has ever been a true parliament in history—that is to say, a debating chamber—where eight or perhaps nine different languages can be used.

For more power to be devolved to the European Parliament, two changes are surely implied. The first is a common electoral system, which in practice is bound to be some form of proportional representation. Whatever the theoretical merits of PR, it would weaken party discipline, encourage horse trading and permit minority interests and pressure groups to gain undue influence. Surely that is not likely to be to our advantage.

The second prerequisite is one vote of equal value throughout the EC. At present an Irish vote is worth three times as much as an Italian vote. A Luxembourger vote is worth 11 times as much as a French or a British one. All that would have to change if the Parliament is to assume more powers. But would the smaller countries wear it? I am not sure.

About a year ago I met a very good French friend whom I had not seen since before the 1975 referendum. When I gently explained to her that by and large the British liked and admired New Zealand and the New Zealanders every bit as much as they liked and admired France and the French, perhaps even more so, she was horrified and mortally offended. She looked at me with genuine pain on her features and said "But this is not right! You are now members of le Marché Commun ". This was a person, highly educated, well travelled, who had lived for several years in England during the 1950s. One can imagine how much more strongly the average French person, or the average Continental, must feel.

I believe that this is an indication of the vast psychological gulf we face within the EC in relation to our relative perspectives of the outside world, in which I include the 16 European countries which are not members of the Community. Our perception is different from that of the Continentals. It does no good to anyone to gloss over this unfortunate fact.

5.29 p.m.

Lord Lucas of Chilworth

My Lords, just about a year ago at the European Council the Heads of Government stated: The major objectives set out in the Single Act [completion of the internal market] has now reached the point where it is irreversible, a fact accepted by those engaged in economic and social life". Not one of your Lordships would disagree with that, I believe, particularly as we are about halfway through the process to this magical 1992 or 1993.

I think that it was the noble Lord, Lord Barnett, who said that the date is not really so important; but it is something of a focal point. I congratulate my noble friend Lord Young for it is that focal point on which the Government have spent so much energy in the awareness campaign.

My noble friend claims that now at least 95 per cent. of businesses know about 1992. I listened carefully to what was said by my noble friend Lady Young. She pointed out that the businesses with which she is involved know a great deal about 1992 and 1993. But there are a number of companies which do not appreciate the point. Perhaps they are exporting in Europe, importing from Europe, or not even doing business in Europe, as was said by my noble friend Lady Elles. They do not realise that what is happening in the Community as a result of the single European market has a bearing on the way in which they will do business. It may be the adoption of customs and practices which are now emerging in the Community or whether they are backed by Community legislation.

As regards Community legislation, we should guard against excessive measures which do not of themselves make a contribution to the single market, as have those of other member states; for example, harmonisation for harmonisation sake. Some of the social policies to which the noble Baroness, Lady Lockwood, referred are irrelevant to our social and commercial behaviour. Those who advocate that there should be direct worker representation on boards should look at the tragic example which occurred in the Volkswagen plant at Wolfsburg. I made a number of visits to the plant and it was tragic to see that the system has completely failed. Speaking for the motor car industry, which I know best, we can here evolve a system of worker participation—whether through shareholding, advisory boards or whatever—which will give workers a proper representation as regards the actions and decisions of the company. Different companies, whether motor car companies or others, require differing structures. I believe that it would be wholly wrong to superimpose a standard format from a group, the Community, which itself has disparate practices.

I should like to thank the noble Lord, Lord Cledwyn of Penrhos, for initiating the debate. I do so because I want to criticise him, if he will allow me. He made much play, as have he and his noble friends over recent weeks, of the manufacturing deficit between this and the other European countries. But I ask why he never gives any credit to those companies—for example, Pilkington and ICI—which are not expanding manufacturing in this country because they have gone to the marketplace in which they will sell and are manufacturing there. In place comes the investment to which my noble friend has referred, Toyota being the most recent. There is also the continuing investment in old friends such as the Ford Motor Company and General Motors which for the past 60 years, since they have been in business in this country, have continued their investment.

I should like to turn perhaps rather dangerously to this side of the Channel. I want to draw your Lordships' attention to the deplorable state of our transport infrastructure. I do not want to initiate a whole debate about it. But where we are being encouraged by Government and the way in which industry has taken up the challenge—notably through the Channel Tunnel—to become fit in order to compete and take a fair share of the new market in a few years' time, I believe that it behoves the Government in their social responsibility not only to provide the financial and taxation climate but also the physical climate in which our factories can operate. That physical climate is in the road and rail infrastructure, which does not bear thinking about.

My noble friend Lord Young said that he anticipated that the effect of 1992 would be to increase gross domestic product by 5 per cent. over and above that which is now occurring. On the evidence of the past decade that is likely to produce approximately a 10 per cent. increase in road traffic. That is in addition to the 2.5 per cent. annual increase that the Government forecast; a forecast which I fear is sadly on the low side.

That points to the need for vastly improved links with Europe not only in the South-East to the Channel Tunnel but right across the South and South-East to the ports. It is apparent in all parts of the country that that improvement is needed. A number of improvements are underway but the point was confirmed by officials in the Department of Transport in recent evidence to the House of Commons Transport Committee. They said that there were a number of road projects which had to be brought to fruition quickly. For example, the completion of the M20; construction of the M1-A1 link; an outer orbital route through the Home Counties to relieve pressure on the M25; and upgrading the A2 and M2 corridor. There is not even a motorway running east-west connecting the South of England; that is, from Dover to Exeter and Plymouth through the ports at Southampton and Portsmouth.

I must contrast what we are doing with what the Department of Development in the Pas de Calais has done in connecting Dunkirk, Calais and Boulogne as a northern area to divert the traffic east, west and south on the new A26 around Paris—that is around Paris and not through it. That project through Dunkirk, Calais and Boulogne has taken only between six and seven years, whereas it takes us 15 to 16 years to build a stretch of motorway. We are to anticipate the publication of a White Paper on roads shortly. Perhaps it will reflect some of the Government's current thinking. But I am worried not about the plan where it exists, but about its implementation in terms of time and payment.

If one looks at the rail system, rail modernisation has been less than startling. British Rail reckons that it is carrying 2 million tonnes of international freight on the Dover-Dunkirk train ferry. It hopes that that will rise by three to three and a half times over the next few years. But 75 per cent. Of that demand will be in areas beyond London and the South-East. There are problems for British Rail which are foreseen by it. For example, the lack of capacity on British Rail routes; poor access across London to the east coast main line; and poor interchange with the rest of the rail network beyond London.

We recognise that and I must ask the Government through my noble friend although not for an answer this evening: is there the resolve and the driving imperative in government to give industry and commerce—essentially the private sector—the encouragement to take on board that which the Government have been selling so successfully? The Channel Tunnel is a private sector venture. I do not believe that road and rail infrastructure can be left to that sector alone. That is a public sector and a government responsibility. I hope that the Government will accept that responsibility and discharge it in time for the private sector, industry and commerce, to discharge their responsibilities in the new opportunities presented by the single European market.

5.40 p.m.

Lord Ardwick

My Lords, perhaps I may first congratulate the noble Viscount, Lord Trenchard, for having got successfully through his initiation. He will be able to sleep easily tonight and plan his next speech to us. Perhaps I may also say how grateful I am to my noble friend Lord Cledwyn for putting down this Motion today. As other noble Lords said, that shows a great difference in the thinking of the Labour Party. I am a veteran member of the Labour movement of Europe and I attempt to parody one of my favourite hymns, "How Sweet the Name of Europe Sounds in a Believer's Ear".

Nevertheless, like the noble Lord, Lord Greenhill, I see difficulties ahead: first, the difficulties of legislating for a Community containing nations of great cultural differences and great differences of wealth. There is a lurking fear that during the next three years the world may come to the end of the second post-war boom and make it tempting to put immediate national interests before international integration. That has happened before. It happened in the 1970s. All the implications of the Single European Act were implicit in the Treaty of Rome and many were explicit. However, in the early days of the Community the prosperity of the Six was so abounding and so deceptively durable that there was no great impetus to further radical integration. It looked as though the Community had discovered the primrose path to Utopia and that the destination could be reached at leisure by the painstaking harmonisation of trading and other standards.

After an era of stable parities under Bretton Woods, it was possible to fix a forward date for the achievement of the ultimate goal of economic and military union without any systematic examination of the consequences. It was at that moment that we, alongside the Irish and the Danes, joined the Utopia-bound Community just as the Bretton Woods system was ending and the inflationary depression caused by the increase in oil prices was about to begin.

The Community made too little progress after that, but now it has regained its courage and its impetus and is going forward again. All will be well if the faint signs of recession prove to be wrong. If they are not, perhaps we can hope that the Community will see that there is a better way out of that than a nationalist sauve qui peut panic.

Even at best, the Community has to improve its economic record. Under the glittering prosperity—and I was very glad to hear the noble Lord, Lord Young, speak of this—is a sub-class of 10 per cent. unemployed. Of course, they do not starve; but such unemployment is deplorable, cruel and socially dangerous. That is in some countries which have enjoyed longer and more even prosperity than Britain.

Another anxiety which I have is a national anxiety. Despite its economic attainments, Britain has the most precarious of the major currencies. In a dangerous world it has what is by current standards high inflation and a large adverse balance of payments.

What are we to do? There may be a price to pay if we seek to enter the European rate mechanism, but that would be a wise insurance. If ever the time for entry was ripe it is now. The Chancellor knows that as does his predecessor, the present Foreign Secretary. Even as a good neighbour, there is a case for playing our part in the collective effort to maintain monetary stability in the Community.

As a member of the European Parliament I was rapporteur on economic and monetary union at a time when the European monetary system was created. Many people then had difficulty in sorting out the two concepts largely because the word "union" is capable of meaning so many forms of togetherness. I then saw EMU (as we then called it) as a distant yet desirable goal and EMS as something which may be either a step on the road or a goal in itself.

