Lords Sitting of 4 December 1996

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Coventry.
Lord Gladwyn Lord Gladwyn—Sat first in Parliament after the death of his father.
Lord Hawke Lord Hawke—Sat first in Parliament after the death of his father.

Ministerial Responsibility to Parliament
2.39 p.m.
The Countess of Mar The Countess of Mar asked the Leader of the House:
Further to the reply given by Earl Howe to the Countess of Mar on 14th November 1996 (HL Deb., col. 1027), with whom does the ultimate responsibility lie for ensuring that Parliament is not misled by Ministers.
The Lord Privy Seal (Viscount Cranborne): My Lords, responsibility lies with Ministers: a Minister of the Crown must not knowingly mislead Parliament and should correct any inadvertent error at the very earliest opportunity.
The Countess of Mar: My Lords, I thank the noble Viscount for that reply. Is he aware that I have known for over two years and that, from the papers I have, the Ministry of Defence has known since 21st July 1996 that organophosphates were used in the Gulf? Is he further aware that the noble Lord, Lord Henley, (on 21st July 1994) and the noble Earl, Lord Howe, (on 26th October 1995) in Answers to Written Questions categorically denied that OPs had been used in the Gulf? Is he also aware that on 4th October 1996 I had a personal letter from the noble Earl, Lord Howe, contradicting those Written Answers? In view of the Questions of Procedure for Ministers made public in May 1992, and supported by the Prime Minister, can the noble Viscount say who is to carry the can?
Viscount Cranborne: My Lords, I know that the noble Countess is aware that my right honourable friend the Secretary of State for Defence has instituted an inquiry into the circumstances surrounding the events that she has described. I am able to assure the noble Countess that as soon as the results of that inquiry are available my noble friend will inform the House. I expect that information to be available to your Lordships well before Christmas.
Lord Campbell of Croy: My Lords, while I support all efforts to trace relevant records, should we not keep this matter in proportion? Can surviving soldiers, beside whom I fought in World War II, claim
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compensation for contact with the pesticide DDT, later condemned and prohibited, or other chemicals such as those used to make stagnant water drinkable? At that time we were fully engaged, with numerous battle casualties, in the carnage and squalor of war.
Viscount Cranborne: My Lords, I know that my noble friend has more direct experience of what I believe is very often described as the "fog of war" than many in your Lordships' House. Nevertheless, it is clear that something has gone amiss here. I pay tribute to the noble Countess for her persistence in drawing attention to this matter. No Member of this House would in any way condone misinformation knowingly being given to your Lordships' House. I am perfectly clear that my noble friend did not knowingly misinform the House and I am glad to see the noble Countess nodding her head at that. However, it is extremely important that the House should be made aware of the full facts of the case as soon as they are apparent. It is for that reason that I gave the noble Countess the assurance that I did a moment ago.
Lord Richard: My Lords, perhaps I may echo what the Leader of the House has said about the persistence of the noble Countess on this issue. All of us who have watched and listened to this matter being discussed over the past four to five years have admiration for her tenacity and for the fact that, as it has turned out, she has been right and the Government's answers wrong. The noble Countess asked who is to carry the can. Perhaps I may make two points, and I hope that the Leader of the House will agree with them. The first is that there is a can to be carried. Secondly, it is very important—and I believe that the Leader of the House has already said this—that in these circumstances all the facts come out quickly and that when we know exactly what went wrong in this case this House will have the opportunity to consider the matter.
Viscount Cranborne: My Lords, I am glad that the noble Lord, Lord Richard, and I are in agreement about this, as we so often are, although unfortunately not always, as I am the first to admit. It is one of the great sadnesses of my life. The importance that all of us attach to ministerial responsibility to Parliament should be observed and be seen to be observed. It is for that reason that my noble friend will return to this House and make a full Statement as soon as the results of the inquiry are known. As I say, the results should be known well before Christmas. In making the Statement—which I assume the Opposition will be prepared to take—my noble friend will provide an opportunity for your Lordships to cross-question him as to what happened.
Lord Hailsham of Saint Marylebone: My Lords, while I agree with every word that has fallen from my noble friend the Leader of the House, in answer to the original Question is it not correct that the true constitutional position is that it is for each House of

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Parliament severally to enact and enforce its own rules of behaviour with respect to all of its Members?
Viscount Cranborne: My Lords, I believe that I detect an element of correction in what my noble and learned friend has said, in which case I do not have the impertinence even to dream of tangling with him. Certainly, the rules of procedure of this House are for this House to determine. I do not quarrel with that. However, responsibility for the conduct of government lies with Ministers, and it is for Ministers to discharge their responsibilities to whichever House of Parliament they sit in. That is the constitutional position.
Lord Dean of Beswick: My Lords, is the Leader of the House aware that in another place the Prime Minister had to appoint an inquiry chaired by Lord Justice Scott to investigate the accuracy of certain information given from the Dispatch Box in another place which certainly cast doubt on the correctness of some of the information provided in another place? Further, does the Leader of the House agree that if noble Lords cannot receive 100 per cent. accurate replies to Questions put in your Lordships' House it is a waste of time and a threat to democracy itself?
Viscount Cranborne: My Lords, as so often, I agree wholeheartedly with what the noble Lord has said. It is perhaps rather a perverse indication of the confidence that your Lordships' House has in Ministers in general that this particular episode has, quite rightly, been treated with the seriousness that it has by both your Lordships and members of Her Majesty's Government.
Lord Ashley of Stoke: My Lords, does the noble Viscount agree that, although the noble Lord, Lord Campbell, asked for this matter to be kept in proportion, it is a mistake of staggering magnitude in relation to the use or non-use of organophosphates, which no doubt will be borne in mind by the inquiry? I hope that the whole issue will not be belittled by the mention of "a sense of proportion".
Viscount Cranborne: My Lords, I am aware that the noble Lord, Lord Ashley, has always displayed a sense of proportion in his remarkable political career. In reply to the noble Lord, it would be rather perverse if I announced that an inquiry had been instituted and anticipated the results of that inquiry. Its riding instructions are fairly broad, and I hope and believe that the noble Lord will be satisfied by the results.
The Countess of Mar: My Lords, I thank the noble Viscount and the noble Lord the Leader of the Opposition for their kind remarks. I am very humbled by them. Will the noble Viscount stress the importance of this inquiry? We have already lost two-and-a-half years of possible research. As a
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sufferer from sheep dip poisoning caused by one of the same organophosphates used in the Gulf, I know only too well the devastating effects of these poisons.
Viscount Cranborne: My Lords, I am sure that the whole House is aware of the courage of the noble Countess in suffering the disability that has been inflicted on her by the use of these chemicals. I also hope she will feel that the Government, in particular the Ministry of Defence, have addressed the question with the seriousness that it deserves.

Coal Imports
2.48 p.m.
Lord Dormand of Easington Lord Dormand of Easington asked Her Majesty's Government:
What was the total tonnage of coal imported into the United Kingdom in 1995 and what has been the total tonnage imported to date in 1996.
Baroness Miller of Hendon: My Lords, the total amount of coal imported into the United Kingdom in 1995 was 15.9 million tonnes. The current estimates for the first nine months of this year—the most up-to-date figures currently available—show that coal imports into the United Kingdom amount to 12.7 million tonnes.
Lord Dormand of Easington: My Lords, can the Minister confirm that in both years coal has been imported from no fewer than 12 countries? How can that be justified when there are 2,500 million tonnes of known coal reserves in this country and, furthermore, that the coal produced by British Coal is now among the cheapest in the world? Further, does she agree that it is cheaper than the coal that is now being imported from those countries? What is the present level of coal stocks in this country? Has there been any significant decrease in those stocks in recent months?
Baroness Miller of Hendon: My Lords, from looking at the table of coal imports, I think I can confirm what the noble Lord first asked me about the number of countries from which we import coal. So far as concerns stocks of coal in this country, I am afraid that I am unaware of how many tonnes of coal there are, but I shall write to the noble Lord and inform him. He asked why we are not using coal from our own pits. The problem is that we had an unacceptably high level of subsidy. We were able to bring coal in from all over the world at lower prices. In many cases the coal was of better quality and contained lower amounts of sulphur. As noble Lords will be aware, most of the coal is used for generation in the power stations, which have strict rules about sulphur emissions. As I said, I shall have to write to the noble Lord about the other matter.
Lord Clark of Kempston: My Lords, does my noble friend agree that the privatisation of British Coal has been a great boon to this country's economy in view of the fact that production costs of coal in this country are now low, and compare favourably with coal from abroad? Does she further agree that it would be folly to change this country's economic policy by trying to cancel the privatisation?
Baroness Miller of Hendon: My Lords, I thank my noble friend for expressing that view, probably much better than I would have done.
Noble Lords: Oh!
Baroness Miller of Hendon: My Lords, perhaps I may just remind noble Lords opposite that between 1979 and 1994 the taxpayer provided some £20 billion to support the coal industry. I have no doubt that noble Lords opposite are taxpayers just as they are on this side of the House. The truth is that we on this side of the House have no doubt that private industry rather than public sector managers, or, indeed, government themselves, is best placed to take advantage of the opportunities available. I shall say one further thing. My noble friend talks about privatisation. The nationalised industries were costing this country's taxpayers £50 million every week. Today, the Exchequer receives £61 million every week. Noble Lords opposite might think about that when they talk about not raising taxes.
Lord Ewing of Kirkford: My Lords, does the Minister accept that I have noticed in recent days that government Ministers are becoming more edgy as they get nearer to losing their jobs? She should try to contain herself. Further, is she aware that National Power imports into this country cheap petroleum coke which seriously damages our environment and has consequent damaging effects on people's health? What are the Government prepared to do about that problem in order to deal with what is a serious environmental and health issue which is emerging in this country?
Baroness Miller of Hendon: My Lords, I understand that we are careful to ensure that everything we bring into this country is safe under environmental regulations.
The Lord Bishop of Durham: My Lords, will the Minister say whether it is government policy in order to reduce coal importation to encourage open-cast coal mining in this country? If so, what precautions are taken to ensure proper environmental control and respect for the feelings of local communities?
Baroness Miller of Hendon: My Lords, as the right reverend Prelate will be aware, this is a difficult question because environmentally there are many people who are not keen on open-cast mining, although on the other hand there are those who feel that it should be carried on. My understanding is that
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thorough inquiries are made before a decision is reached. I am afraid that that is the best response I can give the right reverend Prelate at the moment.
Lord Haskel: My Lords, is the Minister aware that, although it is forecast that 21 per cent. of our energy will be generated by coal in six years' time, the use of clean technology for coal has been excluded under the present regulations relating to research? That has been done in favour of nuclear and renewable fuels. Does the Minister agree that it is time we renewed research into clean coal technology in order to make use of the resources that we have?
Baroness Miller of Hendon: My Lords, I am certain that they are doing such research:
Baroness Oppenheim-Barnes: My Lords, does my noble friend agree that it is not just the British taxpayer but the British consumer who has greatly benefited from cheaper, high quality coal, and that that is also an important consideration?
Baroness Miller of Hendon: Yes, my Lords.
Lord Molloy: My Lords, will the Minister say whether there have been, or whether there will be, discussions with the NUM on this and other issues that might arise in the future so that we shall have the best of both worlds? Members of this House and British miners want there to be sensible discussions with miners' representatives—the NUM.
Baroness Miller of Hendon: My Lords, discussions such as the noble Lord suggests are a matter for the industry and not for government.

2006 World Cup: Venue
2.57 p.m.
Lord McNally Lord McNally asked Her Majesty's Government:
What financial and other support to attract the 2006 World Cup to England did the Prime Minister offer at his meeting with the Football Association on 25th November.
Baroness Trumpington: My Lords, the Prime Minister indicated the Government's support in principle for a bid by the Football Association to stage the 2006 World Cup. The Minister for Sport has agreed to host a meeting with the FA on 11th December to take forward discussions. It is too early to talk about costs and funding for the tournament, as the Football Association has also made clear. But for the first time a body has been set up (the UK Sports Council) which is specifically tasked with helping to attract and stage major international sporting events in the UK.
Lord McNally: My Lords, I thank the noble Baroness for that Answer. Is she aware that the team which will play in the 2006 World Cup is at present

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playing schools' and youth soccer, and that that level of soccer is run on a shoe-string by volunteers? At the meeting on the 11th will Ministers make it clear to the Premier League, the FA, and the Football League that we expect some of the hundreds of millions of pounds now flooding into soccer from TV rights and elsewhere to go to that level of soccer because it is there that the game's future lies?
Baroness Trumpington: My Lords, the Government are fully aware of the need to ensure the continuing strength of football at child level. Both the Premier League and the Football League plan links between their clubs and local schools. In addition, under a voluntary code agreed by the main governing bodies of sport, the football authorities have undertaken to earmark at least 5 per cent. of the fees derived from UK broadcasting sales towards the development of grass roots football. In practice, we expect a far greater percentage to be invested.
Lord Howell: My Lords, will the noble Baroness express to the Prime Minister our appreciation for his support to try to stage the World Cup in this country? We hope that if we do so we shall have the success that we enjoyed in 1966. However, may I draw the noble Baroness's attention to the fact that Mr. Rupert Murdoch seems to be working with Herr Kirch of Germany in a move to televise that World Cup, which would prevent it being broadcast here on terrestrial channels? Herr Kirch hopes to own the rights. That would mean that were Mr. Murdoch to transmit the programmes here he could do so on pay television which would subvert the emphatic opinion of this House and Parliament recently expressed on the Broadcasting Bill. As the European Parliament has recently said that it wants to amend the appropriate directive now going through that body, will the Government kindly consider supporting the European Parliament on this occasion to ensure that terrestrial television provides coverage of the World Cup to every living room in this country?
Baroness Trumpington: My Lords, I am well aware of the great part played by the noble Lord during the last World Cup tournament. As I have said so often, it is a long time since I kicked off for Cambridge United. These are early days to discuss Mr. Murdoch and costs, as I said in my original Answer; but I shall pass the information to the department.
Lord Dean of Beswick: My Lords, is not part of the Question the location of the new national stadium? Does the Minister agree that the International Football Association is on record as saying that it will not come here for a World Cup tournament unless it is played in a London centre? It does not want to go to a provincial city. If that is the case, why are we kept waiting for a statement from the appropriate authority as to where the national stadium will be built?
Baroness Trumpington: My Lords, the 80,000 all-seater English National Stadium, which is to be
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funded by lottery money, will have been developed by 2006 and will certainly be central to any English bid. The Sports Council is expected to announce by Christmas whether Manchester or Wembley is to be the site for the new stadium.
Lord Donoughue: My Lords, may I point out that as the Labour Party with the FA initiated the bid for Euro '96, we now wholly support all efforts to have the World Cup tournament played here? However, is the Minister aware that for Euro '96 the Government provided only a measly £100,000 to the eight cities which hosted the games and incurred the brunt of the costs? Are the Government prepared to assure the local authorities and those involved in football that they will provide more significant financial support next time?
Baroness Trumpington: My Lords, to the first part of the noble Lord's question I can say only, "Goody goody two shoes"! As I said in my original Answer, it is too early to talk about costs and funding for the tournament.
Lord Ewing of Kirkford: My Lords, in order to blow the final whistle on this Question, will the Minister share with me the hope that of all the United Kingdom countries which participate in the World Cup in 2006 none will score as many own goals as have this present Government?
Baroness Trumpington: My Lords, my answer to the noble Lord is, "Boo"!