However, let us not accuse M. Delors of carrying things too far in his advocacy or even in his predictions of EMU. It is the task of the chairman of the Commission to keep the mind of the Community on its final institutional goal, a task which the noble Lord, Lord Jenkins, played with even greater zeal and greater persuasive power when he occupied Monsieur Delors' position. Let nobody accuse Monsieur Delors of sneaking that in. We became committed to monetary union when we joined the Community.

I believe that it is only in Britain that M. Delors' hopes are not regarded happily. Only here do we have a kind of "I'm all right, Jacques" mentality towards what is proposed. The noble Lord, Lord Barnett, is not in his place but it is something like Clause 4 of the Labour Party's constitution or something like the communist looking forward to the day when the state will wither away except that it is nearer and more realistic than either of those goals.

Everybody now realises that we are in the Community to stay and for that we have to thank largely three Prime Ministers—Macmillan, Heath and Wilson. The Foreign Secretary was jibing only yesterday about Labour having had several different courses on Europe. Of course, we have been a deeply divided party, and so we remain; although we are not the only one.

However, our second application to join the Community was due to the initiative of the noble Lord, Lord Wilson; and his handling of the referendum was masterly. His European policy may be regarded by history as his highest achievement, although some of us ardent Europeanists may have been upset by his tactical tergiversations.

Now our present Prime Minister is battling on to 1992. The kindest thing that I can say of her is that though she speaks too often with the voice of Enoch, defending impossible sovereignties, her hands are rather the hands of Edward as, for example, when she signed the Act of 1985 which meant sacrificing the veto on many topics in the Council of Ministers.

What is upsetting her now is what is called the social dimension of 1992. I was very glad to hear the noble Lord spare a kind word for the social dimension and to hear the noble Baroness, Lady Elles, speaking with certain authority and detail on the subject. The social dimension will protect workers and their families from the harsh effects of the increased competition which the single market will stimulate.

That is nothing new. There was a social action programme approved just after we joined the Community concerned with employment and training. However, members states harassed by the recession did not implement those measures. Now there is a series of measures proposed which M. Delors described to the TUC. He greatly impressed it. Why? Because under this Government the trade unions have lost their voice in Whitehall and Downing Street. Most tripartite bodies have been wound up, I am informed, and even recent ILO proposals have been turned down. The trade unions now see that in Europe they will at least have a voice. I believe that that is something which is infuriating the Prime Minister.

It is that which led Mr. Kinnock to make his boldest pro-Market speech by saying that Mrs. Thatcher's failure to accept co-operation is creating the threat of a two tier Europe with Britain firmly stuck in the second rank. It could be on that that the elections for a European Parliament will be fought. Labour at last has a theme which will appeal to its rank and file. It would be wonderful to have an election in which both parties were competing as to which could be the more European instead of the opposite.

It was that fear which stimulated Sir Geoffrey Howe into his remarkeable counter-attack yesterday. He claimed that the single market is a Conservative invention. He said: It pushes forward our liberlising, deregulatory route to prosperity on a Continental scale". He failed to point out that deregulation is of course to remove technical, physical and fiscal barriers; but that does not mean shelving proposals for health and safety at work, improved vocational training, equal opportunities for women, and above all increased rights of information and participation in decisions at work. It is only the last point that scares the Government and some businessmen. They can all relax. It will not come in a hurry. The German system of participation is by no means for universal imposition at once.

Where Sir Geoffrey and many members of his party make an error is to suppose that the European Community is dominated by ruthless, capitalist entrepreneurs supported by the non-socialist parties. That is profoundly to misunderstand the Christian Democratic parties who have always stood for regulated markets and social reform. They have a religious concept of the duty of the state to protect the dignity of the worker, to foster the family and to cherish the aged.

The tripartite bodies, as we call them here—a term possibly invented by some thin-lipped Latinist in the Civil Service—are known in Europe as "the social partners"; a warmer and more hopeful term.

Everyone now knows that the earlier ideas of industrial policy no longer work, but that does not mean that all the corporatist ideas which enabled the Germans and the Italians to accomplish their miracles will be swept away by the Single European Act. A French Gaullist is now trying to unite the Liberal centre and the Gaullist right and is pointing out that Gaullist ideas are held across the parties: pragmatism, economic liberalism—attentuated, note well—in its social effect, and industrial participation in place of confrontation. That is why the British Conservative Party is almost alone in its antagonism to the social dimension of 1992. Of course, a great deal of it is the social provision which the Conservative Government maintain in this country. However, it does the Conservative Party and Britain no good in Europe to pretend that they are economic philistines. They will find some far right politicians and men from the boardrooms arguing on their side, but not many more.

This Gaullist—M. Sequin—admires Mrs Thatcher as an archetypal leader; but though he says her liberalism is effective he finds it brutal. That is very much a European idea. Conservatism is an unacceptable word in Europe. That is why the English Conservatives call themselves European Democrats. They have never been able to integrate with a major European party. Now their role will be more difficult unless more enlightened speeches are made about the social side of 1992.

5.53 p.m.

Viscount Massereene and Ferrard

My Lords, I first thank the noble Lord, Lord Cledwyn of Penrhos, for introducing this debate. I also congratulate the noble Viscount, Lord Trenchard, on his maiden speech. I knew his father well and I am sure that he would have been extremely pleased to have known what his son said. It was an excellent speech.

I remember speaking in the original debates when the European Community was first spoken about. The chief warning I gave was that we must beware of bureaucracy of the Continent. I have had some slight experience of it. I do not think much notice was taken of that warning. Why should it have been taken notice of? I was much younger then.

What has surprised me about this excellent debate is that hardly anything has been said about sovereignty. The noble Lord, Lord Cledwyn, mentioned sovereignty but I believe he is the only speaker to have done so. However, I have not been in the Chamber for all the speeches. On reading the Preamble to the Single European Act it would appear that the sovereignty of this country will be, to all intents and purposes, destroyed. The sovereignty of the Queen in Parliament will be destroyed. The British Parliament will become almost—and this is perhaps exaggerating slightly—a local government. It will certainly come to that eventually, perhaps in 10 or 12 years, but one cannot tell what will happen.

I am also concerned that the position will be anti-democratic—at least, that is my point of view. When the Single European Act comes in the position in regard to laws will be—to a certain extent it is now—that the Council of Ministers will have the power and will be advised by the Commission. To me that does not sound very democratic.

Perhaps I may briefly mention the Falklands. I understand that once a year—perhaps every 18 months—the United Nations holds a debate on the sovereignty of the Falklands. I believe I am right in saying that on the last two occasions not one of our European partners has voted for the United Kingdom. If that is to be the case in the future regarding the laws made by the Council of Ministers on the advice of the EC, the position does not look too happy for us. However, I repeat that that is my opinion.

The whole debate has centred on the economy and to a great extent that is right because the economy of every country, especially today, is the most important aspect of survival; apart from defence, but we are hoping that there will be no more wars. Sir Geoffrey Howe, whom I much admire, I believe pointed out a year ago that he was rather proud of the fact that 40 per cent. of our exports went to the Common Market. It has taken a long time to achieve that—14 or 15 years. That does not appear to be a very good record when one is exporting to what is, in a way, a closed economy. When you have the whole wide world before you that does not seem a very good export record. I understand that the Common Market exports more of its goods to us than we do to it.

The other point about which I am worried was made by the noble Lord, Lord Cledwyn, as regards our manufacturing industry being in such an appalling deficit with the EC. I thought the figure was £12 billion, but I believe the noble Lord said that it was £14 billion. That compares with our deficit with the rest of the world of £2 billion, so something appears to be wrong there. I cannot see the common agricultural policy being improved at all. We have had promises that there will be an improvement but I cannot see that happening now.

M. Delors said that about 80 per cent. of the laws presently enacted in various fields will come under a new procedure. Presumably that means that they can be altered without our Parliament having any say in the matter. I do not trust some of the bureaucrats in the Common Market. I am sorry to say that, but we had that amazing occasion about five weeks ago as regards which I learnt from the press that apparently either £3 billion or £6 billion has disappeared. I do not know whether it has been accounted for now, but it appears to have disappeared in the bureaucracy. I cannot imagine that there was any other way for it to disappear. There must be some people who have been criminally dishonest. I hope that I am wrong about some of the things that I have said and drawn attention to, but that is what I have gathered.

6.5 p.m.

The Earl of Shannon

My Lords, the noble Lord, Lord Cledwyn, is quite right to raise the issues related to the implications of the social, industrial and trade policies of the 1992 single market. I, like other Members of this House, try to make my contribution partly because I have the honour to be a Member of your Lordships' European Committee and privately in my capacity as chairman of Strategy Europe Limited, which is an organisation advising companies and institutions, both in the United Kingdom and elsewhere, in terms of the single European market.

While we note the endeavours of the noble Lord, Lord Young of Graffham, to encourage industry and the business community to adopt an informed and alert position to the single European market, perhaps things have moved on since last year when independent research showed that the proportion of British firms with a strategy for the market was less than half of those in France. We were all very pleased to hear from the Secretary of State that his efforts have borne some fruit in that there now appears to be a 90 per cent. awareness in British industry as regards the single European market, with 50 per cent. actually doing something about it. One hopes that the financial institutions are following this lead.

On another note, perhaps I may ask the Minister whether he will expand on the progress of the Government in advancing their case that the partners in the EC should adopt British-style free market solutions to problems that might still need to be overcome, having in mind competition from the Pacific and North America. He may also help us to understand how the uniform business rate which the Government are introducing next year will help British business to advance its case within the market rather than being an extra burden of £1.5 billion in annual costs, as Sir Trevor Holdsworth, president of the CBI, suggests.

I make this observation having in mind that British business should be encouraged to continue to develop inter-Community trade, which presently accounts for about half our exports. Considering the inter-European enthusiasm for 1992, Community partners may care to have in mind the thoughts of the Director General of the Institute of Directors, Sir John Hoskyns, already referred to earlier this afternoon. He believes that this country is, in terms of 1992, speaking from a position of strength and self-respect for the first time since the last war and that we should ensure that our European partners should not, go down the same blind corporatist alley". Here Sir John was referring to the historic development in France and Germany in the earlier post-war period.

As regards consumers, in the rush to win the opportunities that the single market appears to offer to business and industry we have heard very little about them and how in this country they will be affected by the market. I am glad to note that the Consumers' Association plans to address itself to this subject in a few days' time. Surely the British public will want to know whether goods will be safer or less safe and whether product liability legislation will give the consumers more or less rights. As your Lordships know, the Single European Act came into force in July 1987. Within that Act there are seven title headings. Apart from the completion of the single European market, they are: Economic and monetary union; Social policy; Economic and social cohesion; Research and technological development; The environment; European co-operation in the sphere of foreign policy.

As the House will appreciate, the 1992 single European market is in pole position, but these other policies, embodied in that single Act, were also subscribed to by the heads of all the member states at Stuttgart in June 1983. That Act is now embodied in Community law, as we were reminded earlier by the noble Lord, Lord Jenkins of Hillhead.

Thus, as the noble Lord, Lord Cockfield, until recently a vice-president of the European Commission, said in his Upjohn lecture last month: The attempt to redefine the Community simply as a 'free trade area' is a modern heresy devoid of historical and material justification". In fact, it is the customs union which was the cornerstone of the Community. This view of historic facts prompts me to wonder on what basis the Government hold their position on economic and monetary reform. Of course it may be that the Delors Committee will produce some constructive proposals for the European Council.

In moving his Motion, the noble Lord, Lord Cledwyn, referred among other subjects to the social implications of 1992. I shall briefly touch on this theme although we have already heard with great authority from the noble Baroness, Lady Elles, on the subject of the social dimension. When speaking of Community social policy it is the more general principles of rights that one has in mind and that these rights, for citizens and workers, must be expressed in regulatory and legislative text, as borne out in the tradition of public law in several Community countries. At European level, this means ensuring the laying down of foundations of a legal system as a point of reference for defining labour relations and the minimum systems of social protection. It is noted, in this tradition, that the International Labour Organisation has developed important codes.

The Treaty of Rome places the emphasis on the notion of solidarity, believing it is a question of trying to overcome inequalities in development in order to avoid economic and social tensions between Community partners, which are unacceptable in a frontier-free area. For European citizens within the European Community there should be stimulation for full employment through free circulation of labour, the geographical and professional mobility of workers, the use of the European Social Fund and the vocational retraining of workers and actions in favour of young people.

I have touched on only some of the social implications related to 1992 with which the noble Lord, Lord Cledwyn, dealt more fully earlier this afternoon. In conclusion, we must learn to understand the Community in order to play our full part in its development and social responsibilities, as I am sure government agree.

6.14 p.m.

Lord Stanley of Alderley

My Lords, my remarks will be addressed to the challenge that faces the agricultural industry on the coming of the single European market in 1992. Before the industry can take advantage of that single market, it is essential to know what is likely to happen, which of course may not be exactly as is proposed. After the speech of the noble Earl, Lord Shannon, noble Lords may think some of my remarks a little detailed. However, unless one gets the detail right in any project, and certainly in the single market, it will not work.

First, I am somewhat doubtful whether there will really be common agricultural prices by 1992. Past experience has shown that the French in particular are fearful of British farming's ability to supply their market. They have resorted to unattractive practices to exclude our produce. I mention lamb as a case in point. I should be interested to hear my noble friend's opinion on whether such practices really will cease and whether he is confident that common prices with no MCAs will exist by 1992. Being a farmer I am a somewhat doubting Thomas. I have no confidence in the Government insisting on British agriculture being as favourably treated as French or German agriculture.

This leads to my second point which is to ask my noble friend how common agricultural prices can be achieved without a common currency and with no MCAs. If my noble friend tells me that that is impossible, how in the name of heaven—or perhaps it is of hell; I do not know—can we get anywhere near a common price system if we continue to refuse to join the EMS? I would like a simple explanation so that I can answer my fellow farmers' questions on the matter of the monetary snake. The noble Lord, Lord Cledwyn, referred to the problem of common agricultural prices. I hope that I see in my noble friend Lord Young the mongoose in the Cabinet to sort out this problem, because it really needs sorting out.

The final point that concerns me—it was mentioned recently in your Lordships' House when we debated agricultural research and development—is the vexed question of animal and plant health. It was mentioned too by the noble Lord, Lord Cledwyn, in his opening speech. It is proposed that there shall be no frontier checks. I ask my noble friend whether the Government will invoke Article 36 of the Treaty of Rome to allow such checks to be made at United Kingdom Frontiers. If so, how will this be achieved when we have no organisation to carry out such checks?

My noble friend may say that the problem will be solved by harmonisation of plant and animal health legislation. I am somewhat confused about this. Although it is suggested that such harmonisation will always be upwards, what is "upwards"? In the example of foot and mouth, is upwards a slaughter policy, or is it vaccination? If one were a British cow being slaughtered one would probably think that slaughter policy was downwards. This point needs to be answered. Such harmonisation will involve careful inspection in the individual country and, more important, on the individual farm.

Can my noble friend promise that sufficient resources will be put into enforcing such regulations? I have seen no sign of this. It will not do to say that market forces will solve the problem. In fact, such market forces will only aggravate irresponsible disregard for animal and plant health rules on the farm. I would be quite happy to compete with European farmers provided that my noble friend can assure me that it really will be on equal terms, especially as regards the two points which I have mentioned; namely, plant and animal health and Great Britain joining the EMS.

6.20 p.m.

Lord Donoughue

My Lords, I should like first to congratulate the noble Viscount, Lord Trenchard, on his elegant and constructive speech. As a former colleague—we tried together to face the inscrutable challenge of Tokyo—I know that he has much to contribute to the debates in your Lordships' House. I think that we are all equally grateful to my noble friend Lord Cledwyn for the positive and wide-ranging style of his opening speech. Most of us are pleased that the EC has regained momentum. 1992 provides a target and a sense of purpose and urgency. In welcoming that concept it is nice to see the Benches upon which I sit reverting once again to their true international tradition and leaving "little Englandism" to the Benches opposite.

To be fair, Mrs Thatcher must be given some credit for that momentum in Europe. Beneath the very deep veneer of hostility and carping rhetoric her achievement in Europe has been remarkable. She has transformed it. She has demolished much of the existing character of 10 years ago; that is, its legalistic character, corporatist and highly regulated, moving desperately slowly towards institutional integration. By strength of will and tireless bullying she has imposed her own vision of a liberal, deregulated free-market Europe.

I suspect that most people in the Community, especially the Brussels technocrats, are no doubt relieved to have a sense of progress towards a Europe without frontiers. To Britain there are many advantages in that concept especially, as has already been mentioned, as regards the prospects for our service economy where we have comparative advantages. The EC, so long seeming built for the benefit of German industry and French agriculture, is now at last positioned so that the United Kingdom's strongest sectors can gain access to that great market of 320 million people. That is all on the plus side and we welcome that change.

However, there are serious questions and reservations about the British approach. Above all, do the Government fully understand where they are finally going? Do they actually accept the logical implications of where they are going next with the single market, especially in terms of sovereignty? There are also reservations about the characteristic narrowness of their vision of Europe. In fact the single market of 1992, as seen from Downing Street, does not constitute an adequate view of Europe's future—and we are a part of that future. To have a completely balanced view of Europe requires at least three extra dimensions: it requires a coherent monetary system; it requires a programme of European investment for higher economic growth; and it requires a social programme to produce a Europe with greater social fairness and better social provision. In my view those aspects constitute the real challenge of 1992 and beyond. However, I am not sure whether the Government are yet meeting that challenge successfully.

On the monetary question, the danger is that in introducing free capital flows Europe will in practice be introducing greater volatility and monetary instability. We have recently experienced the crash of 1987 which demonstrated the dangers of financial instability where markets are in reality global. The world monetary system has been unstable since the collapse of Bretton Woods, because in fact we have no international monetary system. Moreover, world stock markets are inherently volatile.

Europe post-1992, with its deregulation, adds to that instability; that is, instability of markets, of currencies and of interest rates. As we are already seeing, the situation will get worse. As an aside point, I would add here that tax harmonisation has been mentioned and rejected. However, I should point out that without a satisfactory degree of tax harmonisation there is the danger of a rat race of tax havens being created in Europe. Moreover, London, as the most over-regulated market and being more expensive, stands to lose from that situation.

After 1992 the EC will in fact offer an opportunity to introduce an area of financial stability. That will happen at some point in the future—one does not demand this immediately—via a European central bank, which must be in London, via a single currency and, at minimum very soon, via membership of the EMS' which would contribute to lowering interest rates in this country. We know that the Governor of the Bank of England, if not Her Majesty's Government, supports that introduction.

What is the position of the Government? They appear to be confused and to be operating from a doctrine of eternally unripe time. The consequence will be that in practice there will be an increasing move to have a de facto European currency which will be the D.M. It would be much better to do that in an organised way and plan for a distant time—but a suitable time—when we will have a proper European currency. That opportunity is being missed and while it is missed the tide of events may decide the outcome. In fact the logic of the single market is ultimately a single monetary system.