British Museum: Finance
3.3 p.m.
The Earl of Clancarty The Earl of Clancarty asked Her Majesty's Government:
Whether they are prepared to intervene to ensure that the British Museum will not at any time in the future operate general admission charges.
Baroness Trumpington: My Lords, no.
The Earl of Clancarty: My Lords, I thank the Minister for that short Answer. Does she agree that any reduction in accessibility for whatever category of visitor does not just lead to but positively represents a worsening of the cultural health of our society, the very possibility of which the Government should do their utmost to disallow?
Baroness Trumpington: My Lords, the Government have long held the view that the decision about whether to charge for admission is for individual boards of trustees. The Government neither impose nor prohibit the introduction of admission charges.
Lord Callaghan of Cardiff: My Lords, I declare an interest as a member of the Trustees Appeal Council of the British Museum. Is the Minister aware

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that there is almost total opposition to any proposal to charge for entry to this great national heritage, to which there has been free admission for at least 200 years? It should not be regarded as a business but as part of our civilisation. Is she further aware that the alternative to not making charges will be to cut exhibitions? There is a suggestion that the number of staff will have to be reduced by 20 per cent. That is quite intolerable and the situation results from the Government's decision to cut the grant year after year after year.
Baroness Trumpington: My Lords, the Edwards Report suggests that to a considerable extent the museum has the power to solve its own financial problems. The report reveals that there is great scope for the museum to improve its efficiency. People may enter the British Museum without paying a fee, but each and every taxpayer pays for it at £6 an entry.
The Earl of Perth: My Lords, in view of the Minister's original Answer, will the Government ask the trustees to consider a compromise; namely, that there should be charges for six months from April to September when the tourist season is at its height? People from other European countries, for example, will readily understand that because almost all those countries charge for their museum entrances. During the remaining six months there would be no entry charge and the British, or anyone else living here, could enjoy the great pleasures of the museum for free.
Baroness Trumpington: My Lords, to return to the issue of money, the Government are providing more than £33 million to the British Museum in 1996-97. That is a substantial commitment. The matter is for the galleries themselves. I am not aware that, for instance, the National Gallery has any intention of introducing charges. However, it is up to the gallery to decide.
Lord Strabolgi: My Lords
Lord Jenkins of Putney: My Lords, is the Minister aware
Noble Lords: Strabolgi! Order!
Viscount Cranborne: My Lords, I am well aware of the ticking of the clock and I hate to intervene in any internal Labour Party quarrel. However, I wonder whether perhaps the noble Lord, Lord Strabolgi, has not been standing longer than the noble Lord, Lord Jenkins of Putney. I am in the hands of the House.
Lord Strabolgi: My Lords, are the Government aware that last year there were more than 6 million visitors to the British Museum? By how much does the Minister believe that that figure will reduce if charges are introduced?
Baroness Trumpington: My Lords, I could not possibly give a hypothetical figure. Where charges are made, children, OAPs, unemployed and disabled people enter for half price and organised children's groups enter free of charge. Season tickets work out much cheaper than daily tickets and apply to most museums which charge; for example, the Victoria and Albert Museum. Furthermore, the Natural History Museum lets everyone in free after 4.30 p.m.
Lord Jenkins of Putney: My Lords, is the Minister aware
Noble Lords: Order!
Viscount Cranborne: My Lords, I believe that I understand the sense of the House; that it prefers the Cross-Benchers to come in.
Lord Annan: My Lords, may I correct the Minister in one respect? She said that it was up to the trustees to decide whether to charge. In the 1960s the noble Viscount, Lord Eccles, imposed a charge upon the trustees and they were powerless to resist. Has the Minister taken into account the fact that when the British Library moves, the British Museum will lose a considerable amount of money in rent? Not only must it make up that amount in the running of the museum but it must find the funds to transform the centre of the museum and the space that has been vacated by the books.
Baroness Trumpington: My Lords, I hate to say it, but the noble Lord is wrong. The Government have given £5.2 million in 1998-99 and 1999-2000 to replace income currently received from the British Library.

Social Security (Recovery of Benefits) Bill [H.L.]
3.10 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That it be an instruction to the Committee of the Whole House to whom the Social Security (Recovery of Benefits) Bill [H.L.] has been committed that they consider the Bill in the following order:
Clause 1,
Schedule 1,
Clauses 2 to 8,
Schedule 2,
Clauses 9 to 32,
Schedules 3 and 4,
Clause 33.—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Consolidation Bills: Joint Committee
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That pursuant to Standing Order 49 the following Lords be appointed to join with a committee of the Commons as the Joint Committee on Consolidation Bills:
Alexander of Tunis, E.
Clyde, L.
Colville of Culross, V.
Dilhorne, V.
Gisborough, L.
Haskel, L.
Lloyd of Berwick, L.
Mallalieu, B.
Meston, L.
Strabolgi, L.
Wigoder, L.;
That the committee have the power to agree with the committee of the Commons in the appointment of a chairman;
That the minutes of evidence taken before the committee from time to time be printed and, if the committee thinks fit, be delivered out; and
That a Message be sent to the Commons to propose that the joint committee do meet on Tuesday 10th December at half-past four o'clock in Committee Room 3.—(The Lord Chancellor.)
On Question, Motion agreed to, and it was ordered that a Message be sent to the Commons to acquaint them therewith.

Preparations for EMU: ECC Report
3.11 p.m.
Lord Barnett Lord Barnett rose to move, That this House takes note of the report of the European Communities Committee on Preparations for EMU (2nd Report, HL Paper 18).
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I start by thanking the Members of my committee. I was fortunate to have a very distinguished, able and experienced committee, which I had the great honour to chair. I say that they are very able and distinguished not just because the report is unanimous. I would have said that anyway. But I am pleased to see that the debate has attracted a few equally distinguished noble Lords who may not be quite so unanimous in agreeing with the committee. I hope I am wrong about that.
I thank the noble Lord, Lord Tordoff, the chairman of the main committee, whose help was important in order to obtain a unanimous report, after an amendment was defeated by 15 votes to three with the support of a very important distinguished group of 15 noble Lords.
But the background to the report is that the Chancellor said that he would be "grateful" for our views on the important matters which he raised both in his letter and the memorandum from the Treasury. Those are included in Appendices 3 and 4 to the report.
There are three main issues: the stability pact, the exchange rate mechanism and the euro. The basis of our report is our letter to the Chancellor which is set out in Appendix 5 to the report. Since then, I have had a reply from the Chancellor to which I shall refer later.
The background to our letter is our major report An EMU of 'Ins' and 'Outs' and there are six bull points in that report which, I should point out, was also a unanimous report despite having as a member of the committee at that time my noble friend Lord Bruce of Donington. Therefore, I cannot say that he agreed with every dot and comma of the report. Indeed, it may be fairer to say that the report was agreed nem con and he did not vote against it.
The bull points of that report are set out at page 20 in Appendix 5: first, that EMU is more likely to work well if it comprises only member states which have met the convergence criteria and are judged to be likely to sustain them; secondly, that budgetary discipline is necessary for all member states of EMU; thirdly, that the single market is the main economic benefit of EU membership to the United Kingdom; fourthly, it is of critical importance that access to the single market is not restricted if the United Kingdom is not participating in EMU; fifthly; that exchange rate stability is important for the maintenance of the benefits of a single market; and, finally, that the achievement of a sustainable convergence is the critical condition for exchange rate stability.
My present view is that implicit in that report was that there are bound to be consequences for the UK, whether we are inside or outside EMU. Therefore, the report exposes as a nonsense the ideas of those who wish to say no now to EMU. Indeed, I know that many would prefer to say no to our membership of the European Union altogether, although I do not believe that many noble Lords here would say that. But at least now any government in the UK can seek to influence the policies which will have serious consequences for the UK.
Therefore, I come to the first of the three main items in our report—the stability pact. We say in terms:
"We strongly support, in principle, measures which work to maintain fiscal discipline".
I am sure that must be right, whatever are one's views about our membership of EMU.
I emphasise that member states seeking to join EMU should not just meet the criterion of 3 per cent. of GDP. They must do so without one-off accounting devices and what might be called creating accounting fiddles or—the Minister did me the honour of quoting from my book about wheezes—wheezes. I hope that we shall have none of that in deciding whether the 3 per cent. of GDP is met. Therefore, we are not just talking about 3 per cent. to meet the criteria for one year but that the

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member states which seek to join should be judged whether they are likely to sustain convergence thereafter. That is crucial.
I turn now to the question of fines and sanctions. At the bottom of page 20 the report states that,
"we see as desirable some system which effectively deters fiscal irresponsibility. We see the problem of devising a system which strikes the right balance between effective deterrence and credibility. We recognise that the Commission's proposals raise questions of feasibility and political acceptability".
I am sure that noble Lords will agree that that must be right.
However, in my view the whole issue of fines and sanctions has been blown up out of all proportion to the issue. If one were to read the excellent evidence which we had from Mr. Gus O'Donnell, the senior Treasury official who gave evidence to us, he made it quite clear that it would be years before fines or sanctions of any kind might be imposed on any of the ins. He made it crystal clear that that is the situation and he spelt out the way it would work. The fact is that we are talking of a deterrent and, like all deterrents, if we have actually to use them, that could and indeed might destroy the EMU itself.
The Chancellor's letter, to which I have referred, states:
"It is however, too early to judge how the conditions for membership will be interpreted. The Council, meeting as Heads of State or Government, will not decide which Member States qualify for EMU membership until 1998 at the earliest".
Some things may happen before then. Indeed, I hope that they will, but I must leave that to one side as I am trying to be wholly non-controversial. I make it quite clear that the Chancellor's letter talks also about a system of good deterrence never actually needing to be used. That is why it is vital, as we say in our report, that member states should be allowed to join EMU not simply by meeting the convergence criteria in 1997 but thereafter they must be judged—and the judging will take place in 1998—whether they are able to sustain that convergence. That is absolutely crucial.
I turn to the exchange rate mechanism which is referred to at page 21 of the report. I note and accept that ERM2 membership is voluntary for the outs. My concern is that if the opt-out that we have is genuine, it is also an opt-in and that is genuine too, I hope. Therefore, the question must be whether we must be in the exchange rate mechanism for two years prior to joining. As I have said, the Chancellor feels it is too early to judge. Our view—with which, in his letter, the Chancellor agrees—is that if we meet the test of exchange rate stability on other convergence criteria, it would be straining at a gnat to find difficulty over formal membership of the exchange rate mechanism. In any event, the provisions and procedures of ERM2 are in line with government policies. I hope that they are also in line with the Opposition's policies. No doubt my noble friend Lord Peston will be able to confirm that.
Noble Lords: Oh!
Lord Barnett: My Lords, he looks as if he will not confirm that. I shall let him have a few minutes to
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reconsider and then perhaps he will confirm the position. In the circumstances, as the provisions and procedures of ERM2—as I said—are in line with government policies—and I thought in line with opposition policies—it would be right for the government of the day to consider (even if we are an out) whether we should not join ERM2, especially if there is a 15 per cent. broad band, which would make it easy for any member state to join, even the UK. I note that my noble friend nods at this point.
I now turn to the euro which is referred to at page 21 of our report. The Government's views are set out clearly on pages 14 to 16. I have a letter from the Chancellor and I wish to quote what he said about the legal framework for the euro. I am trying to save the Minister some time later by dealing with everything now. It is worth quoting the Chancellor's letter in which he states he is pleased that the committee recognises,
"the importance of adopting some of this framework under Article 235. The Government has supported the use of this legal base and favours the adoption of the regulation as soon as possible in the interests of giving markets greater legal certainty about the euro, especially concerning contract continuity and the rules for conversion and rounding".
I am glad to see that my noble friend Lord Peston continues to nod. It appears that there is a bi-partisan agreement on these matters, which I am happy to note. The letter continues:
"It also means that this legislation, which is of great importance to the United Kingdom's financial sector, will apply unambiguously within the United Kingdom whether or not we adopt the single currency".
We had been concerned in our report about the application to the United Kingdom of Article 235. The Chancellor stated in his letter:
"I agree that there has been some confusion concerning the application of the draft regulation under Article 1091(4)".
I hope my noble friend Lord Bruce of Donington will not mind my referring to an article for a change.
The Chancellor refers to Article 1091(4) and its application to the United Kingdom. He states:
"It is our clear view that Article 1091(4) regulation cannot apply to the UK if we do not participate in the single currency".
That is pretty clear. The letter continues:
"Paragraph 5 of the United Kingdom Protocol specifically disapplies Article 1091(4) from the United Kingdom in this context. I have secured at ECOFIN this week amendments to the regulation to make clear that its application is subject to the United Kingdom Protocol".
I hope that is quite clear, even, or especially, to my noble friend Lord Bruce of Donington. I certainly hope your Lordships are clear about the Government's position.
To sum up, it seems to me that the Chancellor has clarified the issues. He clarified the issues in his Statement on Monday, 25th November. That was a difficult day on which to do so as it just preceded the Budget. As regards the main issue of whether we should join economic and monetary union at all, yesterday the Prime Minister confirmed, without any possible doubt, that the policy of the Government is to leave options open, not just now but right through until a general election.

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I express the hope that the Minister, and indeed the Government, will not allow themselves to be bullied by either the Daily Telegraph or the Times, or even some of the smiling Euro-sceptics that I see in front of me now. We heard a Statement the day before the Budget, and a further Statement by the Chancellor following his attendance at ECOFIN. He confirmed—this barely needed any confirmation—that fines would not be imposed on the outs. In another place Norman Lamont said that he had been present at Maastricht with the Prime Minister, and was quite clear that there would be no fines. I hope at least that is clear and there will be no further attempt by some noble Lords and others in another place to try to twist the arm of the Prime Minister. Perhaps his arm is easily twisted, but the fact is he has made the position crystal clear. I was happy to read what he had to say.
At page 22 of our report we referred to EMI. We asked that it should not operate behind closed doors, although we recognised that some confidential matters would need to be discussed behind closed doors. We hoped to be kept informed about that. The Chancellor stated that he hoped the public release of the report would ensure that the problem had been eased.
Although I have referred to my next point en passant as it were, we are not really talking about whether we should or should not join EMU. I made my position clear in a recent debate when I said that with some reservations I would generally prefer to be in, provided always there is an effective and workable in. In the meanwhile it is in the UK's best interest to maintain the Maastricht convergence criteria, and not just by one-off creative accountancy arrangements. I hope that your Lordships will note with approval—the words "with approval" do not appear on the Order Paper—the Motion standing in my name.
Moved, That this House take note of the report of the European Communities Committee on Preparations for EMU (2nd Report, HL Paper 18).—(Lord Barnett.)
3.27 p.m.
Lord Howe of Aberavon: My Lords, it will not have escaped the attention of your Lordships that there is a tendency in debates on this subject to self-repetition. Indeed, the cast has a familiar look about it. One feels that one has only to ask for the usual suspects to be rounded up, and here we all are. However, some points are so good that they deserve to be made more than once. Certainly I congratulate the noble Lords, Lord Barnett and Lord Tordoff, and the Committee on their continuing engagement with this subject, and on their continuing ability to shed light rather than heat upon these difficult issues.
I wish to echo what I believe the noble Lord, Lord Barnett, said in congratulating the Chancellor of the Exchequer who, quite aside from the task of introducing an autumn Budget, is engaged almost daily within the European Union in trying to shape the economic world in which Britain will have to live, whether "in" or "out". Even if we are to be "out"—that is a question yet to be decided—there are, as the report points out, important
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achievements already to his credit. There is no question of fines under the stability pact applying to the "outs". There is no question of any compulsion to join ERM2. As the noble Lord, Lord Barnett, has pointed out, this next point has not yet been achieved but it is important. If the United Kingdom decides later to join EMU, and at that time meets the test of exchange rate stability, it is important that there should be no difficulty over non-membership of ERM2 for the preceding two years. I echo the words of the noble Lord when I say that to insist upon that would be to strain at a gnat.
A further point of importance on which the Chancellor is still working is that there should be no discrimination within the single market against the "outs". There is a need for continued vigilance on that front, and there always will be. It is hard enough for the Chancellor to achieve success in this continuing series of engagements with our European partners. In that context it is intolerable that he should at the same time be repeatedly obliged to do battle on the home front as well; and to do battle sometimes against those who doubt, distort, or deny some achievements that are, in his word, already "copper-bottomed", as the noble Lord pointed out. He has had to do battle sometimes against those who, rather worse, seek to undermine his credibility, the credibility of this country and thus our effectiveness as a nation in the main debate by seeking to oblige us here and now to rule out membership of EMU either for good or for some shorter specified period.
I join the noble Lord, Lord Barnett, in welcoming most warmly the fact that the Prime Minister and the Deputy Prime Minister have already repeatedly, rightly and recently, ruled out such self-exclusion from a debate that is of crucial importance to Britain's future. Like the noble Lord, Lord Barnett, I hope that we shall have no more challenges of that kind, seeking to dislodge them from a position of such crucial importance. To those in my own party who claim to be anxious to secure such change of position, and the re-election of the Government, I say this. I, too, wish to see the Government re-elected. But to force the Prime Minister and the Chancellor out of their present position is no way to go about re-election. If the challenge is offered as a means of uniting the Conservative Party, that, too, could not be further from the truth.
The central argument can and should be advanced further than that. British interests in the debate extend far beyond trying to shape EMU—an institution to which we might even choose not to belong. Those interests extend to much wider aspects of the Union. We forget that at our peril. The shape of the Union can and does affect us even more in the years ahead. Beyond EMU, our wider influence is or should be important for our own future. The Prime Minister sees that clearly—or at least he did when he spoke in Bonn five years ago. He said:
"That is where we belong, at the very heart of Europe, working with our partners in building the future".
I have to say, indeed it is sadly manifest to those who consider it, that Britain's position today falls a good way short of that.