As regards a European economic policy, we need above all greater investment in the European infrastructure. The obvious examples are transport and the environment. We need to move in Europe to a situation unlike that in the UK where increasingly we have private wealth alongside public squalor. We also need investment in the poor countries outside the EC frontiers; that is, not only the conventionally defined ones but also in Eastern Europe and especially on the Mediterranean fringe. Those investments will produce not only greater political stability and better relations between Europe and its neighbours, but also greater growth, more jobs and a better environment in which to live. That, as my noble friend Lord Cledwyn said, is the heart of the objective of the European endeavour.

However, what is the Government's position on the matter? It is hostility to public expenditure everywhere: therefore, cut the EC budget. It is a dependence only in the freedom of markets, even if that leaves the depressed regions more depressed, the seas around our shores more polluted and our cities ever more squalid.

On the social dimension, one must admit that the existing 80 proposals are too ambitious. That is reflected and admitted by virtue of the fact that there is no 1992 timetable deadline and no provision for a majority decision. The basic problem there is the diversity of existing standards of social provision and the wide range of wealth within member states: the poorer nations cannot afford to raise their standards and the richer nations will not pay for them to do so.

However, that is no excuse for doing nothing. We must make progress towards minimum standards of provision in health and safety at work and in protection against unfair dismissal. But, again, what is the Government's view on the matter? Broadly it is that social welfare provision is an expenditure which is a hindrance to good business. We must have a social vision for Europe. Europe is not just a vacant business space where trade and capital can circulate freely.

That point leads me to my broad conclusion on 1992 and the United Kingdom's approach. Beneath all the hype, Britain's approach contains—as the noble Lord, Lord Jenkins of Hillhead, pointedly said—no true vision of a more united Europe and no sense of a genuine European community and society. It merely envisages a larger, more homogeneous market, a trading jungle without the necessary institutions to harmonise it. Society is more than a free market of individual economic relationships. We know that unregulated freedom often liberates the strong to exploit the weak.

In the present situation of world financial instability, crude deregulation alone may merely increase the possibility of the next financial crash. Beneath all those reservations, is the sense of the eternal contradictions in the United Kingdom Government's position. They are rushing towards an international trading concept for the 21st century while still trying to preserve 19th century national sovereignty. It needs clear thinking instead of gut reaction, or the bright challenge of 1992 may end in a mess.

6.31 p.m

Lord Reay

My Lords, I should like to follow other noble Lords in thanking the noble Lord, Lord Cledwyn of Penrhos, for introducing the debate on this most important and topical subject. It has produced speeches of great interest, including a valuable and authoritative maiden speech from my noble friend Lord Trenchard. I should like also to welcome the latest conversion of the party of the noble Lord, Lord Cledwyn, to the cause of Europe. A debate between our parties about the nature of the Europe we want to see—even including as the noble Lord, Lord Ardwick, said, competition between the parties over which is more committed to Europe—is a constructive debate which we should have and, for the first time, are beginning to have.

Bipartisan policy strengthens the influence of Britian abroad. At home it will discourage the rebirth of fantasies that Britain can survive as a solitary nation standing apart from the Continent which is in the process of forming an ever closer economic and political union. I shall quote once again the fine words of the Prime Minister in her speech at Bruges in September: Britain does not dream of some cosy, isolated existence on the fringes of the European Community. Our destiny is in Europe, as part of the Community". The Government rightly claim considerable credit for the launching of the 1992 programme. The Government saw early the advantages to be gained from applying their own philosophy of competition to the broader acres of the Community. The Single European Act, adopted to improve the Community's decision-making procedures which were giving so much cause for concern, and without which such a programme could never have been undertaken, was a bold and innovative improvement, some of whose consequences, as a result of the increased use of majority voting and the additional powers of the European Parliament, we are still having to assess.

It may be that the flood of Commission proposals, having nothing to do with 1992, about which the Prime Minister expressed her alarm yesterday, is stimulated by the greater ease of getting proposals through the Council of Ministers since the Single European Act was passed. I am sure that the Government are right to resist opening the floodgates to all manner of Commission proposals. I share the wish for caution in that regard expressed by the noble Lord, Lord Greenhill of Harrow. Community law will be a lot less easy to repeal or amend than national law. Be that as it may, the adoption of the 1992 programme and the Single Act restored a dynamic to the Community's development which will continue for several years yet, whatever happens to the Delors proposals on economic and monetary union.

As several noble Lords have pointed out, the single market is not really a new objective for the Community. It is an improved version of the Common Market, it having been discovered that all sorts of unanticipated or at least unfocused obstacles, some innocent, some less innocent, existed, or had developed, in the way of a true common market, notwithstanding the early removals of tariffs and quotas on inter-Community trade. With the achievement of the 1992 objectives, other obstacles will swim into focus. The existence of different currencies is the obvious one. Plainly, trade is enormously assisted if there is not the barrier of fluctuating exchange rates. However far off its achievement—I do not believe that it is likely to come in the foreseeable future—it is at least natural that a single currency should become the next objective for a Community in need always of a dynamic. I doubt whether we could, or should even try to, dislodge it from that position.

The Department of Trade and Industry, galvanised by my noble friend Lord Young, has done a remarkable job in informing industry of what is under way. Everyone is evidently aware of the event; whether they have undertaken the right preparation for it, only time will show. There is one respect in which I must confess to misgivings about the consequences for this country, and those are based on problems of language, which were referred to by the noble Lord, Lord Monson. It will be a great deal easier for foreign business to penetrate this country than for British business to penetrate and operate in foreign countries. British industry is immensely overseas-investment-minded. The figures for British as compared to other nations' investment in the United States never ceases to startle. But the Anglo-Saxon United States is where it all goes. The arduous, unfamiliar and thorny path of involvement in European economies is by comparison hardly attempted. The necessary attitudes and skills will take years to develop and must first be taught in the schools and universities. The Government should give a lead in emphasising the need to develop language skills. If the Government exhort industry, industry in turn will stimulate the schools and universities.

I hope also that the Government will do everything that they can in the immediate future to dampen rather than inflame nationalistic antagonism within the Community. That is a genie which should not be allowed out of the bottle. It is imperative that countries of the Community develop their political cohesion while they await the unfolding dramas in Eastern Europe whose outcomes are impossible to predict but which could be highly divisive and even threatening to our security.

All those issues belong to the same cloth. Responsible government in West Germany, which is of supreme importance to NATO, will be encouraged by us having closer ties with Germany on all matters.

Last week, the Chancellor of the Exchequer, in an interview with Le Monde, restated his belief that it was only a question of time before sterling joined the exchange rate mechanism and that such a course would reinforce the fight against inflation. I can however see that now may well not be the right time. The Government are engaged in a struggle to reduce inflation and the trade deficit. In addition, the liberalisation of exchange controls in the middle of next year for certain of the Community countries may well produce turbulence within the European monetary system. It must be desirable for the pound to join at a time when stability is more reasonably assured than now. Nevertheless, I hope that the Government will consider making a commitment to join within a specified time limit. I share the views of my noble friends Lord Wolfson and Lady Elles in that regard. In that way, we will demonstrate that our opposition to the Delors programme for economic and monetary union does not mark the end of our willingness to co-operate along the main line of Europe's political development. We should have to be sure of retaining our ability to influence the speed and character of further developments towards economic and monetary integration and avoid the risk of other members of the Community making arrangements to which we were not party, perhaps outside the framework of the treaty.

I cannot believe that the Government will want to allow themselves, as a result of what is perceived by our partners to be excessive obstructionism, to be edged out of their place in the front rank of member states. For one thing, that would be contrary to the record of the Government's achievements in Europe, to which the noble Lord, Lord Donoughue, paid handsome tribute. For another thing, the Government are too inclined to boast in ministerial speeches—and I do not criticise them for that—of the leadership they have been giving in the Community on agricultural reform, the internal market, exchange control liberalisation and, most recently, in measures to control Community fraud. I believe that that corresponds to the wishes of the British people. The British people like this country to take a leading role abroad. It is a traditional form of self-esteem, against which, in this case, has to be set the pain of losing sovereignty.

As regards sovereignty, I believe that there is a different attitude in this country from that prevalent in most other member states, for reasons which were largely given by my noble friend Lady Young. I think it is easier for them, if one can generalise, to make a great conceptual surrender of sovereignty. We in this country, on the other hand, have to have the necessity of surrendering sovereignty proved to us every inch of the way.

The self-styled Bruges group appears ready to abandon the Community as one abandons a sinking ship. I believe that this is wrong on two counts. First, what happens to the Community without us would be of almost as much concern to us as what happens to it with us in it. Secondly, surely it is defeatist. It is a gross exaggeration to represent the forces of socialism, centralism, protectionism and all the other evils as triumphant in the Community. There are powerful liberal forces at work also—and I use the word in the 19th century sense—not least within the Commission. It is to reinforce those and to create the Community in their own image, to go on doing for the Community what they have done for this country that I hope that the Government will once again wholeheartedly commit themselves.

6.42 p.m.

Viscount Chandos

My Lords, the noble Lord, Lord Cledwyn of Penrhos, has, both in his choice of subject and in his introductory speech, made another significant contribution in your Lordships' House. The debate as a whole has been of high quality, whether from the quarter of old masters or of new discoveries. If any of your Lordships were surprised by the content and quality of the maiden speech of the noble Viscount, Lord Trenchard, I for one was not, having had the privilege and pleasure of working with him for nearly 15 years. While your Lordships' House has already made clear how much it would like to hear more from the noble Viscount in the future, I fear that our mutual employer will be hoping that he does not devote too much of his time to your Lordships' House, even in the cause of the distinguished party opposite. An unofficial pairing agreement might assist in maintaining continued employment for us both!