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About two weeks ago I attended the Sixth Annual European Banking Conference in Frankfurt. There were 800 people present plus 200 journalists; four Finance Ministers; and four or five central bank governors. Chancellor Kohl spoke for just short of an hour and answered questions for half as long again. It was organised by the three Frankfurt-based European banks—Commerz, Deutsche and Dresdner—and, of course, the Bundesbank. However, in the cast of that great conference, to the regret of the organisers, no Briton appeared. It was said to me by our German hosts that to have that kind of debate without British participation was like gin and tonic without the tonic. However, they were quite ready to accept my correction that it was more like gin and tonic without the gin. I believe that the City of London discounts the importance of the impact of such events taking place outside this country at its peril.
There was a greater tragedy even than that. All those who spoke—Finance Ministers from every other country—were addressing themselves to an agenda which was essentially British. It was an agenda to which Members on all sides of this House—the noble Lords, Lord Callaghan, Lord Jenkins, Lord Barnett and Lord Healey, not to mention my noble friends Lord Cockfield, Lord Tugendhat and Lord Lawson and the noble Baroness, Lady Thatcher—have helped to shape. In the context of EMU, they were addressing themselves to the agenda of which the noble Lord reminded us a few moments ago: the need for sound public finance and low inflation; and for monetary and fiscal discipline, if I may cite the report. There is, too, the need for market flexibility—noble Lords opposite have played a smaller part in that—above all in labour markets, and my noble friend Lord Tebbit has played his notable part in helping us to achieve that.
That is all part of the agenda which we should be commending to our partners in the European Union. The real sadness is that at Frankfurt on that day they were singing from our hymn sheet and only the conductor was not present to join in the proceedings. I fear that that is symptomatic of Britain's position in the wider debate on which we are engaged. If we continue in this degree of self-abstention, we risk achieving by default the Norwegian position, about which some Norwegians were complaining earlier this week. A growing chorus from that country finds itself bound by the rules of the European Union but increasingly unable to influence those rules as they would wish. Britain must remain engaged in this debate—and effectively engaged, as we should be, in a leading role—not just at Dublin or Amsterdam, but through the months ahead.
I do not underrate the difficulties of achieving EMU. There are many features about the path towards it which I, like many other noble Lords, would have designed differently. But the prize of exchange rate stability is one of enormous value. As the report rightly points out, it is crucially important to the maintenance of the benefits of the single market. How can it be anything else? Almost three-fifths of our total trade is conducted within the Union. Our trade with the Federal Republic of Germany equals that with the United States and Japan. Our trade with Sweden equals that with the whole
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of Latin America. Our trade with Ireland equals that with Canada, Australia, New Zealand and South Africa. How can we underrate the importance of the value of achieving exchange rate stability? Of course it will be difficult but we should be foolish indeed to reject it outright. We are invited to do so, in the first place because it would violate our economic independence. But have we such a great record of achievement with that independence? The value of the pound against the deutschmark has shrunk from DM12 at one time to just over DM2.50 today. As my noble friend Lord Cockfield has often pointed out, the interest rate differential is a measure of the extent to which markets expect usalas!—to misuse our independence.
We are invited to conclude that joining this organisation would violate our political independence—destroy the very nation itself. But why should we alone have the lack of confidence to reach that conclusion when other great nations, France, Germany, Spain and so on, are ready to accept it and use it constructively? Ironically (it is a small point) the Republic of Ireland, a nation not unknown for its nationalistic determination, achieved independence from the United Kingdom in the 1920s after years of conflict. Yet it accepted membership of monetary union with the United Kingdom until it joined the exchange rate mechanism. The Irish example may not be one for us to follow, but it shows that there is no intrinsic incompatibility in designing special solutions.
Of course such a system of economic discipline would be unmanageable, as the committee points out, if the United Kingdom were unable to achieve that fiscal and budgetary discipline which the committee rightly sees as,
"necessary for all member states of the European Union".
So, too, it would be difficult if our partners fail in the same way. The committee is absolutely right to stress how desirable it is to secure,
"some system which effectively deters fiscal irresponsibility".
It is right to point out that it is crucial that member states joining EMU should, without resort to exceptional one-off accounting devices, already have met the convergence criteria and be judged likely to sustain them. I endorse absolutely the words of the noble Lord, Lord Barnett—and who better than he to counsel against fudging and wheezes. There are few ex-Treasury Ministers who could not give similar advice; I underline it.
Many questions still have to be addressed about the path towards economic and monetary union, whether or not it is to be achieved. It is impossible to address them all. But for this country to be other than closely engaged in a continent-wide debate would indeed be, in the words of the Prime Minister, "a dereliction of responsibility" which would be unthinkable and disastrous. We all owe a debt of gratitude to the noble Lord, Lord Barnett, and his colleagues for doing so much to steer us away from that disastrous course.
3.39 p.m.
Lord Ezra: My Lords, we are indebted to the noble Lord, Lord Barnett, and his colleagues for the short, but

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important report that is before the House today and for the effective manner in which the noble Lord introduced it. This debate takes place against the background that it is UK policy—as reaffirmed yesterday by the Prime Minister, the Deputy Prime Minister and the Chancellor of the Exchequer, as the noble Lord, Lord Barnett, and the noble and learned Lord, Lord Howe, said—to remain actively engaged in the deliberations leading to the single currency even though we have not, as yet, decided whether or not to join it and will not do so until we know the facts at that time.
Like the two noble Lords who spoke, I believe that it is vital that we remain actively engaged in those discussions. As the noble and learned Lord, Lord Howe, pointed out, the single market represents more than half of our world trade. The establishment of a single currency, if it comes about, is bound to affect how it develops. Therefore it is in our interest to see that a single currency is brought about in the most auspicious circumstances.
Secondly, there is the importance of the City of London as a financial centre. Whether the United Kingdom is or is not in a single currency, if the City wishes to maintain its position as a world leader in financial affairs, it is bound to deal in very large measure with that currency. Therefore it has a main interest in seeing that it is brought about in the best circumstances. Knowing the financial expertise of the noble Lord, Lord Bruce of Donington, I hope that he will agree with that.
But there is a third reason why we should remain positively involved in these deliberations. It is that the Government have affirmed—and indeed I believe this must be the policy of all other parties—that we have to aim for price stability and sound finance on a long-term basis. That is the underlying objective of the single currency as propounded by those who are in favour of it. So in order to achieve our objectives it is important for us to make sure that our trading partners in Europe also aim in that direction.
The question that we should examine today against that background relates therefore to the benefit that we could derive specifically from continuing to be involved in these discussions. I should like to refer to the documents mentioned in the report. I begin with the stability pact.
Although it has been made clear that the pact in general, and in particular what is described as the excessive deficit procedure—in other words, the fines—would not apply to the UK so long as the derogation is maintained, the concept underlying the pact is of considerable importance to us. There is an obvious risk that countries which aim to enter the single currency quickly, and which therefore achieve the criteria, could do so on a short-term basis and, having entered, relax their discipline. It is very important that we ensure that that does not occur. Therefore we need to support the concepts behind the stability pact.
What is remarkable is that, in the past year and a half, the endeavours of our partners in the European Union to achieve the criteria required for joining the single
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currency have led to their pursuing very positive financial and economic policies. In particular, there has been a remarkable convergence of currencies during that period. I have just attended a lunch addressed by the governor of the Bank of France, M. Trichet. He told us without any doubt in his mind that whether or not there had been an objective to achieve the single currency, the policy in France would have been what it is now. His aim as governor of an independent central bank is to achieve a level of inflation that is below 2 per cent. At the present time it is 1.8 per cent. and compares somewhat favourably with our own level. He is fully in support of the other objectives that France has to pursue in order to qualify for the single currency. France would be aiming to reduce its budgetary deficits; it would be aiming to achieve the other criteria in any event. An important by-product of the single currency concept has been that, perhaps for the first time in living memory, a large number of Western European countries have reinforced their efforts to achieve economic and financial probity. We should not disregard that fact.
Another issue referred to in the Select Committee's report is ERM 2; namely, the exchange rate mechanism which it is proposed will apply to those countries which for whatever reason did not join the single currency at the due date. However, it has been made clear, particularly at the insistence of the United Kingdom, that it would be a voluntary arrangement; there is nothing mandatory about it.
What is interesting is the proposal that the arrangement would be of a very flexible nature compared with present ERM arrangements. For example, there would be wide fluctuation margins, and there would be provision for intervention support and realignment in order to make it realistic. That would undoubtedly help to maintain currency stability throughout the EU, even if some countries were outside the single currency. I should have thought that we ought entirely to support such an arrangement and that, even if we decided that we did not want to enter ERM 2, our own policies would lead us into a position in which our currency would be capable of being within it if we so decided. In other words, it must be in our interest to have currency stability within our main trading area.
The reinforced convergence procedure is another subject referred to in the Select Committee's report. It should present no difficulties for us. As was pointed out when we dealt with the Statements issued in the past few days, the United Kingdom is already submitting reports on this subject based on our budgetary objectives. The Red Book which we debated recently contains all the evidence that is required for that purpose. We need to make sure that we make clear to our friends in Europe that our objectives with regard to inflation, budgetary deficits and overall indebtedness are in line with securing the best results for our trading relationships and for economic stability. Therefore I very much hope that we shall continue to participate in submitting the reports and in listening to any views that might be expressed in relation to our report, and be able to comment on the reports of other nations.

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The fourth issue referred to in the report of the Select Committee is the legal framework for the use of the Euro. As we heard yesterday in the Statement read to the House by the noble Lord, Lord Mackay of Ardbrecknish, that was the specific issue dealt with at the ECOFIN meeting. Here again we have a vital interest. As a major financial centre we shall have to deal with the Euro whether we are in or out. It is essential that we know what are the legal considerations in relation to that currency and that we should have a say in that matter. Paragraph 26 on page 16 of the Select Committee's report makes it clear that the Government have already been able to play a positive role in the development of this legal framework. They have stressed the need for the:
"legal framework to be practical; to be adopted sufficiently in advance to give those who will be affected a secure basis on which to plan; and to ensure that there is no uncertainty about the contractual effect of the introduction of the euro".
That is sound advice, but our representatives could not have been able to proffer that advice had we not been actively engaged in the discussions.
So, having carefully considered the documents put to us in the Select Committee's report, I conclude that it is right and indeed essential that we should remain actively involved in the deliberations leading up to the possible establishment of a single currency. In this vital issue, the European Union must act as an entity and not be split by "ins" and "outs". I believe that the role of the UK is vital in achieving that objective. If we were not there and participating, the rift could develop. I believe that we are helping to prevent it.
I therefore join the noble Lord, Lord Barnett, and the noble and learned Lord, Lord Howe, in hoping that the Government will persevere with their present stated and confirmed policy that we shall ensure that we continue to take an active part and a positive role in the deliberations, in the firm knowledge that, whether or not we eventually participate in the single currency, our vital interests are involved.
3.52 p.m.
Lord Owen: My Lords, we are all indebted to the members of the Select Committee for their invaluable report. I do not believe that anyone participating in the debate or concerned about the best interests of the Government, the country and above all the growth and development of the European Union can doubt that a country like ours, with its history and particularly the importance of the City of London, can stand aside from this debate. Were the euro to be introduced, it would be a significant currency with which the City of London would be heavily engaged from the moment of its inception. So it is not an abstraction; it is of central importance.
I have not spoken in these debates before, but I asked to speak because it is important that in the debate on monetary union and, perhaps more important, the debate on the treaty that is being formulated at this moment and that will come up for decision in the early summer of next year, there are people who hold, as I do, a strong and longstanding commitment to European unity, whether in the shape initially of the Common Market,
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then in the European Community or now in the European Union. Nothing shakes me from that conviction that Britain should be a member and should continue to play a role as a full member. However, I am not convinced by anything I have seen that on the present timetable Britain should be a member of the European Monetary Union.
I hold that view for political as well as economic reasons. It is important that, because one has a different view of how the European Union might develop, we should not find ourselves labelled as "Eurosceptics". I am not a Eurosceptic. I have fought—sometimes at considerable political risk—for Britain's membership of the European Union. I refuse the label of "Eurosceptic" because I do not find myself convinced, on economic and political grounds, of the case for monetary union.
I come back to the question of how Britain has handled the issue in the past. I remember the debates in 1978 of the then Labour Government on whether we should join the European monetary system. Eventually we decided that we would join the system, pay our money and take the ecu, but we would not join the exchange rate mechanism. I remember how much that was criticised as to how damaging it would be if Britain were not on the train or if we had not jumped on the boat—all those different transport metaphors that are constantly used about membership of the European Union. I felt at the time that it was not the right moment to join the ERM.
In the early to middle 1980s, I became convinced that there was a strong case for joining the ERM. I regret that we did not join at that time. But I must say that experience of governments of a number of different complexions around the European Union has demonstrated that politicians seem to believe that, if they are committed to a flexible exchange rate system, they nevertheless have to interpret it as a fixed exchange rate system. The greatest weakness of the ERM, as we saw to our disadvantage in this country, was that the political leaders clung to a fixed parity within the ERM, even though it was a flexible system and even though there was an overriding case for adjustment.
There seems to be a political belief that we can change the market forces by merely signing up to a monetary system. Having failed over the ERM, there is now this strong urge to control and tame the system within a monetary union. I believe that it would be possible to have a monetary union, if all members of the union subscribed to being members of a single country and the disciplines of a single country, both in its economic and fiscal policies as well as its monetary policy. What is extraordinarily difficult is to have a monetary union of any number of countries, let alone ones which are not on a convergent economic path.
Also, we have to understand that the pressure behind a monetary union is not solely but predominantly from people who have a clear vision of how the European Union should develop. They see nothing wrong with it steadily developing into a country called "Europe". They envisage it as a united states of Europe. They do not mind the analogy of how the United States of America developed. They seem to think that somehow

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the countries of Europe can be joined together as the states of the union. They think that this is a noble ideal which, in many respects, it is.
It is perfectly possible to disagree with this vision of European unity and yet respect those people who hold it. By and large, that has been the position over a number of decades of the Liberal Party. It is to their credit that they have held that view, as do the Liberal Democrats now. But it is quite wrong to believe that it is the only model on which Europe was founded. One only has to look at the various statements that have been made on numerous occasions—not least by the noble and learned Lord, Lord Howe—that at the various stages when we have guided the people of this country towards European unity, many of us in highly prominent positions at the time have categorically made it clear to the British people that that model of inexorable movement towards a single country is not the model to which Britain signed up.
We should be quite clear. It is no good turning on people and saying: "Somehow, you have lost faith in European unity, you are a Eurosceptic because you say that this particular model is one which you do not wish to see the British people endorse".
I believe that it is of great advantage that both the Conservative and the Labour Parties are committed to a referendum on monetary union. That is right and proper. We are now embarked on a situation where no major constitutional change will take place in our membership of the European Union without the endorsement of the people. In retrospect, it was a mistake that the Maastricht Treaty was not put to the British people, as it was in France and some other countries. In that way, we can have a more rational debate, safe in the knowledge that this will not be smuggled through on a narrow parliamentary majority. It will not be possible to have the conspiracies of the past, to say one thing to the public and act in another way in private. All of us will have to argue this through and win support for our different views.
Whether or not one makes up one's mind about monetary union today, tomorrow, in the spring or in the early summer is, frankly, a matter of high politics to some extent. But there is one thing which argues for not at this stage taking a decision on monetary union; namely, that there will be another series of hard decisions to be taken when the Heads of Government meet in Amsterdam. We shall come under very strong pressure to accept a flexibility clause, which I think has been called "enhanced co-operation", in which those who want further political union can have it without unanimity; we would abandon the veto and allow people to choose a course of greater political union if there were some form of qualified majority.
Personally, I profoundly hope that, whoever forms the Government of this country by then, that clause is decisively rejected by the British Government and the British people. I am in favour of the cautious development of a European unity of different speeds. But I do not think it solves our problems merely to say each time that we come to a difficult decision, "You go your way and we shall go ours". Very soon, if we allow
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that to happen, it will be either a union not worth joining or a union inexorably heading towards a single European country.
There has to be a much greater degree of self-confidence in the way in which the British Government and people approach this subject. We shall be listened to with respect in Europe, even if we are in a minority of one, so long as it is believed that we are committed to the underlying principle of European unity and so long as they sense that we are not trying to wreck the European Union from within. And that is the problem. You keep bad company so often if you raise a question-mark over some of the courses of future European unity. If you are profoundly doubtful about the case for going into monetary union on the Maastricht timetable, you risk being lumped in with a group of people who have a long record of hostility to membership of the European Community and who somehow believe that there is something alien in the concept of from time to time consciously deciding that you will not exercise national sovereignty in a particular area of policy, whether it is economic, foreign or political policy.
I personally hold the view that there is one absolute threshold across which this country must never pass if it wishes to stop becoming a member of a single European country; and that is majority voting on foreign and defence policy. We came perilously close to it in the early negotiations over the Maastricht Treaty and it was believed that somehow you could have majority voting on some issues. Fortunately, we were saved. There cannot be majority voting unless there is first unanimity. I recommend that no government should ever allow that majority voting clause to be invoked and always to block it.
But I want to have an agreed common foreign and defence policy, if it is possible. During the three years in which I tried to serve the European Union in the former Yugoslavia, I was impressed by the seriousness with which the Foreign Ministers are building a consensus on foreign and defence policy. I have always taken great comfort from the fact that NATO worked very effectively without any voting system. I have always been profoundly suspicious of those bureaucrats who long to solve the problems—the untidiness of democracy—by insisting on majority voting. To me it is very suspect. It seems to be a short cut to the problems of consensus. So on foreign and defence policy I believe that there is an absolute threshold which we should never cross. We should never give up the right in the last analysis to hold out alone on an issue which we believe to be of fundamental importance.
I could imagine circumstances under which I could be convinced that it was in British interests to join European monetary union. As I said, one cannot look at the balance-sheet of the United Kingdom without recognising the importance of the City of London, of invisibles and of that part of the economy. It is possible to envisage that were a euro to take off without British involvement in the first place it would establish itself as one of the major currencies alongside the yen and dollar, and that there would be the start of a process of a movement of funds and institutions away from London