Until recently no date appeared more prone to media saturation than 1992, although in recent weeks the 10th anniversary of the Prime Minister's election to office has dominated even that, as the noble Lord, Lord Jenkins of Hillhead, remarked. It is therefore a happy coincidence—if I were able to believe in any coincidence where the noble Lord, Lord Cledwyn, is concerned—that your Lordships are able to debate this enormously important subject on the very day of the 10th anniversary of the current Government's election to office.

It would be churlish not to acknowledge the achievements of the Prime Minister and her Government in the past 10 years. Indeed, the SDP has led the way among the opposition parties in having supported those constructive policies and intiatives throughout the past eight years. But in many respects, notwithstanding the remarks of the noble Lord, Lord Donoughue, the Government's record towards the European Community does not rank among their most glittering achievements, while with every year that passes the role of Britain the European Community grows ever more critical in terms of our future success.

The noble Lord, Lord Young of Graffham, said that we should not focus too closely on 1992 itself to the detriment of events that are already happening. Indeed, we should perhaps go further and see the single market principally as one further step in the constant progress of the UK intertwining with Europe over the past 20 or even 40 years, for which a number of your Lordships here today can take so much credit.

The slow and painful change in the Labour Party's position which the speech of the noble Lord, Lord Cledwyn, illustrated means that there is now no significant dissent in this country from the proposition that our future lies in Europe and with Europe, where now the majority of our visible trade outside our own country is transacted and where our own cultural roots lie.

However, while there may be consensus about Europe holding the key to our future, that begs the question: what sort of Europe? That seems to me to be at the heart of today's debate and of the controversies surrounding aspects of the Single European Act and the UK's full membership of the EMS. The noble Lord, Lord Jenkins of Hillhead, said he feared that our history of too little and too late was being repeated once more, while only moments later the noble Lord, Lord Greenhill of Harrow, was concerned that what was being proposed was too far and too fast. The noble Lord, Lord Young of Graffham, said that full implementation of the Act involved an unnaccept able transfer of sovereignty. Yet the Government have put their signature and their authority to that very Act.

In the short time available I should like to try to put forward a definition of the Europe and its single market which I and my colleagues in the SDP believe is what we should aim for, for the optimum benefit of the country. I regret that the phrase "the single market" has been used in this context since I believe that a market is not defined solely by surrounding tariff and no-tariff barriers, customs sheds and border posts, legalities and technicalities. But it embraces deep cultural and regional characteristics which, as the noble Viscount, Lord Trenchard, said in the context of Japan, are not easily broken down, least of all by statute.

Therefore I do not think that we either should or will see atruly single market in any of our lifetimes, but rather a further intensification of the interdependence of each European country's economy and market with the others, aided by those measures which are adopted by each country at the European Commission's behest. I do not believe that this in any way dilutes the European vision which we now largely hold. Indeed, your Lordships only have to look at the United States for supporting evidence. There, for all the benefits of more than 100 years of monetary union—as the noble Lord, Lord Jenkins of Hillhead, observed—it is quite clear that there is in any practical sense more than one market with distinct economic, commercial and cultural differences between them, whether between the west coast and the east or the south-west and the mid-west.

One of the most significant developments in recent years in the study of the US economy has been the effect of those different regional markets and their varying economic cycles on the overall growth of the US. So it would be perverse to overcentralise the European markets at precisely the time when it is clear that even in the US there are sharp regional distinctions. It would be equally counter-productive to encourage companies of any sort to underestimate those continuing cultural or regional variations in the planning of their pan-European businesses.

As I have said, even if we do not envisage a federal Europe and a homogeneous single market, that does not reduce the desirability, even the necessity of implementing the technical, legal and deregulatory measures to liberalise the movements of goods, of services, of capital and of people; it is precisely the opposite. Historically it has been the cumulative burden of constraints in these areas, when combined with the local differences of taste and preference, which have made trading with many of our European partners so difficult. We should remove those barriers and regulations and allow our companies to concentrate on tailoring their goods and services to those local tastes. However, we should not mislead those companies over the depth and longevity of local and cultural differences.

Full membership of the EMS and the enhanced exchange rate stability which would go with it would indisputably relieve another pressure from companies. Although I am no more sanguine than the noble Lord, Lord Barnett, that the Secretary of State will feel able to come out of the European monetary closet, I can only emphasise the dismay and distress felt on these Benches at the Government's imposition of this continuing burden on our exporters of goods and services.

In this context I was disappointed by the extent to which speakers in your Lordships' House today concentrated on the damage done by the Government's refusal to join the exchange rate mechanism of the EMS as regards the position of the City rather than that of manufacturing industry and producers of non-financial services. Whatever the City's humbled state may be since its heyday as the master of the universe, it is not in imminent danger of losing its position to Frankfurt or any other European financial centre. I for one would happily exchange 10,000 new jobs in manufacturing industry outside London for the location of a European central bank in London.

The challenge of 1992 is to break down the bureaucratic barriers that surround the national and cultural markets of which Europe is composed, and for companies and individuals then simultaneously to overcome those remaining differences and to enjoy them. Legal sovereignty, for which the Prime Minister is so concerned, need not be such a bugbear if a vision of a culturally diverse Europe can prevail.

6.52 p.m.

Lord Ezra

My Lords, we are now coming to the end of this important debate which has been so ably introduced by the noble Lord, Lord Cledwyn of Penrhos. We have had contributions from noble Lords with considerable and most distinguished political experience. We have heard from noble Lords with experience in banking, in industry, in agriculture, in the social services and in economics. Indeed it would not be possible to think of a wider-ranging series of contributions than we have had this afternoon. To be one of the concluding speakers after such a galaxy of talent is quite daunting.

However, I shall try to indicate certain of the conclusions that I have drawn from listening to the noble Lords who have spoken. I think the overriding conclusion is that having embarked upon the European venture, we cannot stop where we are. The only question concerns the rate of advance. How fast are we to go towards, in the words of the Single European Act, "extending common policies and pursuing new objectives". That is the issue.

I wish to apply that to a number of the points that have been raised during the debate. The central issue, of course, is the creation of the single market itself. The noble Lord, Lord Cledwyn, rightly reminded us that it is to be created primarily by the removal of physical, technical and financial barriers. Here I wish to pay particular tribute to the exceptional work done by the noble Lord, Lord Cockfield, when he was at the Commission. He translated what was intended under the Single Act into the possibility of reality by drawing up the framework on which the work is now being done.

We are now more than halfway through the preparatory period which is to end in 1992. I think that considerable progress has been made.

Mathematically we may not have dealt precisely with half of the matters that should have been dealt with, but I believe we are very near it. That has required an enormous amount of work on the part of all the member countries and of their staffs and commercial and other organisations. I wish to add to the tribute which has been paid to the noble Lord, Lord Young of Graffham, for what he has done in building up awareness of the single market in British industry.

Only some two to three years ago not only had most firms not even begun to plan for 1992, but many leaders of British industry had not even heard of it. That was quite incredible at a time when the rate of awareness in France and Germany exceeded 70 or 80 per cent. However, that gap no longer exists. A remarkable job has been done in that regard. To remain on the positive side, another big contribution which we from Britain have made is in trying to make clear that the creation of the single market is not intended to be an inward looking phenomenon. I believe all of us in this House and throughout the country are totally opposed to the single market becoming a fortress. I was glad to note that Sir Leon Brittan, the new British member of the Commission has been making many important speeches on this subject, and evidently receiving the support of his Commission colleagues.

Having said that, however, I believe there are certain weaknesses in our position with regard to the single market, to whose creation we are contributing so much. Those weaknesses came out just a week ago when we had a debate in this House on the capacity of our manufacturing industry. While we have undoubtedly shown great improvements in productivity in recent years, the size of our manufacturing base is quite clearly too small to put us on a level with our major European competitors. During the course of that debate it was estimated that our manufacturing base is probably too small to the tune of some 15 to 20 per cent. In other words we should have 15 to 20 per cent. more competitive capacity in manufacturing industry. That has not been automatically corrected as the Government asserted it would be when the report on overseas trade was prepared and submitted to your Lordships' House in 1985.

So positive policies are required. Some of the policies that are required have been referred to today. The noble Viscount, Lord Trenchard, in his remarkable maiden speech, and with the benefit of looking at Britain from the outside having spent so long in Japan, drew attention to the short-term attitude which we have often mentioned here. The noble Viscount saw it very clearly. There is the continued pressure of shareholders, particularly institutional shareholders, for short-term results. There is also the high cost of funding to which the noble Viscount referred. Those two things between them represent precisely the opposite pressures to what goes on in Japan and Germany where shareholders are prepared to take a long view and where the cost of funding is much lower than it is here. We need to look at those two aspects very seriously.

A number of speakers, particularly the noble Baroness, Lady Elles, referred to the transport infrastructure. This matter is continually raised in your Lordships' House, and indeed elsewhere. The Government tell us how much more they are spending, but the problem is still very serious. I do not need to repeat what the CBI and other organisations have said about the impediment that this problem represents. I believe that while we are removing impediments and helping to create the single market, we should at the same time be working very hard to increase the size of our manufacturing base and to look at those things which are most likely to bring that about.

That leads to one of the other big issues that was debated today which is monetary policy. I counted the number of noble Lords who recommended that we should now be entering the exchange rate mechanism. My count was 10. I may be wrong. Maybe there were even 12, but it was a large number. If ever there was ever any single specific issue that arose today on which there was agreement by a large number of those who spoke, it was that.

This is important in many ways. The European monetary system, which was instituted in the time in Brussels of my noble friend Lord Jenkins of Hillhead, has in the 10 years of its existence clearly and demonstrably been of benefit to those who have been involved. Their inflation rates have been subtantially reduced. Indeed in Ireland today the inflation rate is 2.5 per cent. Their standards of living have been increased, and their balance of payments position has been better than it might otherwise have been.

On the other hand, sterling has fluctuated wildly. In order to be supported at its present high level reserves have had to be deployed and the interest rate has had to be kept at an exceptionally high level. Its impact on British exporters is now beginning to be seriously felt, as we have seen from the last report of the CBI. If ever the time was right, it surely is now, and I hope that we shall no longer hear from the Government when this question is raised—as it is raised so frequently in this House—that they are "waiting for the right time". That is one of the clear messages that I believe has emerged from our debate today.

The Delors report has been mentioned many times. It is a bit unfair on Mr. Delors for those to criticise him for doing what he was asked to do. He was asked by the Prime Ministers, the heads of state meeting last year, to prepare this report. The committee that he led had on it representatives from all the countries, including the Governor of the Bank of England. They produced what they were asked to do, a report that could lead to monetary union. I think they were wise and prudent in not suggesting when these various stages should be introduced, but what seems to me to be clear, and what many noble Lords have supported, was the fact that we ourselves should now certainly be joining phase one, which effectively means joining the exchange rate mechanism, so that we can play our full part in determining how the subsequent phases should be brought into operation, when, and in what form.

Many things have been mentioned today. Many wise things said. For example, the so-called social dimension and how that should be treated. We are in danger of giving the impression that we are against anything that benefits people at work. Of course that is not so. Britain has led the world in the past in providing the right conditions at work, limiting the periods at work, ensuring that there is proper health and safety, and providing ways of enabling people to meet adversity. We lead in those things, and have led. It is quite wrong for us now to be giving the impression that we are against developments of that sort. A more objective approach, as suggested by the noble Baroness, Lady Elles, should now be presented.

How do we sum this up? We sum it up by saying that we, as a nation, are fully committed to this venture, but we do from time-to-time give the impression that we have second thoughts; we give the impression that, having embarked and having joined this ship at the port of departure, we keep on feeling that we ought to be getting off at some intermediate point. I do not believe that this is the right policy or that the presentation of those views—which happens from time-to-time at places like Bruges—is fair to those who are working so hard to make a success of this venture for the Community at large and for Britain in particular.

7.5 p.m.

Lord Williams of Elvel

My Lords, I think there is one point on which your Lordships would be quite unanimous this afternoon, and that is that we have been debating a subject of the utmost importance. I think it was the noble Lord, Lord Roll of Ipsden, who said that parallel with the defence debate in Europe, in international affairs the question of our relationship with the Community probably ranks in importance.

Like the noble Lord, Lord Ezra, I have a certain difficulty in winding up this debate from our side because the contributions from all sides of the House have been of such an expert and comprehensive nature that it is difficult to try to canalise the views that have been expressed into a winding-up speech. However, I would perhaps try to sum it up by saying that there seemed to me to be three themes that came out of this debate, which I shall put in the form of questions rather than statements.

The first is what really are the Government aiming at? if I may quote the noble Baroness, Lady Young, what does 1992 mean? It is not just a question of a date or of a treaty, what is the object of the exercise? The second question is what are the realities of the present situation? Where are we in relation to our obligations and indeed the programme that is in front of us? Thirdly, what can we do as a nation properly to maximise the advantages for us in 1992? This is, I think, our job because we must make a balance sheet for ourselves and decide what we can do to make it better.

There is no doubt that there is a commitment entered into by the Government to European union. It is in the preamble to the Single European Act. It is in the Stuttgart Declaration of 1983. The preamble of the Single European Act was put into British law by the European Communities [Amendment] Act 1986, Section 1. May I just remind your Lordships of the preamble of the Single European Act which, by the process I have mentioned, is now part of United Kingdom law? It is that the governments moved by the will to continue the work undertaken on the basis of the Treaties establishing the European Communities, and to transform relations as a whole among their States into a European Union, in accordance with the Solemn Declaration of Stuttgart of 19th June 1983 do this, that and the other.

Therefore, the Government have committed themselves to European union. The question is what do the Government mean by European union. I hope that the noble Lord the Secretary of State, when he comes to reply, will give us a clear definition of what the Government mean by European union to which they have committed themselves and, through Parliament, have committed the United Kingdom.

Of course the Prime Minister said in another place on 5th December 1985 (col. 432 of Hansard): I am constantly saying that I wish that they would talk less about European and political union. The terms are not understood in this country. In so far as they are understood over there, they mean a good deal less than some people over here think they mean". Again I would say to the noble Lord the Secretary of State that I should be most grateful if the noble Lord would give us the Government's view on what the commitment to European union means.

We accept absolutely the arguments put forward by the noble Lord, Lord Monson, and indeed by the noble Baroness, Lady Young, about the historical problems associated with our relationship with Europe. We certainly would not wish to move too fast. There is no question of us even quarreling with the noble Lord, Lord Roll of Ipsden, when he says that federalist Europe is simply not on the agenda. That, so far as we are concerned, is quite right, it is not on the agenda, and we want to go step by step.

Nevertheless, we should like to know where the Government intend to be at the end of the road. Until we know that, it is rather difficult for us, as an Opposition, and for noble Lords generally, to comment on the exact route that we and the Government propose to take in order to reach the point where they want to be. After all, it is the Government who, in the course of the last few years, have not only signed the Single European Act and the Stuttgart Declaration but have also produced the European Communities (Amendment) Act 1986 which put all that into British law.

A number of noble Lords have said that the process is now irreversible. We on this side accept that it is irreversible and that there is no longer any question of the United Kingdom withdrawing from its obligations under the various treaties into which we have entered.

I come now to my second question: what are the realities of the present situation? As a number of noble Lords have pointed out, the realities are that there will be a severe test for British industry and financial services, to which I shall come in a moment. In an ideal world, I suppose that I would agree with the noble Baroness, Lady Elles, when she said that we should stop talking about exporting to Europe and start talking about how the European economy will perform. I shall come to that point in a moment. Nevertheless, while sterling remains a separate currency, we must talk in terms of a sterling balance of payments. The sterling balance of payments with the rest of Europe—I use that expression without intending any offence—is a disaster. There are things that the Government could and should do to try to turn that situation round. The noble Viscount, Lord Trenchard, in his distinguished maiden speech, talked about the long-term management objectives, not short-termism. My noble friend Baroness Lockwood talked about training and research and development. Such things do not have any impact in the short term, but the Government must encourage them in the longer term.

I am bound to confess to noble Lords that I have not read the full Checcini Report; I have read only the summary. I look forward to meeting any noble Lord who has read the full report. That report indicates that, give or take a bit and given that an analysis is subject to criticism, there is not much in it unless—to respond to the point made by the noble Baroness, Lady Elles—the European economy can construct the industrial strength to meet the challenge of the United States and Japan. There is no doubt that, during the 1970s and the 1980s, the European economy responded less well than did the United States and Japan to the various shocks that were in the system at the time. If it is to mean anything, we must improve the performance of the European economy.

In the course of achieving that end, we must maximise the advantages to the UK. Here we come to a problem that we have discussed on a number of occasions; namely, the problem of regional policy. In his introductory speech, the noble Lord, Lord Young of Graffham, appeared to imply that, in the Panglossian world in which we in the United Kingdom live, everything was so marvellous that Japanese companies would come and invest here and that that would be the right way to go about matters. I do not believe that simple colonisation—however nice—by Japanese, Americans, Germans or anyone else is the right way to conduct a policy for the United Kingdom.

I accept that there may be an argument between us on this point, but I should like to see more United Kingdom-based companies with centres of decision in the United Kingdom, particularly in the regions, being allowed and able to go out into Europe and the world to do their proper business without bias against them. That is why my noble friend Lord Cledwyn of Penrhos referred to the Rowntree case. In my view, that was the crucial case. The noble Lord says 'chocolates", but, as he will agree, chocolates are a source of energy and that is what we need. We need regionally-based companies. We need Laura Ashley in Newtown, Montgomery. We need British-based companies which take decisions in our regions and in Wales and Scotland. We do not need colonisation by Japan, Germany or anywhere else. That is the point that the Government have not addressed.

The noble Baroness, Lady Elles, also talked about the social dimension, as did my noble friend Lady Lockwood and the noble Baroness, Lady Young, in her rather waspish conclusion. I believe that it is wrong to have a closed mind on these issues. There is no virtue in describing the continental view of the social dimension as being derived from Napoleon. That does not help the dialogue. As other noble Lords have said, we must try to understand the European tradition in those matters. We must try to move some way to understand that. In their turn, European countries will no doubt try to move a little way towards us, but it would be wrong to close off that dialogue.

As a number of noble Lords, including the noble Lord, Lord Ezra, have said, we must consider the exchange rate and what we do about the exchange rate mechanism and the problems associated with it. I have no doubt whatever that we are now in a worse position to enter the exchange rate mechanism than we were two years ago because of the deficit that has arisen on our balance of payments. Nor do I have any doubt that the exchange rate mechanism must move through the liberalisation of capital movements in July 1990 when exchange controls come off in France and Italy and we see what shocks the mechanism suffers as a result. With sterling as the most heavily traded currency in Europe, other than the D-mark, if we do that at the same time as exchange controls are removed in France and Italy, there could be a shock to the exchange mechanism which would damage rather than improve it.

Nevertheless, in our view, there are clear advantages in a more stable and predictable system of exchange rates. We on this side should be able to look with a certain amount of favour at an exchange rate mechanism which survived all the shocks that we believe will come in 1990, provided that there is a co-ordinated European Community system for adjustments for balance of payments deficits and a more co-ordinated economic policy. However, I hasten to add that I express that as a personal view rather than as the view of my party which will emerge in due course.