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towards Frankfurt or Paris. I personally do not think that is inevitable by any means. The City of London is an immensely adaptable institution. But under those circumstances, I feel that any government would be bound to say that it is more important to safeguard our economic heritage and pay a political price which we would prefer not to. So I am not in a box on monetary union by saying "never". I say "never" about changing on foreign and defence policy voting but I do not say "never" to a European monetary union.
But I invoke a great measure of caution on the handling of these questions, as much as to say that we shall be unpopular in Europe through 1997. That is inevitable. We shall have to say no to some of the cherished dreams of quite a few countries. In forming that judgment, we shall probably have to put up with some things that we do not particularly like. It may be on the social contract or the Schengen countries or in a number of other areas. In the spirit of a genuine attempt to create and continue the momentum of European unity, we shall have to make some compromises with what we might consider to be the desirable in order to end up with the achievable.
I personally have seen nothing which convinces me that we should join European monetary union. I hope that we will approach this debate with less feeling of pessimism and of being ashamed of being put into that position. We have a wholly honourable and I believe consistent view of how Europe should develop.
It may well be that the euro will fail. Nobody but a fool can be in any doubt but that the German view of monetary union is to put monetary stability as "the" priority. The French see monetary stability as "a" factor. One of the reasons that the French are keen on monetary union is that they want to exercise the political control of the Bundesbank that the politicians in Bonn, in their judgment, have failed to exercise. To pretend that Paris and Bonn approach the creation of monetary union with the same viewpoint is absurd. There are very real differences.
One argument too for staying one's hand and not finally declaring a decision on monetary union is that maybe the timetable of Maastricht will slip. In the nature of things, if that timetable slips, maybe the concept will slip as well. If so, I for one would be extremely pleased for I see no great virtue in monetary union. I see great problems ahead for us. I see a shape of Europe which I dislike. I see even the prospect of a breakup of the monetary union, which would have very profound adverse political and economic consequences not just for the partners who are involved in the union when it broke but for the whole European Union and indeed for the world economy.
So I state only that to be cautious is not to be Eurosceptic. To be clear about a vision of the Europe that we joined is not to be "anti" the concept of the Europe that we joined: that of a greater and progressive European unity formed largely of a consensus between member states working for a common good. I believe that monetary union at this stage in our history would be ill advised. I hope that, whichever government formulate that decision next year, if they come to that
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conclusion—as I believe they will, or if not, I believe that the British people will insist that we do not enter—let us do it in a spirit of self-confidence and not in a spirit that wants to break up the European Union or retract our membership.
4.10 p.m.
Lord Peston: My Lords, my first pleasant task in speaking for the Opposition Front Bench is to thank my noble friend for introducing this debate. Although we are debating a report on the preparations for EMU, we are also debating in the background the earlier report, An EMU of "Ins" and "Outs". They are both excellent. The latter report will be the locus classicus for all further discussion on monetary union.
I start what I fear will turn out to be an excessively long speech with some general comments. In doing so I concentrate on economic aspects. I am not so naïve as to believe that politics are irrelevant or that decisions can or should be taken on purely economic grounds. Certainly, it is a great pity that a debate on what is one of the most momentous questions to confront our country should be blurred because of the impending general election and the Government's lack of a solid majority until then. But there is nothing any of your Lordships can do about that except to concentrate on the merits of the case where we do have a contribution to make.
My second point is that, in relation to economics, there are at least two sides to the question. I am convinced that nothing here is clear cut and any decision must be based on the balance of advantage and disadvantage. We have the usual, no doubt boring, situation of, "On the one hand this and on the other hand that". Those who see the matter in stronger terms, whether they are for or against monetary union, simply do not understand the problems. As your Lordships will see, I believe that, subject to the fulfilment of certain conditions, the balance for our country is in favour. But I can easily understand others with the same information and theory coming to the opposite conclusion. There is nothing intellectually disreputable in coming out on balance against EMU and I hope noble Lords will agree that, equally, there is nothing disreputable in coming out in favour. What is unreasonable is to take the position that there are no valid arguments on the other side, whichever the other side turns out to be and that there are either only costs and no benefits or only benefits and no costs.
Actually, I go further and say that everything is even more complex because we are inevitably, in the nature of things, unable fully to examine every contingency and predict the future with no fear of error. Quite the contrary; the future is highly uncertain and every decision is perilous. Whichever decision we take, whichever way we go, could easily turn out to be erroneous. All things being equal, I believe that the risk will be worth taking. But it is a risk and I can respect other noble Lords who say that, after full analysis, the risk is too great. What I find unbearable, and tedious for that matter, are the zealots who see everything in black and white; who say that there is no question but that we should join or no question but that we should not.

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My third general point relates to the nature of the decision itself. There is the simple question of whether or not in principle monetary union is a good thing. More relevant is whether it is a good thing in present circumstances. By "good thing" we all agree that we mean the interests of the United Kingdom. More complicated is the question of whether, if EMU is actually going ahead—even if we wished that were not so—we would then find the balance of advantage in favour of joining. Related to that is the problem of timing. If there is to be an EMU, the central question is whether or not we should be in it from the beginning. And if there is to be an EMU and we do not join in the first instance, how will that affect policy making in this country?
I hope—I follow other noble Lords and certainly the noble Lord, Lord Owen, in this—that it is not necessary for me to say that my answers to the question are predicated on the assumption that we shall remain full members of the European Union. I go further. I still retain the hope that we will return to the centre of decision making in the European Union and cease our present stance of sniping from the periphery. I appreciate that many noble Lords will regard me as naive. The reason for that is because they believe that much of the debate on EMU is really about the UK's future in the European Union. That is not the case for me.
Having said that, there is another set of distinctions to be made. One point of view—mine and that of many of my colleagues and, indeed, many of the Tory Party opposite, not least the Chancellor of the Exchequer—is of the form, "I am in favour of EMU if', and then one lays down a set of conditions. Another point of view is, "I am not in favour of EMU unless", and one lays down another set of conditions. Some of my colleagues, and certainly some on the other side of your Lordships' House hold the latter view. The third and unique view is, "I do not know whether I am in favour or against", and that seems to be the position held by the Prime Minister.
One problem we face as outsiders is that, I presume, the Chancellor is negotiating on and contributing to the preparations for EMU within the framework of one philosophy, so to speak, while the Prime Minister is proceeding apparently on a different philosophy. I do not know whether or not that puzzles our fellow members of the European Union, but it certainly leaves me bewildered.
The sub-committee originally addressed the question of whether EMU had a deflationary bias. I am certain that if the sole objective of policy is anti-inflation, there must be a deflationary, high unemployment bias. There is no possibility of it being otherwise. But I am equally certain that that does not have to be the case. We are here concerned with the overall stance of macro-economic policy, its composition between monetary and fiscal elements and its impact in both the long and short term. To lay down one of my conditions, if full employment is an explicit objective of the European Union, an independent central bank operating monetary policy does not imply a necessary
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contractionary bias. But note the "if". Let me also remind your Lordships—a point I may return to—of your Lordships' longstanding opinion that the European Central Bank must be subject to democratic scrutiny, a problem which remains unsolved.
On the stability pact and so-called sanctions, the fundamental distinction must be between whether any excessive budget deficit is transitory or permanent. I echo the Chancellor of the Exchequer's Statement yesterday that it is that which leads to the difficulty of defining an exception and temporary deficit for the purpose of Article 104c. At the one extreme, a large deficit for a month but suitably annualised, would not be regarded as too high. At the other, a possibly smaller deficit, persisting over the cycle, would be too high and might attract penalties if it were not dealt with. The problem is whether we can find something sensible in between.
An important aspect of the stability pact which is related to this is the cause of the deficit. Much of the discussion in Council seems to be based on the assumption that a country's deficit will have been the result of that country's actions. Clearly, that could sometimes happen, but not always. A fiscal deficit could arise—if your Lordships forgive the parlance—from external demand shocks lowering GDP and consequent tax revenues. Rational policy would then imply a rise in the deficit, not an immediate reduction. More powerfully still—something which no one seems willing to face up to—the deficit could arise from excessive contractionary behaviour on the part of another EMU member. If one powerful member ran a policy aimed at excessive fiscal surplus, that would lead to the deterioration of the fiscal positions of other members. To avoid that—here we come to my second precondition—we need co-operative fiscal policy and must see fiscal prudence, which I strongly support, as a two-sided phenomenon.
I must say that the example given by Mr. O'Donnell in his evidence to the sub-committee did not fill me with confidence. His example of a special case was an earthquake. We do not have many earthquakes. He did not even agree that an oil shock, which we have experienced, would count as a special case. What concerns me more, apart from the normal downturn of the business cycle—let me say to anybody who talks about the upturn and how well we are doing, that 200 years has told us that the downturn will come, independent of government—is the kind of shock typified by the serious industrial action seen in France recently. That is the kind of problem that will have to be faced.
In the fascinating session that Mr. O'Donnell gave to the sub-committee I was interested in the relevant criteria. He referred to low inflation, and we all mouth the words "sound public finances". He referred to negative growth, by which I believe he means negative rates of change of GDP in real terms. Unless I missed them, there were no references to unemployment or employment in his criteria. There were also no references—this, again, is central to EMU—to the different real positions and prospects of individual members. I, for one, cannot regard that as satisfactory

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either. The ultimate test of all economic arrangements, not least the stability pact, must lie on the real side, and must apply to all those affected. If EMU is desirable, it is desirable not for its own sake; it is desirable because it might make people better off. That is the whole point of it.
One aspect of the subject to which the report refers and which has been mentioned is all the technicalities involving the introduction of the euro—the re-writing of contracts, the so-called rounding problem, and so on. I found it fascinating that, depending on the way one rounds and into how many significant figures, firms in the City will either make a fortune, as one multiplies these significant figures by billions, or massive losses. It had not occurred to me until I read the noble Lord's report; it is an interesting problem. Those problems have to be solved. The noble Lord, Lord Tordoff, wrote to the Chancellor about them. All I can say about that is that at some stage your Lordships should return to those problems and consider them in the detail they deserve.
If EMU succeeds, increasingly contracts of all kinds and in all countries, "ins" or "outs", will be written in euros. Those who prefer us not to join and who then clothe themselves in the flag of preserving the pound sterling, to mix a metaphor, may find they are chasing a mirage, to mix the metaphor further. Despite certain remarks coming from the Bank of England and distinguished figures such as the noble Lord, Lord Lawson, I am unconvinced that our financial institutions will cope easily with their work in future or prosper as part of a "little sterling area".
The Government have said categorically that they will not join ERM2. For a government who rarely make a categoric statement these days, that is in itself a remarkable statement. The Minister has said repeatedly—he has been echoed by my noble friend and by the noble and learned Lord, Lord Howe—that in some sense or other the Maastricht Treaty referring to membership of the ERM for two years does not apply. I do not understand that—I have said so several times—but I have to accept that if my noble friend says it does not apply, if the noble and learned Lord, Lord Howe, says it and if the Minister on the best advice says it, it must be right, and one day I shall understand it. As I said yesterday, I thought a treaty was a treaty.
However, it is worth reflecting further on the Government's position. They do not know whether they will join EMU but they do know that they will not be part of ERM2. They certainly say they might exercise the opt-out. If they did, the United Kingdom would not be part of any formal monetary system. Moreover, I note that the Treasury claims not to be pursuing an exchange rate policy. Noble Lords may care to reflect carefully on what that will mean for the future value of sterling. In those circumstances—namely, opted out, not part of ERM2 and not pursuing an exchange rate policy—will it not always be subject to speculative attack; sometimes buying, sometimes selling but certainly fluctuating? That will be so whether or not—this is where I disagree with the Treasury—we pursue broadly prudent economic and financial policies, the reason being that we shall be the obvious currency to speculate in—there
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will be virtually no others to speculate in. That cannot be in the interests of producers in this country or of our financial institutions.
That point takes me back to the Chancellor's strategy in connection with preparations for EMU, and the Prime Minister's, for that matter too. Following the threats made after the recent row on the health and safety directive, I am not sure whether we are actively pursuing a policy of non-co-operation. Perhaps the Minister will enlighten us on that when he comes to reply. Even without that we have a problem of logic. If we are considering the stability programme, is it obvious—the Minister seems to think it is—that we would adopt the same position whether or not we were proposing to join EMU and whether or not we shall be founder members? The Chancellor seems to be saying—it was echoed yesterday and last week by the Minister—that as we want EMU to succeed, no matter what, our approach to the stability programme does not depend on our eventual decision to join. That is not quite clear to me. If we were not going to join, I would be fairly relaxed about how tight and unyielding the stability pact will be and how tough and easily activated will be the system of fines. I regard what Mr. Waigel originally proposed as so absurd that if we were not to join I would simply lean back and laugh. But since I hope we will be able to find conditions under which we can join, I would be looking for a more sensible and less rule based stability pact, which responds to circumstances. Judging from the evidence received by the sub-committee, that is the Treasury's position. However, that means that we really are negotiating and it means that the Chancellor's position must be that we really would like to join if it were possible. It means logically that we would like there not to be a delay if that were possible. I am not saying one could say that without the "if that were possible" or without the conditions being met, but that is the only way it can make sense. Otherwise the evidence given by the Treasury and the Chancellor does not make sense. Incidentally, can the Minister say whether the Chancellor has changed his mind on financial penalties? In his evidence to the sub-committee he appeared to be against the introduction of new sanctions. That is quoted in the report. Has the Chancellor now changed his mind on that?
I can conclude very simply. Our policy stance—we all agree on this—must be to take EMU seriously. In negotiating the preparations we must not miss the bus again. In other words, we must participate with a view to trying to obtain an outcome which enables us to say it is the correct decision to join. I do not assert with confidence that we can achieve that, but it is the objective. What we must avoid is a debacle similar to those of the past, in connection, for example, with the CAP; namely, that we eventually find ourselves obliged to join—in this case, EMU—with a structure and an operating mechanism we do not care for.
To give him credit—I wish to be as supportive as I can—that appears to be the Chancellor's strategic position. Given that he does not seem to be short of friends who hope he fails, for my part I have to say I hope he succeeds. I was alarmed by the Statement yesterday, on which I remarked, that it looks as if things

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are going rather slowly. I also remain concerned by the lack of speed in developing a European Union full employment policy.
We are some distance still from meeting the conditions we require, but I have to say, with all honesty and sincerity, that I still hope that the outcome will be in a form which will allow my own right honourable friend one day next year to recommend EMU to the nation.
4.28 p.m.
Lord Tebbit: My Lords, I rise today not only with my usual diffidence but with some difficulty as I have a nerve trapped in my back. If I twitch and shuffle during other noble Lords' speeches, or even occasionally leave the Chamber, I hope I will be forgiven and it will not be taken as necessarily a token of disagreement. Indeed, I have managed to sit quite firmly in my place so far and enjoyed some most interesting speeches.
I always enjoy hearing sinners come to repentance. I always enjoy hearing former members of Labour Administrations announce their support for price stability and fiscal responsibility. It is a very, very nice thing to have them on board after all these years. I was particularly interested in the speech of the noble Lord, Lord Owen. I hope he will not feel that I am pressing bad company upon him if I say that I agreed with very much of what he said. I enjoyed, too, the touching account of the noble Lord, Lord Ezra, of the French bankers' determination to reduce their deficit and behave properly regardless of any considerations of entry into monetary union.
Fiddling the national accounts by borrowing money from the pension fund of Air France is, I take it, the normal way that bankers behave in France to that end. I have to be convinced that they would be doing that were it not for this effort to straitjacket themselves into monetary union. Of course I enjoyed, as always, the speech of the noble Lord, Lord Peston, although I thought he was still a little dodgy on price stability, and as always he showed up that there is a divide between those who think that a strong currency is a cause of a strong economy and those who think that a strong currency can only derive from a strong economy.
We are of course grateful to the members of the sub-committee and particularly to the noble Lord, Lord Barnett, for bringing us this report, which enables us to carry out our duty of scrutiny of these documents to the satisfaction of all concerned. I was very pleased to read the assurance by the Chancellor recently that he had secured agreement that Article 1091(4) of the Treaty of Maastricht relating to financial penalties should not apply to the United Kingdom unless we move to the third stage of monetary union, and that membership of ERM2 for those outside monetary union will be voluntary. Of course, as we know, they sometimes have ways of making you volunteer, but at least the Chancellor's Statement was broadly helpful.
Nevertheless, I think there is cause for concern. During the summer my noble friend Lord McColl kindly sent me a copy of the speech that the Prime Minister
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made at Goldsmiths Hall—the guild, by the way, and not the Jimmy—on 19th June. My right honourable friend made some extremely interesting points in that speech. I find what he said on the working time directive particularly clear and unambiguous. He said:
"Let me give you a current example. At Maastricht, I agreed an opt-out from the Social Chapter, because its provisions would have reversed much of the employment and social legislation we have pursued in recent years."
Indeed I was grateful to my noble and learned friend Lord Howe for his reference to the part I played in helping to improve the working of the labour market in this country. However, he may not be aware that new measures have already begun to undermine substantial parts of that legislation. I continue now with the quotation from the Prime Minister's speech:
"That was agreed by our partners. But we are now faced with proposals to use the Health and Safety provisions of the Treaty to introduce measures, such as the Working Time Directive, that undermine the intention of our opt-out. That is something I cannot accept".
He also observed:
"And our power of veto means we cannot be forced where we do not want to go".
I understand that we shall shortly have brought before us a statutory instrument to give effect in English law to the provisions of the working time directive.
Under those circumstances, I think we should be cautious about guarantees which are given by our partners. This is exactly what I and others predicted in the debates on the Maastricht Treaty. We said this was what would happen, for while there is a provision within the treaty—whether it is for social legislation, monetary union or whatever—no opt-out clause is a sufficient guarantee that that provision will not be pushed sooner or later upon us. Surely if we cannot rely upon the integrity of our partners, nor upon the fairness of the Court—and that is the import of what the Prime Minister said on the matter of the working time directive—how can we rely upon their fairness or the integrity of the Court in matters far more serious concerning monetary union? We have to remember that there is no appeal from the decision of the Court; there is no provision for judicial review; and there is no provision for this once sovereign Parliament to change the law once it has been made by the Court.
Article 109m provides that the exchange rate policy of the "outs" is a matter of common interest. I would have thought that is well enough for the Court to get its foot in the door at some subsequent stage were we to be an "out" and the European currency union to have gone ahead. So bluntly the only sort of opt-out guarantee I am now prepared to accept is a treaty amendment which states firmly and clearly that the Court would have no jurisdiction over this country concerning monetary union, the management of sterling and the fiscal monetary or economic policy of this country, regardless of what any other treaty provision might say or what the Council or Parliament may decree, unless it is with our agreement.
That may sound a little extreme. My noble friend Lord Shaw nods, but it is no more than what the Chancellor says that he has already had guaranteed to

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him. So if, in the view of our partners, that guarantee is already there, surely they would be willing to put it in the same terms as I have done, and reassure all of us in this country that they mean what they say and they could be held to their word.
Let me now turn to the issue of the United Kingdom opt-out or, more properly, the opt-in to monetary union. I enjoyed the speech of the noble Lord, Lord Owen, and indeed that of my noble and learned friend Lord Howe, but I do not think that this is the day to rehearse the arguments over the desirability of opting in or opting out. However, we should realise the scale of such a decision were we to decide to enter. In the words of the Chancellor's Statement to the other place on 25th November, which was repeated in this House:
"unless we join stage 3 of economic and monetary union, we shall retain, as now, control of domestic economic policy."—[Official Report, Commons, 25/11/96; col. 21.]
I would ask your Lordships to reflect upon the meaning of those words: unless we join we shall retain control. Only one interpretation can be put upon that: that if we did join, we would no longer have control of our domestic economic policy. I know there are many of your Lordships and many Members of another place, together with many bankers, journalists and other influential people, who do not believe that the people of this country are sufficiently grown up to have control of the economic policy of this country. They do not believe in the democratic process. They think that that right should be taken from the people of this country and handed to someone else.
Forget who the someone else is; forget whether one has a prejudice against bankers in Frankfurt as opposed to bankers in New York or in the City of London: the proposition is that the British people should not have that power because in the past they have at times abused it. I just wonder whether people who take that view have any attachment to the concept of responsibility and democracy. I have to warn them that it does conflict with what I regard as one of the absolute laws of politics and society: that if responsibility is placed firmly on the shoulders of people, they will in general behave in a responsible way. If the responsibility is taken away from them, they become literally irresponsible, and that is one of the dangers of monetary union.
The idea that we would have a government and a parliament with no control over domestic economic policy is, I think, interesting. It would make our Parliament sound like one of Mr. Blair's English regional assemblies, and one would wonder what his purpose was if we had other regional assemblies. After all, we could all go to assemblies much closer to home without so much bother of travelling and all those other things, and we would have the same degree of power. I am sure that, in answering the debate, my noble friend will rule out such uncertainty on behalf of the Government just as the Government have rubbished those of us who have since been proved right over the Social Chapter.
However, I should be grateful if my noble friend the Minister can answer one or two questions about the path on which we have been set towards monetary union. First, will he agree that, since the Government are
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genuinely willing to consider entry into monetary union once the final details are known, it has already been decided by Ministers, including the Prime Minister, that there are no objections in principle to, as the Chancellor put it,
"relinquishing control of domestic economic policy"?
That is what it amounts to if one is willing to consider the matter.
Secondly, can he and I come to a better understanding of the meaning of Article 109j of the treaty? For ease of reference that is on page 28—for those of us who are regular performers in the cast of usual suspects we will all be familiar with it—and is the section which requires nations expecting to enter into the currency union to have been members of the ERM for at least two years without devaluing. I shall read it because it is important. The third indented paragraph of Article 109j(i)1 states,
"the observance of the normal fluctuation margins provided for by the exchange rate mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other Member State".
That is what the treaty says. I understand from things which my noble friend has said in the past, when answering questions about this matter, that the Government take the view that since the narrow band of the ERM was abolished, that provision of the treaty can be ignored. Indeed, it is the view of the noble Lord, Lord Barnett, and of my noble and learned friend Lord Howe. Are treaties to be dealt with in that way? If it is the view of the member states that it should be disregarded, would it not be appropriate to amend the treaty to say so? If we do not set out to do that, I believe that we shall be giving a gilt-edged invitation card to the Court to agree with us that it is not what the treaty says that matters; it is what people thought they were agreeing to when they were writing the treaty or what they subsequently wished they had agreed to, as circumstances change. That would be a dangerous thing indeed, for the Court is always tempted to take the view that what is written in the treaty does not count; it is what the Court interprets as the intention of those who signed the treaty that counts.
The next point that I would like to make to my noble friend and on which I hope he can enlighten me, is the impact of Article 108. It is the provision which requires all member states who are intending to enter into the currency arrangements to provide for independence of their central bank. The treaty requires that that should be done by the time the ESCB is formed. Can my noble friend tell me when he expects that to be because it will give us some idea of when that legislation will have to be brought before this House in order to preserve the Government's opt-in? If we do not comply with the provisions of Stage 2 of monetary union, it is difficult to see how we can be regarded as a credible candidate for Stage 3.
I end by saying that I most certainly support the proposals for a stability pact, although the agreed need for it does not say much for the foresight of those who drafted the Maastricht Treaty. It is certainly needed all the more now since we have seen the extent of the fiddling and fudging which is going on to enable countries to claim that they are qualified to enter. There

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are countries with enormous national debts hanging over them. They are now saying, "As we are now making some progress from 160 per cent. of GDP to perhaps 158 per cent. of GDP, we qualify, don't we?". If that sort of thing goes on, what is certain is that the Germans will realise that they are going to be asked to substitute for their mark something which will have a record far closer to that of the lira or, dare I say it, sterling.
I would also like to know how my noble friend believes that the treaty will operate. If a country is judged to be in serious deficit and is fined, will that not increase its deficit? What will it be expected to do, perhaps in a period of deep recession—increase taxation or cut welfare spending in order to pay the fine that was imposed? The noble Lord, Lord Barnett, says that that will never happen and that the whole beauty of the stability pact is that it will gain its credibility from the knowledge that it will be totally impossible to use its provisions. I recollect that the nuclear doctrine, which somewhat paralleled that view of the concept of the stability pact, was known by the title of "mutually assured destruction"—MAD for short. That is perhaps not an inappropriate title for this venture.
4.46 p.m.
Lord Wallace of Saltaire: My Lords, we are now, as so often in European debates, discussing two different levels of the question—first is the immediate issue on how we shall make progress towards economic and monetary union work; and, secondly, in the background, as always, our national identity; whether we trust foreigners; what we think about those across the Channel and all those other demons which come up from below the surface whenever the European question is raised.
I welcome this brief report. I found the evidence given for it and the letters exchanged extremely interesting and useful. I hope that we can all agree that if monetary union goes ahead, Britain will be directly affected in our most fundamental interests. I hope that we shall also agree that Britain on its own cannot stop monetary union going ahead. I hope we can agree that it is therefore very much in the active national interests of this country to take part in shaping the form which monetary union will take and that the Chancellor of the Exchequer is absolutely right, therefore, to be playing as active a role as he is doing, together with a number of his officials, in the negotiations.
We are not the central power in Europe, neither are we, sadly, the richest country in Europe. We therefore have to seek common ground with our partners. Europe is a continuous multilateral negotiation in which good arguments, well presented and without too much underlying prejudice, can win friends and influence other governments. That is precisely what the Chancellor is attempting to do and I wish him good speed.
It seems to me that in principle successful monetary union is in Britain's interests. My party is convinced of that, not because we believe in any of the theories which the noble Lord, Lord Owen, has suggested we do about
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a United States of Europe. As he spoke, I was trying to think which government, currently a member of the European Union, is actively committed to that pipedream. I can think of none, but it is always something that people drag up when they wish to produce a straw man against which to argue.
Monetary union is in Britain's interests provided it takes place on a viable basis; that the stability pact is not overly rigid; that growth and employment as well as price stability are among the aims to be pursued; and that there is proper co-ordination of national economic and fiscal policies as well as simply of monetary policy. That requires further considerable negotiation. We must think clearly how the Council of Finance Ministers will play a role alongside the central bank in managing a European economy that has already become a great deal more integrated, and will become further integrated if and when we move towards a common currency. All the evidence of the past six months is that it is more likely than not that we will move towards a single currency than seemed to be the case six months ago. The debate that we are holding should take place on the basis that we expect monetary union to go ahead and that Britain will therefore be faced with the choice of whether to join or to stay out for the time being.
Others have different interests. I agree with the noble Lord, Lord Owen, that there is not a solid Franco-German front. There are a number of issues on which British interests coincide with those of the French rather than the Germans and others on which the British interests coincide more with German interests than French ones. That is the way in which multilateral negotiations must take place. What I most regret in the tone of the speeches of the noble Lords, Lord Owen and Lord Tebbit, is the suggestion that multilateral negotiations consist of the English—who are right—telling the others—who are wrong—what must be agreed, and waiting for them to accept our opinion. It is a little like the old-fashioned Englishman who, when foreigners did not understand him, merely shouted louder. We have to understand the nature of the process in which we are engaged.
On a personal note, having been involved in coalition negotiations as part of the Alliance, all of us had doubts whether the noble Lord, Lord Owen, understood that give and take in multilateral negotiations required the parties to search for common ground rather than state their position and wait for the others to accept it. That is the different style of approach in Europe.
I also note from the evidence given and the letters exchanged that the current policy of Her Majesty's Government fits the aims that are being pursued in the stability pact and in monetary union, and that they are committed to sound public finance, price stability and zero structural budget deficit. I am glad to hear that the British Government are committed to zero structural budget deficits. I did not know that that was entirely reflected in the Budget just presented; but it is good to know that that is the long term aid. Given that, to say that we intend to fulfil all of the conditions of membership is a non sequitur and to shadow the European currency as closely as we can but that for reasons of parliamentary sovereignty we must stay out.

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That takes us back to the arguments of the mid-1950s and in the early 1960s. I hear echoes of the words of Reginald Maudling in the European Free Trade Area negotiations in lecturing Professor Hallstein on why the Germans did not understand the principles of free trade, speaking a little more slowly because he believed that the poor Germans did not fully understand the way of the world.
Furthermore, the debate on monetary union pushes other governments in the right direction. At last it has forced the Italian Government to face up to their large structural budget deficit and enabled them to tackle it. It has also forced that government and others to push for more flexible labour markets. They are exactly the matters to which the British Government are committed to achieving in the European Union. I am glad that it is having that effect.
Here we are a few months before an election. It is important that before an election a government should resist pre-judging a question that a future government of a different character may wish to take. I welcome the determination of the Chancellor of the Exchequer not to foreclose the issue before the election deadline of May 1997. I very much regret the partisan and hysterical nature of the debate that is now taking place in the Right-wing press.
I turn briefly to the wider context of the debate. This debate takes place in the context of a set of much wider issues. I have just spent two weeks in a number of different European capitals. That reinforced my depressed view that Britain's standing across the European continent had gone down considerably in the past six months. There are many who would be very happy to see Britain outside the European Union. The damage to Britain's standing on the Continent as a result of its posturing on BSE—I refer to the Dutch and Danish Governments in particular but also to the French and German Governments—was considerable. It is of no use the British insisting that when they are right and all the others are wrong they must stand by their principles. We should do our best to avoid getting into that position.
In the wider context there are parallel negotiations. After all, we are in the middle of an intergovernmental conference. The proposal referred to in the report for a stability council that consists only of those Finance Ministers who are taking part in monetary union is the beginning of a move to establish a two-level Europe in which a core group will take the decisions and outsiders, with Britain as the principal outsider, will be sidelined more and more. Flexibility is now being used in other European capitals as a code for sidelining the British. That is partly our fault. The British were extremely fond of the word "flexibility". The Prime Minister referred to that two or three years ago. In the version of enhanced co-operation it is now being used against us. It is very much against Britain's interest to be left out of a more flexible Europe. Therefore, we need to consider carefully how to pursue the negotiations to ensure that our interests in being part of that core group are maximised.
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Alongside that, over the next two years vital negotiations must take place over the future of the Community budget and the budget package to be negotiated in 1997-98. There are ongoing consultations and negotiations about the reform of the agricultural policy. We also face enlargement both of the European Union and the North Atlantic Treaty Organisation. There is a very heavily loaded agenda in which the British need to play a constructive and active part. Those are our underlying foreign policy interests. What we are debating this afternoon is one important detailed part of the pursuit of those foreign policy interests which affects our economy, the City of London and the shape of the whole European economy. I very much hope that we will continue to play as active a part as the Chancellor of the Exchequer insists upon and not give way to those in the Government who would like to pull him back.
4.58 p.m.
Lord Grenfell: My Lords, as a member of Sub-Committee A, which was charged with the preparation of the report, I begin by saying what a pleasure it was to work under the skilful chairmanship of my noble friend Lord Barnett and to work with colleagues on a very interesting topic. I have not been on that sub-committee long enough to have acquired a copper bottom. That may be a physical impossibility when one is being kept on one's toes by the noble Lord, Lord Barnett. It was a most interesting experience.
In this debate we appear to have strayed a little from the fairly narrow focus of the report which looked at three particular stages on the way to monetary union and the problems that needed to be solved. I make no excuses for straying a little to comment on a couple of matters to which the noble Lord, Lord Tebbit, referred. I see that he has been wise enough to escape retribution for these matters. I believe that one goes far too far and undermines the whole debate on economic and monetary union in bringing up the old canard that Britain is surrendering its right to manage its economy. That is simply not the case, as I am sure the majority of noble Lords here will agree. No one is telling us by how much we should tax and how much we should spend. All that is being said is that if we do not tax very high we cannot be profligate in our spending. That is something to which any sensible administration would adhere as a basic principle of managing the economy. So I hope we can dismiss that kind of argument as only confusing, particularly to the British public who one day will have to make up their minds in a referendum on whether or not we should go into economic and monetary union. If they have been led to believe that kind of nonsense, then it will be difficult for them to come to a rational decision, and they are likely to say no for all the wrong reasons.
Perhaps I may also make just a brief comment on the interesting speech of the noble Lord, Lord Owen. Like the noble Lord, Lord Wallace of Saltaire, I find it hard to discover concrete evidence of the growth of the sentiment in Europe—if it ever existed, outside possibly the Commission where some enthusiasts still talk about