The social dimension has caused the Government most problem. There is no doubt that Mrs. Thatcher has said on many occasions that she has rolled back the frontiers of socialism and that she does not want to go into Europe and have the frontiers of socialism rolled back on her. As my noble friend Lord Ardwick said, the Conservative Party has no base in Europe whatever. On the other hand—I speak for the Labour Party—we are members of the Confederation of Socialist parties in Europe. We shall be the largest grouping in the European Parliament. I can understand that the noble Lord opposite does not like that prospect at all. There is a Socialist government in France. Noble Lords have referred to the speech of Mr. Rocard. He is on our side. We believe that the SDP will win in Germany in some form of coalition that we have yet to see, which will be on our side. There is an inexorable move towards a socialist Europe which I believe the Secretary of State would do well to bear in mind.

In order to take full advantage of the single internal market, the Government must decide whether they are in favour of the consequences, which noble Lords have described, that flow from the decisions that they took to sign the Single European Act and put it into United Kingdom law. They must give a positive lead to the country in the variety of ways that have been described by several noble Lords who have spoken on infrastructure, transport, agriculture and various matters in the Community. The Government must give a lead.

It is no good sitting back and letting it happen because failure to give such a lead will simply lead to confusion, and confusion will lead to failure to take advantage of this great opportunity. The Government should know that responsi bility for that failure will be laid firmly at their door.

7.20 p.m.

Lord Young of Graffham

My Lords, at this point in our debates it is the convention to say that this has been a very interesting and wide-ranging discussion. At this time I can say that without any fear of contradiction because the range of interests that have been expressed and the breadth of knowledge shown have been very impressive indeed. It demonstrates probably more effectively than any campaign that I could ever run how we have all already been affected by the single market. Indeed, today presented a very opportune moment. The proposer of the Motion is to be congratulated on his choice of today, not for the conventional reason, of which the papers are full and which I mentioned at the beginning of our debate, but because today I expect that the single market council will pass the 50 per cent. mark of the measures that have to be agreed for the single market. From this moment the path may well be downhill, I hope, so far as concerns agreement.

The key theme of what we have been saying in Government, the employers have been saying through the CBI and noble Lords in this House this afternoon have been saying, is that we cannot wait until 1992. In many ways 1992 has already happened and our world has already changed. It is continuing to change as the weeks and months go by and the 1990s begin to approach.

The noble Lord, Lord Jenkins of Hillhead, at one point promoted me from a knave to a herald. I am quite happy to accept the designation of herald because a herald carries a banner and I certainly carry a banner for our place in Europe. The noble Lord accused me of only being interested in packages. I must confess that he is quite right. Trade lies at the very heart of wealth creation. It seems to me that the underlying theme of our debate is the place of trade and wealth creation in the world of Europe that we are collectively creating together.

The noble Lord also illustrated his remarks with an example of currency, saying that in Albany, the capital of New York State, they would not consider issuing a different currency from that of another state, perhaps New Jersey or elsewhere. It is a pity that the noble Lord is not in his place just now because if I may say so that was a slightly bizarre suggestion. It demonstrates something that I fear many noble Lords have overlooked this afternoon. It is bizarre because the United States of America not only has a single currency, but has a single economic policy and a single government. Indeed that is the only way in which a single currency can possibly operate.

All those who wish to see a single European currency must recognise and accept that to have a single European currency means that we must have a single economic policy for the whole of Europe. After all, it is no good within that single new currency for the United Kingdom to run substantial surpluses, for France or Italy to run substantial deficits and for some countries to run on one economic policy and other countries on another. The only way a single currency could come about is by having a single government. I see no other way in which it can be accomplished. Indeed, and this is a matter which I shall return to shortly, it is highlighted in the Delors Report.

The preamble to the Single European Act recalls that in 1972 the heads of state—and I quote: approved the objective of the progressive realisation of the European monetary union. That was scarcely a ringing commitment. Nowhere in the Single European Act or in the treaty is there an obligation to introduce European monetary union. I believe that the Delors Report has been particularly valuable because it has shown the far-reaching loss of sovereignty that European monetary union would involve. I am sure that the United Kingdom is not alone in resisting that; it is just that we have traditionally been more open in our views, precisely because, I dare say, we are more interested in the practical realities, the step by step approach, than in creating empty political statements.

The noble Lord, Lord Greenhill of Harrow, asked some probing questions about the institutions of Europe. He said that the Community was trying to do too much too fast. Qualified majority voting makes it difficult for the Community, and for individual nations within the Community, to cling to restrictive or protectionist policies. However, on the key issues that touch sovereignty—tax, frontiers and other matters—unanimity is required. On those matters I believe that all nations within the Community will negotiate constructively and pragmatically but probably rather slowly.

The very welcome maiden speech of my noble friend Lord Trenchard was received well on all sides of your Lordships' House. His father spoke with authority on matters of industry, and I suspect that my noble friend will speak with equal authority on matters concerning the financial markets. The noble Viscount drew attention to the differences in cultures between different societies, but I thought that he expressed a little too much fear about our position in Europe. It is true that on the Stock Exchange in the United Kingdom companies are far more open and susceptible to bids but we can only go by experience and so far we are making far more bids for companies in Europe and acquiring many more companies in Europe than our community partners are buying in the United Kingdom. Occasionally it is worth remembering that even in this country 90 per cent. of acquisitions are made by agreement and only 10 per cent. through hostile bid. So far we have seen a very considerable expansion of United Kingdom influence in the Community.

The noble Lord, Lord Barnett, gave a realistic appraisal of the attitude of M. Jacques Delors, the President of the Commission, and perhaps regretted some of the wording in his report. I agree with that. To those noble Lords who said that we should go along with the first phase of his report because essentially that is what we are doing now, I would point out that paragraph 39 of that report clearly states that all nations embarking on their progress should commit themselves to go to the very end of the road. That is something that we should all have very clearly in our minds.

The noble Lord also asked me whether we could possibly have abolition of frontiers without approximation of taxes. He asked: is that possible? The answer is yes. There is no better place to see that than the United States of America which does not have formal frontiers as such but has 50 different tax regimes. The very thrust of the argument that my right honourable friend the Chancellor of the Exchequer put in his paper to the Commission is that market forces in the USA ensure that there will not be differences which are too great between one state and another; nor will there be in Europe. If the differences were too great between, say, Belgium and France, then one country would have to reduce as cross-border shopping became too great. That is one very good example of good taxes driving out bad because it is unlikely in the extreme that any nation would increase its taxes to level up. It would be forced to reduce those taxes.

I must confess at this point that I shall prove a great disappointment to your Lordships' House. The noble Lord asked me when I could give a definitive answer on when we will join the EMS. I shall take away all suspense from my contribution this evening: when the time is right, my Lords. That may not come as too great a shock to many.

I am grateful to my noble friend Baroness Young for her kind remarks about the work of my department. She drew attention to a matter that I do not think many others have noticed. I certainly had not in the past. It is the differing histories: the long period of uninterrupted democracy in the United Kingdom which was not necessarily followed in the Continent. That may be indicated in a number of different ways: in the attitude that we have to town planning, in considering the development of our road and rail network, and, on another issue, our nuclear power station network, which has been developed in France but not in the United Kingdom.

The noble Lord, Lord Roll of Ipsden, drew attention to the need to be flexible in social legislation in companies. We agree. None of us would wish to have a different system imposed upon us. That goes to the very heart of the dispute that is going on at the present time. I have a sneaking feeling that a number of German industrialists would be more than happy to have our system imposed on them. The purport of my conversations with the Commission is that we should have a flexible system. We should allow countries to evolve gradually together. However, imposing anything on them will not lead to the desired objectives.

The noble Baroness Lady Lockwood, fears that our skilled workers will go overseas in the face of higher standards of living. That does not apply today. With the tax regime and the different salary levels, the United Kingdom is becoming a magnet attracting skilled people from the Community. However, I agree with the noble Baroness on one matter. It is the importance of the European Court of Justice. Perhaps I should repeat the official figures. The last set of figures for the European Court of Justice pointed out that the United Kingdom was in arrears on two of their judgments. We have subsequently put that right. It is also pointed out that France was in arrears with five, Germany nine, and Italy 28. Yet we are accused of being bad Europeans.

My noble friend Lord Wolfson looked towards our joining the ERM when the time is ripe. I should say one other thing about the exchange rate mechanism. It arose 10 or a dozen times during the debate today. It will not change the world overnight. It is at best a damping mechanism. It is a damping mechanism that changes fluctuations which are too great, but does not change the differences in exchange rate over long periods of years. The basic economies of the nations do that. I believe that in 1975 the exchange rate was eight deutschemarks to the pound. Our economy fell and the rate came close to unity at one time. It stands today at about three deutschemarks to the pound. I have little doubt that in the long term, if the United Kingdom did not do so well as other countries our pound would weaken over a 10 or 20 year period. If it did better, the pound would strengthen. The exchange rate mechanism would dampen down the fluctuations. However, that would happen only if the mechanism worked. The uncertain and unknown factor about the exchange rate mechanism is that it works well with the deutschemark as one major currency and a number of smaller currencies. But the pound is also a major currency. Would it work with two centres of gravity, or would it be torn asunder by the strain? That makes us very hesitant indeed, and very careful. It is a point that I am glad that the noble Lord, Lord Williams of Elvel, made. Perhaps I may say to the noble Lord, Lord Wolfson, that it is very difficult to have a single currency by negotiation because of the differences in sovereignty involved.

I accept the concern of the noble Lord, Lord Cobbold, about over-regulation in the City. The regulation there is still bedding down, and as the weeks and months go by I hope that there will be agreement that a lighter touch is coming through. However, a sound stable regulatory regime is an attraction and not a deterrent. As one of the three great financial markets in the world—if truth were known one of the two great international markets in the world—we cannot have an unregulated world. What we must do is to ensure that the regulation is undertaken properly.