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it in such terms—that what we are embarked upon is a model which will lead us inexorably towards a united states of Europe or a single European country.
I live in France. I happen to reside just behind the National Assembly, which gives me the opportunity to converse every now and then with politicians in France. Even more importantly I have the chance to converse with ordinary people. I also travel a great deal in Germany. In neither country have I come across any burning desire to hurry along the road towards a federal Europe. Chancellor Kohl himself has roundly denounced the idea, saying that is not what he is after. I believe him. I can assure your Lordships that France, which has always been a country with a strong nationalist spirit, shows no signs, to me at least, of wanting to head down that road.
I want to comment upon just two of the issues we discussed within the committee and which are reflected in the report; namely, the stability pact and ERM2. The Statement made yesterday by the Chancellor of the Exchequer in another place, and repeated in your Lordships' House, was a Statement—I only read it because I am afraid that I was not here yesterday—which I felt should have dispelled many of the doubts remaining in the minds of noble Lords and Members of another place with regard to those issues. I hope that that is so because I thought the Chancellor managed to achieve some good understandings in Brussels that should bring peace of mind to people in this country on issues upon which they have so far been doubtful.
I shall not rehearse the points because my noble friend Lord Barnett has already done so. I merely say that I hope that we are now able to move forward in the debate on monetary and economic union, having disposed of some of the doubts, to some of the issues that will be important and for which solutions will have to be found in the months to come.
I cannot say that I rejoice in the fact that, despite the addition of another meeting of ECOFIN on 12th December, immediately before the Council meeting, there is now talk of there being no final agreement on binding legislation before the Amsterdam Council summit in June 1997, with possibly even slippage to the Luxembourg meeting in December 1997. For one thing, continuing delay cannot but diminish the confidence of the markets in the expectation that EMU will go ahead on 1st January 1999, as I hope it will. But if it must take that long to ensure that we get it right, then we shall just have to be patient and wait until it is right. In any case, as many noble Lords, particularly the noble and learned Lord, Lord Howe, have said, we have to stay at the heart of those discussions all the way to the end.
On the stability pact, we have all been aware of how difficult it is to reach agreement on that difficult problem. The Select Committee's letter to the Chancellor reflects support in the committee for measures which work to maintain fiscal discipline but equally the importance we attach to a government's right to fiscal flexibility during a recession, consistent with maintaining stability.
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The sticking point is clearly the definition of "exceptional and temporary circumstances" in which sanctions may or may not apply. It is just as well that Herr Waigel, who originally insisted on defining it as a 2 per cent. drop in output in four consecutive years, has now revised the figure downwards to 1.5 per cent. That is a move in the right direction. He is now much closer to the sensible compromise put forward by the chairman of the Monetary Committee, Sir Nigel Wicks, which would apply excessive deficit procedures when output has dropped between 0.5 per cent. and 1 per cent.; in other words, when there is a mild recession and an excessive deficit cannot be justified. Between 1 per cent. and 2 per cent. there is a grey area within which it would be left to Ministers' judgment to decide what to do; and at 2 per cent. there is obviously a severe recession. I hope that agreement can be reached on that point because it is a sensible one. The proposal put forward by Sir Nigel is an excellent example of what the UK can do by staying at the centre of the debate.
In an editorial in the Financial Times today, some sensible words were written. I have not always agreed with the Financial Times on EMU. It has had its ups and downs, its ins and outs. It has been a little hard to track its thinking. Depending upon which page one reads and upon which day one reads it, one can have some difficulty in unearthing what it is trying to tell us; but today I thought that it put forward a sensible suggestion. It said that Germany's partners were right to insist upon a more generous definition of "exceptional circumstances". The leader went on to say:
"It would be far better to keep initially to a narrow EMU, while permitting automatic fiscal stabilisers to work, than move swiftly to a broader EMU without such fiscal flexibility".
That is not a new idea, but I welcome it as coming from a respectable newspaper. It is well put.
In other words, there is the suggestion of a quid pro quo. It is important that the EU and its members get this one right, not least because lack of agreement is putting a great strain on Franco-German relations, which I regret. There is also a severe debate going on within those two countries. One has only to read the letter of Helmut Schmidt to Herr Tietmeyer of the Bundesbank to see what a division of opinion exists there. One had only to listen to the extraordinary debate in the National Assembly a few days ago when former President Giscard laid it on the line to the Juppe Government and President Chirac about the relationship of the franc to the dollar and the mark.
We understand from all of that that there are severe tensions within those two important countries. It is important therefore that we should try to get the business of fiscal discipline right in the stability pact. Germany argues for a strong stability pact because of fears that stability will be threatened by entrance in the first wave of countries that are, frankly, unlikely to be able to sustain the convergence, as the noble Lord, Lord Ezra, pointed out. They have a point there. But here may also lie the key to the agreement. If it is made crystal clear now that the first wave of entrants will be limited to those countries which have achieved the convergence criteria and are deemed likely to sustain them, the need for so draconian a stability pact as Germany is currently

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calling for will he much diminished. It will of course be a big disappointment for some countries—for example, Italy, an original signatory to the Treaty of Rome—if such strict application of the rules for bringing countries into EMU is agreed. As the treaty states, there is room for a certain amount of divergence from its exact terms and conditions. But if we want to avoid a very, very, very difficult fight with Germany over the stability pact we need to reach agreement that we must be pretty tough on the admittance of countries into the first wave.
Having said that, I wish to add a corollary. If one takes that course one must find a means of taking the stigma out of entering the EMU later. One of the unfortunate characteristics of the current debate is that somehow countries have been led to believe that there is something almost dishonourable in not making it in the first round. I do not refer to the United Kingdom because it almost certainly could go in in the first wave, and I wish that it would. But as regards those countries on less sure ground, with less strong economies and currencies, we must avoid using the kind of language of disparagement when talking about their efforts to become a part of economic and monetary union. That only encourages the feeling building up in those countries that there is something very bad for the status of the country if it fails to enter in the first wave. In our treatment and handling of such countries, we must ensure that entry in the second wave or later is in no sense dishonourable. It is a sensible course to take, which will help to secure the kind of stability within the euro zone that we are all looking for.
Finally, I wish to say a few words on ERM2. I have not yet heard a cogent argument why Britain should not enter ERM2 if it has met the conditions for doing so. Our committee was told by Treasury representatives that low inflation and sound public finances will deliver exchange rate stability. I have no reason to doubt that; I believe that we can all agree on that. But why is there such reluctance even to consider entry into the exchange rate mechanism, ERM2, when the time comes? Is it because of unhappy memories of Black Wednesday? Is it because there was a realisation that we went in at the wrong rate, at the wrong time and for the wrong reasons and eventually had to leave? I do not know the answer. All I am saying is that I have not yet heard a cogent reason why we should not enter ERM2 when the time comes.
As my noble friend Lord Barnett and others hinted, it is extremely important that we should not jeopardise Britain's chances of going into EMU if, in the worst of circumstances, it was later decided that we should have been in the ERM before entering EMU. It seems a small price to pay to ensure that we do not have to face such disappointment and rejection at the last moment. It would be like shooting ourselves in the foot, and it is not necessary.
Once again, I thank the noble Lord, Lord Barnett, for so ably leading us in our discussions in the committee and for so persuasively putting our findings before your Lordships' House. I hope that it has greatly clarified the issues for your Lordships and that now we are able to go forward and pay attention to some of the other major issues that will be before us in the months to come.
Lord St. John of Bletso: My Lords, there is a commonly held view that it is politicians not central bankers who will have the final word on which countries qualify for the EMU.
With so much hype and speculation ahead of Stage 3 in 1999, it is only right and proper that there be full parliamentary debate on all the issues in preparation for the EMU, whether or not we decide (should we qualify) to join or remain out.
To this end, I am delighted that the noble Lord, Lord Barnett, has moved today's debate and that it is at the start of business rather than, in his words, "at the fag end of the day". Like the noble Lord, Lord Grenfell, it has been an enormous privilege for me to be a member of the noble Lord's sub-committee. I should also add that it has been an enormous learning curve for me and an experience which I would have hoped that others could have shared, to enlighten themselves on the complexities of the European monetary union debate, particularly having listened to so many compelling arguments for and against.
It was heartening when Mr. O'Donnell, is his opening submissions to our committee, referred to our earlier report on An EMU of "Ins" and "Outs" which we published in June this year, as:
"generating rather more light than heat".
As I mentioned to the noble Lord, Lord Barnett, one of my concerns was that the report did not receive more general press coverage.
Apart from my membership of the noble Lord's sub-committee, I should declare an interest as a consultant to one of the investment banks in the City.
Regardless of whether or not we opt to join the single currency, I fully support the Chancellor in his efforts to influence the formulation of the preparatory measures for EMU and fully support the contents of the letter dated 27th November from the noble Lord, Lord Tordoff, to the Chancellor giving our findings. As most of the minutiae of the legalities of the key issues have already been covered by previous speakers, I shall not repeat the arguments and shall try to keep my speech brief.
It is vital for the credibility and future of the European Union that monetary stability of the whole Union be safeguarded. The EMI was absolutely right when it argued that neither one-off measures before 1999, nor the promise of a fiscal stability pact thereafter, was a substitute for decisive action now to rein in public borrowing by many would-be EMU members.
If member states were seen to be fudging the convergence criteria or, in the words of the noble Lord, Lord Barnett, using wheezes, to qualify for Stage 3, it would make the whole process a mockery. As many commentators have warned, a single currency built on weak foundations would defeat its own purposes. The durability and credibility of monetary union will certainly depend on the sustainability of economic convergence. The proposed stability pact among the participants in the EMU backed up by effective punitive sanctions has, in my opinion, to be the most prudent long-term strategy.

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I am also fully in favour of the European Monetary Institute's proposal for a new voluntary exchange rate mechanism in Stage 3 linking the "ins" with the "outs". However, I cannot help but feel that if we had joined the exchange rate mechanism with a weak rather than, as we had at the time, a strong sterling, the Government's rather sanguine views of the exchange rate mechanism may have been rather different from those that they hold today.
There is no denying that exchange rate fluctuations would be disruptive to trade in the single market. Those who point out that any member state wishing to join EMU must have been in the ERM for at least two years—a point which several noble Lords have made today—should note the recent comments of Mr. Quinn, the Irish Finance Minister, in his capacity in relation to the Presidency, when he appeared before the sub-committee of the European Parliament in June. He said:
"We are deliberately trying to ensure that a country that meets all the convergence criteria would not be penalised by the formal and legal requirements of the ERM".
That is certainly a point which has been borne out by several noble Lords today.
Of course a major concern, should we decide not to join the core group of "ins", would be the possibility that we might lose our influence in European matters. The noble Lord, Lord Wallace of Saltaire, referred to our being increasingly sidelined. That may be so, but it should not be forgotten that we are still net contributors to the European budget and, for that reason, I do not believe that we would be sidelined. I hope that, in the words of the noble and learned Lord, Lord Howe, we would still remain the gin in the gin and tonic in European debates.
Of course, time is not on our side and there are increasing calls for the Government to "cop in" or "opt out" or take a more decisive line. It is certainly important for business in Britain to know sooner rather than later whether it will have to face the costs of transition. The Bank of England published an extremely detailed report on 16th September headed:
"Practical issues arising from the introduction of the Euro".
That report was sent to trade bodies and associations representing many areas across the economy and will be followed by another report in two weeks time updating the progress that has been made on the practical implications of the single currency for the United Kingdom, whether or not we become a participant.
A number of investment banks in the City are addressing the practical implications of a single currency post-1999. As an exercise I made 15 calls to financial institutions yesterday. Only four of them admitted that they were doing anything about properly preparing themselves for a potential single currency. That is a concern which needs to be addressed increasingly, not just by the Bank of England, but all other interested parties.
The EMI recommends that governments engage in a campaign of public information as an essential prerequisite for the successful introduction of the euro.
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In my social contacts with business colleagues and friends, I have questioned their views on a single currency. I have been rather startled to find how few even know what are the convergence criteria. Instead of all the hype and sensationalism, I hope that the real issues will be debated increasingly over the forthcoming months.
In conclusion, regardless of whether or not we decide to opt in or cop out of Stage 3 or even adopt a wait and see policy, I feel that it is important that we play a constructive role in the negotiations on the final preparations for EMU. I agree with the words of the Governor of the Bank of England, who said:
"It is our objective to arrive at arrangements which are sensible not just for the United Kingdom but also for the future of the European system".
5.25 p.m.
Lord Shaw of Northstead: My Lords, when I was in the European Parliament a number of years ago as a nominated Member, of the reports which I studied from time to time emanating from outside the European Parliament, none was more important than the reports which we received from the European Communities Committee of this House. I found them impressive, knowledgeable and worthy of study by everybody, not just those in the European Parliament. While I was there, I was in a humble position as rapporteur of one or two things and the noble Lord, Lord Barnett, was in a much more exalted position on the Council, and even there, we came across each other from time to time.
When I came to this House—and such an honour it was—I found myself making my maiden speech on a report of that committee. It so happened that the noble Lord, Lord Barnett, spoke after me and made some kindly remarks, as is customary, and I hope that they were sincere as well. I now have the privilege of being on the committee and I am very proud to be there under the leadership of the noble Lord.
The noble Lord and others have gone through matters extremely fully, but there is so much more which is still to be decided. I believe that the lengthening of the negotiating process cannot but be helpful. I am very glad to agree with the six propositions which were set out in the earlier report and which have been listed by the noble Lord, Lord Barnett.
Clearly, there must be convergence; clearly it is no use having that too quickly; and clearly financial discipline must be maintained. To that end I believe that much hard work remains to be done. Flexibility will be needed and the most difficult judgment to make will be as to when financial discipline breaks down and excessive deficits become apparent. Too great a severity will mean member states trying to pull out, which will not be helpful in the least. We must ensure that the conditions made for the member countries which enter EMU are not only right at the time of entry but show every sign of continuing to be right in the future.
The longer EMU works without recourse to sanctions, the more likely is its permanent success. Countries working the system satisfactorily over a period are more likely to respond to the discipline placed upon them by

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their membership. I refer to the words of Mr. Gus O'Donnell from the Treasury who told us that the whole procedure of fines is designed to ensure that the fines are not paid. I believe that by that he meant that the fine situation will never be reached or certainly never reached if at all possible.
Countries which have been used to working successfully within EMU will realise its value and will discipline themselves appropriately. But should there be excessive deficits in the early stages, then countries may be tempted to pursue courses which would make the situation worse rather than better. Therefore, the need for discipline hangs over everything that we are discussing today. The longer the negotiations take place, the better chance there is of succeeding and achieving long-term results.
I now turn to the message that we received yesterday from my right honourable friend the Chancellor of the Exchequer. He brought to us a message which was quite clear. He said he anticipated,
"that no final agreement on any binding legislation on economic and monetary union is likely before, at the earliest, the planned European Council meeting in Amsterdam in June next year".—[Official Report, Commons, 3/12/96; col. 797.]
That is pretty plain speaking. It means that the longer the negotiations, the more likely it is that all the problems are recognised and proper solutions found, if at all possible.
I believe that sudden solutions have their dangers. My noble friend Lord Tebbit commented on the fact—I am not saying that he criticised me—that I smiled at something he said. The fact is he is voicing many opinions and worries that other people are voicing. He voices them better than most and more vigorously than most. Nonetheless it is good that these doubts and worries are aired and considered if we are to achieve long term success in fostering and bringing forward EMU. It is no good bringing it forward quickly and then suddenly finding afterwards that it will not be a success. EMU can only come about by an acceptable convergence of the joining countries. It may seem a distant prospect from the subject we are discussing, but when two spaceships dock in space there has to be careful preparation and co-operation. Speeds and systems must be co-ordinated and convergence—that is the important word—must come naturally and carefully if a long-term unity is to be achieved between those ships.
In my opinion, entry into EMU will be no easier than the docking of spaceships. It has to happen naturally, firmly and with all the dangers and difficulties fully explained and examined, and solutions found to them. The longer timescale for negotiation is also welcome for another reason. Not only will it give a greater opportunity for the negotiators themselves to study all the problems involved, but it will give greater time for those outside the mainstream political debate to understand how they will be affected by EMU and the disciplines it will demand. Those in business and the general public are themselves beginning to sound cautionary words which should not be ignored. It has already been mentioned that a former President of France has been making comments that deserve
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examination and study. The Dresdner Bank was mentioned earlier today. The chairman of the Dresdner Bank has said that it would make us look bad indeed should EMU fail to start and run smoothly.
I am not trying to repudiate the possibility of a successful EMU but I am saying that it will be a slower job than many people hoped it would be.
I believe it is vital to the interests of ourselves and the EU that this country should be greatly involved in the negotiations that lie ahead. I am grateful for the fact that once again my right honourable friend the Prime Minister has spelt out the Government's position. The Prime Minister has been consistent in the position that he has taken for the past 18 months. However, it upsets me that there are those in this country—I believe them to be a minority; some of them, unfortunately, contribute to well-known newspapers—who are continually trying to make it appear that he is shifting his position. I always look back to the speech that he made on 1st March 1995 in a debate on the Community in which he clearly spelt out the position that he held, and the position that he would continue to hold. The Prime Minister stated:
"I believe that it is in our own national and economic interests to keep open the option of going into a single currency—[Interruptionn.]—and equally to keep open the option of deciding that it will not be in our national interest to go in … I make no apologies now, nor will I in future, for deciding as an act of policy, in the interests of the country, that we should not make such a decision without the facts at our disposal to know the right answer".—[Official Report, Commons, 1/3/95; co1.1069.]
We do not yet know all the facts. He has been constant and it would be entirely wrong if the pressures brought by the press—so much of the press is against the whole concept of the European Union—should seek to deter him from holding to that position that he spelt out so clearly.
I took the trouble to read that passage once again this morning to remind myself of what he said. There is much else in that speech that is well worth re-reading. I hope that we shall continue on that course and that we in the committee shall be allowed to consider the many problems that will face the Council. I hope that we can bring our own opinion and advice to bear on those problems, in so far as we can give it.
5.36 p.m.
Lord Haskel: My Lords, I, too, congratulate my noble friend Lord Barnett and his committee who prepared the report that we are debating today. It is an important report because, as many noble Lords have pointed out,
"Europe is the UK's biggest market and accounts for 60 per cent. of our exports. It is therefore important to the UK that the details of the new arrangements are sensible".
The practical preparations of business are an essential part of these sensible arrangements because the single market is now our home market. Yet, debate on EMU tends to be treated by some as an issue which is largely separate from the single market. This is because the Government accept the single market as a fact of life, but not EMU. They are reluctant to face up to the connection between the two. The economic arguments

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for and against EMU are complex and have been well rehearsed this afternoon by my noble friend Lord Peston and many others. However, from a business point of view, EMU and the single market cannot be separated. They are closely intertwined because one cannot have a fully successful single market with floating exchange rates within it. Not only does that inhibit the development of the single market, but it also inhibits the opening of the market to those outside—both those who want to trade with Europe and those who want to join the single market. The internal floating exchange rates are a barrier to trade and expansion. Therefore, whether we are in or out, the euro and EMU will come to our most important market, and we have to be ready.
This debate is about preparing for EMU. My concern is that we should be making adequate preparations now; otherwise our businesses will suffer. Many noble Lords will remember the energetic preparations for the single market. For two years businesses were deluged with exhortations from the DTI to prepare for the single market in 1991. Business and industry were given practical advice on how to prepare. Trade associations gave advice to their own sectors of industry about the preparations. The noble Lord, Lord Young of Graffham, and his team at the DTI, were rarely away from radio, television and public meetings exhorting us to prepare for the single market. We were warned that if we did not make proper preparations, competitors from the Continent would come here and steal our customers. Business responded and, as a result, many companies now have branches, subsidiaries, customers, suppliers, representatives, agents, warehouses, distributors and business partners throughout Europe. They will all have their attitudes to EMU and the euro and we shall have to comply with them. So we shall all be affected.
But the DTI has largely abdicated its responsibility for preparing British business and industry for the change. It has dropped the reins because it is not sure in which direction to go. Certainly the CBI has a travelling road show and chambers of commerce are making presentations for their members. As the noble Lord, Lord St. John of Bletso, told us, the Bank of England is doing what it can to prepare the financial community, but there is nothing like the enthusiasm and energy which was shown to be necessary for preparing for the single market.
As a result, we shall all lose out. Certainly our best companies will be well prepared. It is the long tail of mediocre businesses that need the exhortation and encouragement. It will be too little, too late and too dangerous to rely on the cascading down effect to the suppliers, and the suppliers' suppliers of goods and services to our good companies.
Of course our large companies will adjust to the euro. They will issue price lists and sales literature incorporating it. Many may decide to trade in the euro, as my noble friend Lord Peston suggested, to avoid the risks in currency exchange. Many of our customers may insist on trading in euros. This will affect everyone trading directly or indirectly with most countries in the single market.
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I join the noble Lord, Lord St. John of Bletso, in saying that the DTI should be actively encouraging companies to participate because we can be sure of two things. First, the coming of the euro will stimulate business in those areas where it is adopted, and our companies need to be where the action is. No businessman wants to be on the fringes. Secondly, our competitors in Europe are preparing even if we are not, and that can only be to our disadvantage.
Another important reason for business to be prepared is to anticipate the changing value of assets in the EMU area. At present, changes in asset value—plant, machinery, stock or buildings—are absorbed by the floating currencies. But with the single currency the position will be as it is in the United States where these assets fluctuate in value according to the rise and fall in the economies of different regions. Business will have to cope with that.
What if we stay out of EMU and there is a two-tier system? Many companies may still find it easier to trade in euros if a major part of their business is in the EMU area. After all, it will be easier to deal in one euro rather than a fluctuating £0.83. Also, if there is a dispute on a business contract involving the euro, the dispute may have to be determined by English law. This has to be sorted out now.
This is the third debate in your Lordships' House in which I have urged the Government to give business and industry every encouragement to make practical preparations for EMU. Perhaps I am one of the usual suspects, referred to by the noble and learned Lord, Lord Howe. Our business within the single market is too important. Business needs to be looking outwards at its markets, not inwards at divisions in the Conservative Party. The Minister is a Latin scholar; he is not here at present. Perhaps I may suggest that in large letters above his desk he writes the old Latin phrase which comes from the Roman army: fallere praeparare praeparare fallere—to fail to prepare is to prepare to fail.
5.45 p.m.
Lord Hooson: My Lords, as the noble Lord, Lord Haskel, spoke, I could not but think of the fact that we and the Government rightly pride ourselves on inward investment into this country from outside the European Community by businesses whose headquarters have been established here largely because we are an English speaking area. However, there are two English speaking countries within the British Isles: the Republic of Ireland and the United Kingdom. An American business friend recently put to me the conundrum that will face those companies with headquarters in this country. With the Republic of Ireland only 100 miles away, if it is within the European monetary system and we are outside it the temptation to move headquarters will be considerable.
As always, the report of the Select Committee on European Communities provides the basis for a valuable and informed debate. I believe that such a committee is one of the best justifications for the existence of this House. We owe a great debt to the committee over the years, as does the whole of the European Community. It enables us to make a sensible assessment of the steps

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so for taken to achieve the goal of an EMS in place by the turn of the century. It also affords us an insight into the attitude of the Government in negotiations. That seems sensible from the point of view of the Chancellor of the Exchequer given the great internal pressures upon him.
But the UK's influence in Europe has always been fatally weakened by the uncertainty in the minds of other Europeans as to the direction from which we are coming. Are we in the Union to prevent real progress rather than to facilitate it? Mercifully, I do not think so under this Chancellor of the Exchequer. Are we trying to use our present membership to prevent further progress towards a united Europe in the vain hope of achieving a free trade area on the lines of the old EFTA? That is still a dream for some people; it simply will not happen.
In the meantime the posturing by various Ministers of a severely divided Government undermines the legitimate influence of the UK on many European issues, including this subject. I have been chairman of an international company which had outlets in all the European countries. I now chair a board which is partly French and partly British. Nearly everyone agrees with the criticism that there is too much interference on detail from Brussels. But they are afraid that this country's legitimate criticism is a cloak for trying to destroy the very basis of the common market. We lose influence by our divided approach.
The motivation for a united Europe, and intermediate steps such as the setting up of the EMU, is entirely political. We should firmly say this. It could not have been more eloquently or simply put than in a brief intervention at Question Time by the noble Lord, Lord Campbell of Alloway, with whom I do not always agree. He said:
"Is my noble friend aware that the real and essential benefit of the European Union cannot be measured in terms of cost but is the freeing of the soil of Europe from the miseries of another war?".— [Official Report, 28.11.96: col. 378.1
We need to be reminded of that approach. The EMU is an essential concomitant in the great post-war drive for European union. It will happen because in Europe, if not here, the political will is present. I should not be surprised if Chancellor Kohl, who increasingly appears to me to be the Titan among the minnows, within the next year or so does not arrange a dramatic step forward to secure the core of the EMU. That he might do so has been mooted a number of times. However, interestingly enough, in the November/December 1996 issue of the American journal, Foreign Affairs, there is a long article by Mr. Richard Medley of Yale University, who is incidentally a political adviser to the Soros Fund Management, in which he suggests a way out of the dilemma of France and Germany following an austerity programme with serious social consequences but faced with what the author describes as the Club Mediterranee pressure for entry to the first stage of the European Monetary Fund. If those two countries had to provide huge amounts for, as it were, a cohesion fund, that would be counter-productive. The author suggests:
"Fortunately, there is a way for Kohl and Chirac to avoid this nasty dilemma while the market gods are still smiling on them. They should forge ahead by declaring a mini-EMU between France and
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Germany and not risk devastating their economies in a fruitless attempt to hit an arbitrary deficit target agreed to five years ago. But getting there would require them, first, to admit the twin truths that deficits will be above Maastricht targets and that monetary union is primarily a political tool to cement the postwar peace and, second, to make those truths all but irrelevant by taking a patented Helmut Kohl bold leap forward".
I should not be surprised to see that take place. It may be the case that much of what we are discussing here will be overtaken by events. We must always remember that European unity has been forwarded from time to time by great steps on the part of determined leaders who took a political decision. It is not merely a problem of "getting the details right".
There is a great deal of work to be done in order to achieve the kind of cross-continental control that would be implied by a European currency. In the United States of America, for example, the Federal Bank has control. It is a huge continent. In New England, for example, in the late 1980s there was a depression; at the same time there was a boom in California. Three or four years later there was a depression in California and a relative boom in New England. The mechanisms to which the Americans looked in order to provide solutions to the problem were automatic adjustments in taxation on the one hand—they looked to adjustments in federal tax and state tax—and to mobility of labour on the other. In the Californian depression, 1.2 million people left for adjoining states and the population was thus reduced by that number.
We must appreciate that within the European banking system we should not have the automatically built in adjustments that the Americans have perfected over the years; nor have we the tradition of mobility of labour within Europe, for a variety of reasons. Europe is a much older civilisation; there are linguistic problems; there are great social bonds between the land and the people within Europe. A great deal of work will be required to achieve a satisfactory system within Europe. Therefore we should appreciate (even a Euro-enthusiast like myself) the acute problems facing participation within or outside the EMS. But it is still going to happen.
The benefits of a central bank, free of political manipulation in relation to policy, will be great—even if uncomfortable for politicians. The USA, Germany, and, in the last decade, New Zealand, Canada and, over a much longer period, Switzerland demonstrated through their low inflation figures the influence of a central bank not manipulated by politicians.
Incidentally, the issue of the magazine, the American Banker, for 20th November 1996 contains an article by Mr. Steven Marjanovic entitled "Single European Currency Could Cost Banks $5 billion". That is based apparently on an estimate of the cost to the banks of cutting in half prices for cross-border transactions within eight years. He states:
"If the forecast is dire for banks, it is part of what proponents of European monetary unification want: less restrictive and costly trade across the European Union and a stronger, more united economic front for competing globally".

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That is one of the justifications of European monetary unification. It will take a long time to achieve. Reading the article more closely, one sees that it suggests various ways in which the banks should react to this situation and ensure their own prosperity in the future.
The political importance of successfully launching the EMS is very great, even though the problems are formidable. However, social cohesion seems eventually more important than slavish adherence to the targets agreed at Maastricht five years ago.
I seem to remember that in the 1930s there were great dangers which we have since analysed in rigidly pursuing the economic orthodoxy of the day and abdicating our power to use our common sense and judgment. If we see, in France particularly and in Germany, in the next year or two great social unrest it may well be that Chancellor Kohl and President Chirac will be very tempted to take action on the lines that I indicated earlier.
In the end there is bound to be a two-phase entry into the EMS. It is very important to find a formula that makes that at least acceptable socially, as is implied, to the Mediterranean countries. I hope that we can make the first phase. At the moment, assuming the normal Maastricht criteria, it seems possible but not probable that this country will be there. I believe that we should make an enormous effort to achieve that. Politically the benefits will be enormous. I also believe that on a purely financial basis the pluses just outweigh the minuses.
5.58 p.m.
Lord Beloff: My Lords, given the number and distinction of the speakers taking part in this debate, many noble Lords may wonder why someone with so little competence in the monetary field should have put his name down to speak. For that reason I begin with a quotation from someone whose expertise can scarcely be doubted.
In a speech advocating progress towards economic and monetary union, Dr. Helmut Schlesinger, the former president of the Bundesbank no less, said:
"We Europeans should not allow the path of unification started by Monnet, Schuman, De Gasperi and Adenauer, to be obstructed through an unjustified reactivation of vulgar nationalistic feelings".
I do not propose to reactivate those feelings. However, I read that quotation because it proves beyond peradventure that, as the noble Lord, Lord Hooson, said, albeit in a rather different way, the ultimate objective of European monetary union is to complete the process of creating a United States of Europe, a country, Europe, as the noble Lord, Lord Owen, put it in his remarkable and important speech.
That is denied by some. Indeed, the Conservative Party is sometimes accused by noble Lords opposite of being divided, but there is clearly a huge division on the matter between the noble Lord, Lord Hooson, and the noble Lord, Lord Wallace of Saltaire. The noble Lord, Lord Wallace took some time in his speech to say that he found no evidence of any desire to create a united states of Europe when he went abroad. I do not know what he does when he goes abroad. Does he read the
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newspapers? Does he listen to the political speeches? After all, if we take Germany alone—and here I rely on the admirable service provided by the German Embassy in London—speech after speech, document after document from Chancellor Kohl, members of his party and officials states "We must complete the process of creating a united states of Europe". Chancellor Kohl said that he regards that as the great and final justification of his career in politics. That seems to have escaped the noble Lord, Lord Wallace, but it was picked up by the noble Lord, Lord Hooson. Perhaps the latter's ears are better attuned.
I say that because it is directly relevant to what we are here to discuss: namely, the thorough and interesting report by the noble Lord, Lord Barnett, and his committee. If I am right in thinking that the objective is political and not economic, then it is quite understandable that decisions would be made to go ahead with the project, whatever the state of the so-called convergence criteria. The noble Lord, Lord Barnett, in the Treasury in this country, was no doubt able to fight a battle against fudge. No such battle is being fought in the capitals of continental Europe. It is clear that if it is politically possible, if there is no social upheaval in France or Germany, a decision will be made to go ahead with a number of countries whose convergence, even in the limited sense in which that phrase is used in the Maastricht Treaty, will not be attained.
Therefore, my feelings about the committee's report is: is it not rather sad that all that energy and ingenuity were spent in exploring the stability pact, the intermediate stages, ERM2, when all that is beside the point because the decision will not be made in the light of any of those considerations? I feel rather like a medieval student confronted with a set of theologians directing his attention to the question of how many angels could dance on the point of a needle. It is interesting, but it is not relevant to daily life. Does the noble Lord wish to comment?
Lord Tordoff: My Lords, I thank the noble Lord for giving way. I hope that he will recognise that it is the task of their Lordships' Select Committee to scrutinise documents coming from government departments. In this case, Sub-Committee A was doing precisely that. The committee did not generate the documents; the members scrutinised them to the best of their ability on behalf of the House, in order to inform the House.
Lord Beloff: My Lords, the noble Lord is completely right. I never suggested that the members of the committee produced the documents. They were fulfilling their allotted function in this House. But they could have written a word or two of preface saying: "We know that we have to do this, but we also know that there is not much point, since the decisions will not be taken on the basis of the documents which we are examining". Perhaps that is asking too much of an all-party committee. I was not expressing any complaint about the conduct of the committee, I was commiserating with them on a great deal of expenditure of energy which, to me at any rate, seems beside the point.