I pay tribute to the great work that my noble friend Lady Elles has achieved in her time at the European Parliament. I join with her in paying tribute to Basil de Ferranti, who was one of the pioneers of the work that we are now seeing coming through in the single European market. The noble Baroness drew attention to that which was appropriate at the Community level and that which was not. There is a disturbing tendency from time to time for the Community to wish to lay down rules and regulations and even social attitudes across the Community. We have to realise that there are areas of competence within the Community that all of us should willingly accept and some which should in fact be "no-go" areas. I believe that those are areas which will become apparent as the months and years go by.

My noble friend also drew attention to the differences in demography throughout the Community and the need for different policies. The last forecast that I saw had the population of the United Kingdom in the early decades of the next century rising to 60 million, and the population of Germany falling from 61 million to 51 million. That is an enormous fall. It will have entirely different consequences for different nations. We must not get caught in the position where we have to harmonise and regulate everything. If we do, I fear that it will have very different consequences.

I agree with the noble Lord, Lord Monson, that 1992 will not be an easy ride for UK business and financial services. That is why we are working so hard to ensure that companies are ready. I agree with him wholeheartedly that we must not have protectionism or excessive harmonisation. However, the United Kingdom decided on metrication long before we joined the European Community. It is not a consequence of it, although it will benefit us enormously.

Apart from telling us of his visits to Volkswagen, my noble friend Lord Lucas of Chilworth drew attention to the road and rail network. He said that it is down to government to ensure that it was ready. We are spending record amounts of money on the road and rail network. However, I should point out that the system of the United Kingdom, the very democratic base of our society, does not involve a simply central government decision. We have public inquiries almost as a way of life in the United Kingdom. I hate to think of the outcry with regard to an outer orbital motorway. We would find the protestations coming from many groups of our society. It is only a few weeks since we saw 6,000 good burghers of Kent marching to Westminster about the site of the high speed rail line. We have to find a way through. It is not a question of lack of will of government. It is a question that we shall have to work out in some way in order to obtain agreement for the necessary changes. These are important not only for the South-East but to the regions themselves. In the United Kingdom we have very good communications from London northward and probably poor communications from London southward.

The noble Lord, Lord Ardwick, spoke well and made a powerful plea for the retention of part of the tripartite structures. I believe that it indicates that such is the diverse nature of different European institutions. They work differently in different places. That is why we shall see a multiplicity of patterns emerging. The fear is that social dimension will not protect workers against competition. On the contrary, social legislation may well make Europe uncompetitive and the best social dimension and protection that I know is a job. Throughout Europe there is a very sluggish employment scene. If we go just across the Channel we see unemployment continuing to rise, just as it is continuing to fall here.

Perhaps I may say to my noble friend Lord Massereene and Ferrard that our exports to the European Community have increased since we started from 33 per cent. to very close to 50 per cent. I wish that I could recall his prophetic warnings about the bureaucracy in Europe. I suspect that they are warnings that will be made again from time to time.

I hope that the noble Earl, Lord Shannon, will not take this matter amiss. But he should put the issue into perspective. He asks whether the unified business rate will be a terrible burden on British companies coming into Europe. I should tell the noble Earl of a conversation that I have had with the BDI, the German employers' organisation, about a year ago. They complained to me that too many of their members were closing down production in Germany and moving to the United Kingdom. When I asked why, he said, "Our payroll taxes are over 100 per cent. and yours are 11 per cent. Our corporation tax is 56 per cent. and yours is 35 per cent". In comparison with that, the unified business rate pales into insignificance. We should keep all these matters in perspective.

The noble Lord asked whether we were winning over the Community to our point of view. We should consider not the rhetoric but the reality—capital liberalisation, telecommunication liberalisation, air transport, road haulage. All these matters show that in a deregulated Europe we are winning our way.

I should inform my noble friend Lord Stanley of Alderley that it is a clear Community objective to get rid of the MCAs, the monetary compensatory amounts. We are waiting for a Community report and it would be rash of me in the extreme to predict what will happen. We shall not have our standards in animal or plant health undermined. Our objective is to bring Community standards up to ours. Until that happens I do not believe that we shall be able to reduce ours. I say to the noble Lord, as I say to all, that we must not place too much reliance on joining the EMS. The EMS may not have quite the complete result that it is believed it will have.

I am very grateful to the noble Lord, Lord Donoughue, for his tribute, sole as it was from his side of the House, to the leadership of the Prime Minister in Europe. Where I part with the noble Lord is in his vision of where we should be going. The noble Lord said that without harmonisation of taxes a rat race will develop. I do not believe that to be the case because good taxes drive out bad, and if our taxes continue to be far lower than those in the rest of the Community that may serve as an encouragement for other countries to reduce theirs.

The noble Lord's vision of a social Europe will not happen without wealth creation. I believe that our priorities were wrong before 1979, because for the decades before that social legislation without wealth creation resulted in the relative decline of the United Kingdom. We must have the two together: wealth creation with social improvements.

I agree with my noble friend Lord Reay that language skills are important. It is a slight weakness that English has become the commercial language of Europe and large parts of the world, but if we wish to do business in all European countries we need far greater language skills than we have traditionally been able to muster. That is why the changes we are making to the school system in the Education Reform Act will help to remedy that.

My noble friend also drew attention to the dangers of turbulence in the markets in the months to come. The noble Lord, Lord Williams of Elvel, also said that. As I would say to anybody, it surely would not be right for the Government now to say when we shall definitely join. At the least that would give far too much advantage to those who deal in markets.

The noble Viscount, Lord Chandos, spoke about the consensus about Europe. The consensus has been agreed within all parties in your Lordships' House over the past two or three years, but it is a consensus, alas, which perhaps did not apply to the next steps we should take in Europe. He spoke of the continuing burden of our not joining the EMS, but over half our trade is outside Europe and over half our trade would be totally untouched. I have already said that all we can see the EMS doing is being a damping mechanism.

I thank the noble Lord, Lord Ezra, for the compliments he paid to the work of my department. I agree totally with him that the single European market must not be inward looking and develop or evolve into a fortress Europe. I have just returned from the United States, where the main obsession is that it might develop into a fortress Europe. I hope that I was able to convince the Americans and show far more evidence for a fortress America than ever I was of a fortress Europe. It is not Europe that has "Buy America first". It is not Europe that has a Bryant Bill. There are all kinds of other factors.

Output in manufacturing industry is rising all the time. In the car industry, we were down to 900,000 cars three or four years ago and it is now 11/4 million and rising fast. Indeed, with the changes we have been seeing it will be rapidly going up to where it used to be. The balance of trade figures each month show that our exports are rising month by month. I should say to the noble Lord, Lord Ezra, that we do not believe that we should get off the European bus. The whole theme of the Bruges speech was that we shall be there to steer the European bus in the right direction but not, as a compliant passenger, to see it going in the wrong direction.

The noble Lord, Lord Williams of Elvel, asked me whether the Government are committed to European union. By its nature, European union is an evolving issue, as the Single European Act makes clear. It refers to concrete progress towards European union. It means completion of the single market, which is a major act in itself. It means political co-operation and acting together in our trade relations towards the rest of the world. What it does not mean is unnecessary harmonisation which undermines the regional and cultural diversity under which we all live. It does not involve the total loss of national sovereignty. There is to be no merging of all parliaments into one—an idea that I have heard expressed in your Lordships' House in the not too distant past.

It is not possible to say where we shall be at the end of the road. I suggest to the noble Lord that first we create the single European market. The laws will be in place by the end of 1990. It will start in full force in early 1993. It will probably take 10 or 15 years for attitudes to change to make it work. Let us proceed step by step, working closer together. Where it will lead I know not, but we must go slowly and carefully towards each other. I shall resist the temptation to accuse the noble Lord, Lord Williams of Elvel, of xenophobia. We in the Government will continue to welcome foreign investors to this country and welcome them greatly for the jobs and employment they bring. The noble Lord may wish that there were more people and more manufacturing being run from this country. We are probably the second largest overseas investor in the world today. If we were by any chance to be restrictive or to put up shutters to overseas investment in the United Kingdom we should not only lose that overseas investment but we should be the first to suffer in the loss of our overseas investment.

The noble Lord suggests that it is a socialist Europe and takes great pride and joy in the fact that France is a socialist country. I see very little connection between the policies of the noble Lords opposite and their party and the socialist governments of other parts of Europe. But that is only an academic matter. I do not expect us to have to concern ourselves because I shall end up by saying to the noble Lord that we give a lead in Europe. We shall give a lead in Europe. We shall go into Europe together towards greater wealth for all our people.

7.48 p.m.

Lord Cledwyn of Penrhos

My Lords, we have had a debate of very high quality on a subject which the House has agreed is of the greatest importance. I am grateful to the three noble Baronesses and to all noble Lords who have made very effective speeches. Perhaps I may add my congratulations to the noble Viscount, Lord Trenchard, whose father we remember with affection. The noble Viscount made a most impressive speech and we all look forward to his regular attendance in the House and many similar speeches in the future.

I should also like to thank the noble Lord, Lord Young of Graffham, the Secretary of State, for making two speeches. He has shown stamina and energy and I am sure he will apply the same energy to the resolution of the problems which have been raised. I do not propose to make a speech or to reply to the debate because my noble friend Lord Williams of Elvel has already wound up on our side. I am grateful to him for doing that so splendidly. One thing is certain: we shall be returning to this subject again. Indeed it is not one but several subjects. It occurred to me as the debate proceeded that in the new Session we may wish to debate the social dimension; we may wish to debate the EMS and monetary union. Indeed by then the time may have become ripe to enable us to do so. Perhaps the noble Lord will be good enough to tell us when that moment arrives.

I believe that the debate has been worthwhile and I am grateful to all noble Lords. I thought that the speech made by my noble friend Lord Jenkins of Hillhead was outstanding. He speaks on the subject from a position of great authority and I thought that it was most helpful to the general tenor of the debate. My Lords, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.