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I was interested in the references made by the noble Lords, Lord Hooson, and Lord Owen, to the United States of America. Unless we follow the course of American history for 200 years, we cannot understand the role of the single currency, the European Court of Justice or the other institutions of this embryonic federation. After all, the question of whether the United States should have a national bank, national control of credit—which is, after all, at the root of the idea of a European bank, a single currency—was of vital importance and caused endless conflict in the early years of the American union.
The most important judgment made by the Supreme Court of the United States, McCulloch v. Maryland in 1819, was precisely on the point as to whether a federal government could set up such a bank and whether the states were entitled to interrupt its operations by taxation.
It was not until relatively recently that the issue was settled by the setting up of the Federal Reserve Bank, as the noble Lord, Lord Hooson, said. As he reminded us, the United States now has machinery for pursuing a single economic policy over the whole of that vast area.
If I may say so, I thought that the noble Lord, Lord Hooson, slightly underrated the difficulties which exist, even in the United States, and how much greater they would be in Europe. After all, convergence is artificial, if it is thought of merely in abstract statistics about GDP, deficits and all such matters. The real question in running an economy is whether it is sufficiently united in its purposes and sufficiently attuned in its various parts to be capable of management from a single centre.
The noble Lord, Lord Hooson, was quite right. The United States Government have the capacity, through the use of their financial power, to make up for the differential effect of recessions on different parts of a varied country. As he pointed out, they also have the inestimable advantage of a free-moving population. Unlike the history of western Europe in the corresponding two centuries, the history of the United States has largely been a history of population movements. That continues to this day.
I should have thought that the obstacles in Europe to both those attributes of the American federal system are at the moment insuperable. In the first case, although Americans occasionally complain about supporting each other's welfare systems and so on—and there is some evidence of a movement away from that—nevertheless the people are all Americans and they recognise a mutual responsibility as members of one nation.
That is not the case in western Europe. No western European country feels that people in the neighbouring country, still less in countries several hundreds of miles away, have the equivalent claim upon their financial resources. So it is extremely difficult. As we all know, it is done. Ireland is constantly mentioned and it is the great beneficiary of the ability of the European Union to transfer funds. That is why the Scots—I believe mistakenly—think that they would receive the same if they went in as an independent country. However, that is a special case. Ireland is always a special case.
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The other point is even more formidable. Language is a much greater barrier than I think the noble Lord, Lord Hooson, admits to the free movement of population in terms of seeking permanent employment and residence. For one thing, it makes people more reluctant to move and for another it evokes in the countries into which they move the possibility of a reaction by the indigenous population, who may claim that their jobs are being taken away by immigrants from other countries. Therefore, we cannot assume that the lessons of American federalism are seriously applicable. But we ought to look at the history of American federalism to see how it originally came about and how it is likely to develop in the future. Therefore, that is an important and I should have thought overriding consideration.
The noble Lord, Lord Peston, with whom I have exchanged words on these subjects more than once, said yesterday that on the main issue he was leaning towards British membership. I thought that "leaning towards" was a rather curious phrase. I felt that it was rather like an ordinand of the Roman Catholic Church telling his bishop, "I lean towards celibacy." It seems to me that either you wish to become part of a federal system or you do not wish it. I find a halfway house rather difficult in that respect.
We must all clear our minds about this matter. We do not know what will happen. I agree with the noble Lord, Lord Shaw, that on the Continent as well as in this country opinion is moving very fast. To assume that we know whether there is to be EMU or who is to be part of it, or what the reactions will be depends on assessing the political complexion of a number of important advanced countries, not only France and Germany, which have rightly been the centre of our attention, but also of course Italy and Spain. We do not know.
Therefore, although we can talk and write interesting papers on the preconditions of entry, the stability pact, whether we shall be fined and how much, where the money will go and whether there will be any money, for the moment I believe that we should take care.
6.12 p.m.
Lord Bruce of Donington: My Lords, I join in the expressions of appreciation of the work of my noble friend Lord Barnett, from whose committee by the convention of the House I was—temporarily I hope—excluded and therefore unable to put my views to him in greater detail in relation to the document that he and his committee have produced. That is unfortunate. I hope that one day that may perhaps be rectified.
The arguments that are and have been presented in this House and the other place ever since the debate on Maastricht—indeed before—surely have taken place within the stratosphere. A language has developed in discussing European Community matters. Technical terms have become commonly used by us but they are not understood or even appreciated by the ordinary members of the public. I do not wish to incur the House's displeasure by venturing to remind your Lordships that there is a wide public outside, comprising millions and millions of ordinary people, to whom the

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arguments presented here about "fixed yet flexible" may appear slightly strange in view of the amount of logic that may have been included within their school curriculum. Some people who adhere to common sense might not appreciate the deadly logic of "fixed", which presumably means what it says—fixed—yet "flexible", which means that it can be moved.
Yet such arguments as "fixed and flexible", "negative expenditure", "non-repayable advances" and such terms have become part of the technical language of Europe and indeed of a large number of your Lordships who take part in these debates. I myself must plead guilty. My first paper on the European question was some 34 years ago in 1962, since when I have ventured to study the subject in detail. Therefore, I plead guilty just as much as anybody else in helping to perpetuate the jargon and gobbledegook in which European affairs are discussed, not only at Community level but at political level as well.
Perhaps your Lordships will permit me to lift myself from the jargon and the various extant expressions and talk in what may be thought more commonsense language. For example, what do we mean by "discipline", when we refer to it in community documents? We interpret it to mean that there are some rules in place which must be adhered to if we are to remain—another jargon term—at the core or heart of Europe. On the other hand, the ordinary person these days—throughout Europe—thinks of "discipline" in terms of things from the outside being imposed upon him as an individual: the disciplines of poverty; the disciplines of homelessness; the disciplines of having no prospect; and the disciplines of having no vista either in one's home or outside it upon which it is easy to rest one's eyes. They and indeed I call that discipline. That is discipline in the eyes of the ordinary people. It means doing what you are told and not having much argument about it.
That is what is happening in Europe. At the moment there is ever present the discipline of unemployment or the prospect of it for millions of people in Europe—and in the United Kingdom when account is taken of the fiddles with the definitions that would reveal that unemployment in the United Kingdom is about 4 million instead of being slightly over 2 million. That applies throughout Europe. Europe as a whole is enduring unemployment on a greater scale than it did seven years ago, despite the single market. Surely, therefore, a wise Community, acting through its established instruments of representation and indeed its executive arm ought to be concentrating on this matter.
Certainly, the Chancellor of the Exchequer defined the position very well when reporting on the recent conference of ECOFIN. He said,
"European policy is not a European matter. There is no European Community competence in employment matters".—[Official Report, Commons, 3/12/96; col. 805.]
What we have done therefore in purporting to set what are called "economic convergence conditions" is to ignore that factor completely. We have ignored the
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growing phenomenon in Europe, reproduced to a large extent in our own country, which is probably one of the most potent factors of all.
As I was alive at the time, together with a not inconsiderable number of your Lordships, I well remember the days before the war when economic orthodoxy ignored the existence of unemployment. I well remember the time when Adolf Hitler came legally to power in Germany, not on the basis of the excesses that were to evince themselves later, but on the basis that he was prepared and quite obviously able to deal with the question of unemployment.
The economic convergence conditions—contained, first of all, in the protocol of excessive deficits and in the other protocol concerning convergence criteria—make no mention at all of employment. All they reproduce—I am sure the noble Lord, Lord Beloff, will verify this if he has studied this aspect of the matter, which no doubt he has—are the economic orthodoxies of the 1930s, which I well remember, in this country. They are reproduced as part of the economic convergence and deficit excess expenditure limits that are contained within the Maastricht Treaty in large letters.
Amazing though that may be, it is even more amazing that some people take it as a virtue that they have not examined the Maastricht Treaty—until recently, on his own admission, that included the Chancellor. If only Members of another place—and I venture to suggest Members of this place as well—would read these matters themselves instead of relying on the versions of their research assistants, and therefore had it firmly imprinted in their minds, we would not be in the existing intellectual impasse when considering the whole question of economic and monetary union or, as the noble Lord, Lord Beloff, said, political union, which is the main objective.
Is that surprising? I listened carefully to my noble friend Lord Peston who, in economic affairs, has a greater degree of skill and recognition than I would have if I lasted another 200 years. He was careful to point out in relation to one of the basic conditions of economic and monetary union that he would be bound to enter a caveat that he wanted a European bank to be democratically accountable. I shall await with interest the draft amendment he proposes to submit to the Leader of my Party incorporating the exact terms he should bring before the intergovernmental conference. But that goes to the root of it. Indeed, it goes to the root of the whole matter. As the noble Lord, Lord Beloff, said, we are discussing matters in their political context.
How democratic and how accountable are the institutions of the European Union? That surely should be basic to us; after all, we are democrats, or are supposed to be, or we call ourselves such and some of us may swear we are. Neither the European Monetary Institute nor the European central bank are responsible politically to anyone. They are not democratically elected; they are not democratically accountable. If anyone wishes to correct me by reference to the treaty and prove otherwise, I shall be delighted to hear it.

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The all-powerful Commission is not democratically accountable either. We all know that the European Court is a political court with legal trimmings, some of them highly reputable; and the Court of Auditors has proved to be irrelevant for our purposes anyway. We are left with the Council consisting of Members of the governments of the various member states, of which my noble friend Lord Barnett is an illustrious example. I can testify, as one who appeared before the Council of Ministers, that he was unique in one respect: he was thoroughly alert and he knew his papers backwards whereas some of his colleagues in the Council, as verified by Alan Clark himself, were half asleep, gave every appearance of being half asleep or were suffering from a postprandial excess of vision or otherwise.
What are the democratic institutions to which we are going to entrust these delicate matters? Are we prepared for them to be completely non-accountable? I will not go into the subject of the European Parliament except to assure your Lordships that, on the basis of my four years' experience in it and my study of its proceedings almost weekly ever since, I cannot recommend it to your Lordships as a proper democratic institution as we understand the term. So are we a free nation with democratic institutions? That has been dubious over the past 17 years as developments have occurred, but nevertheless there is an election every five years, or earlier if circumstances provide.
Surely it is time for us to pause a little. As the noble Lord, Lord Shaw of Northstead, put it, let us ascertain the facts before we act on matters of this kind; before we introduce a universal currency within Europe with all the unknown factors that have been put forward this afternoon. I am bound to say that I was very impressed—I hope he will not derive any political discomfort from this—by the speech of the noble Lord, Lord Owen; it was most agreeable. He seemed to bring a genuinely independent state of mind to the discussion of this problem and I sincerely hope that we shall hear from him on this subject many times again.
Sometimes from the Liberal Benches we get the impression that it is quite wrong, when we are accused of having erred or when we disagree with other members of the European Community, for us to argue back. The Liberals apparently require—I shall be delighted to receive assurances to the contrary—that we agree with them all the time; otherwise we are dragging our feet or being awkward. In other words, they like to be able to find us always in the wrong when it comes to a genuine argument with other member states of the European Union. I trust this tendency will not continue.
I have some observations to offer to my noble friend Lord Barnett, who on a number of occasions, rather than replying to the detail of my argument, has been kind enough to refer to me as an anti-European, as though that were somehow an argument in his favour and excused him from arguing in detail against the somewhat terse arguments that I am able to put forward on the basis of my own studies. Perhaps I may therefore remind him as gently as I can that when he was 16 years of age I was, in common with a number of noble Lords on all sides of the House, in the Army, where I remained for six years, and that one of my objectives and one of
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the objectives of my colleagues was to liberate Europe. It was a matter of some inconvenience at that time, particularly as four years had been taken out of one's life at a somewhat tender age earlier.
Therefore I trust the noble Lord will choose his words a little carefully when he says that those whose philosophy he dislikes are anti-European. I trust he will reflect a little on the fact that for some of us our experience of serving on behalf of our country to liberate Europe does not always deserve the implied strictures that are implicit in the general observation, "You are an anti-European", as though that were an argument. I am not. What I have sought to do and what I shall continue to do is to try to the best of my ability to acquaint the House, however controversial it may he from time to time, with the thoughts I have on the subject which are the result of a protracted study and which I hope deserve occasionally some notice.
6.33 p.m.
Lord Haslam: My Lords, I was somewhat dismayed when I saw that I was to follow the noble Lord, Lord Bruce, today, knowing his powers of oratory and my inadequacy in this field. Nevertheless, having served for a few years with him on the Select Committee, I do say that we miss him and we miss his jousting with the chairman. The chairman is now having an easy time, I think, with the other members of the committee.
First, I pay tribute to our chairman for the delightful and skilful way in which he has run our discussions on these complex and difficult items. Secondly, I fully identify with the letter from the noble Lord, Lord Tordoff, to the Chancellor. There is, however, one issue on which I personally would have gone further. The letter states:
"The merits of membership of ERM2 for those outside EMU require, in our view, serious consideration".
I would have preferred a more positive statement; namely, that if we are an "out", at least we should be willing to join this new voluntary exchange mechanism.
I believe the present ERM, from which we withdrew, is very unfairly criticised. The damage which occurred in the UK was essentially self-inflicted by entering at much too high a rate of 2.95 DM/E. That was at a time when interest rates in the UK were over 6 per cent. higher than those in Germany. I was a member of the court of the Bank of England at that time and many industrialists were advocating figures of 2.40 to 2.50 DM/E. If we had gone in at that level I believe we would still be a member today, and would not have suffered all the traumas which have since been unfairly blamed on the ERM.
As a member of Sub-Committee A one heard many voices from the Treasury, the Bank of England and other financial institutions, saying we have now seen the light, and even if we do not rejoin the ERM, we will behave impeccably in exchange rate management and ensure stability; hence our European partners need have no worries about our behaviour. The obvious response to this is: if you believe that, why do you not rejoin the ERM? Clearly, our partners are not convinced. Demonstrably, sterling's lack of credibility—a product

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of our past record and of our lukewarm attitude to the EMU—is already being paid for in higher interest rates. We are paying interest on our borrowings of at least 1.5 points more than Germany, France, Holland and many other countries. As the noble Lord, Lord Cockfield, pointed out in the debate on the Address, this extra interest on the national debt is equivalent to 3p on income tax.
Furthermore, recent events cast doubts on our exchange rate management. There had been a desirable period of stability during the whole of 1995 to the middle of this year, with the DM/£ relationship being contained between a band of 2.20 and 2.30. In recent weeks, this has suddenly surged to 2.60, which of course now presents a serious problem to exporters, and certainly does not reflect the promise of future stability by those who shape and determine our financial destiny. That again is also a manifestation of placing inflation on a unique pedestal, and letting any other key parameters like exchange rates fall wherever they may.
Nearly every witness who appeared before Sub-Committee A emphasised the critically important point that if the UK decides not to participate in EMU, our access to the single market should not be restricted. If we opt out of the single currency, having already withdrawn from the ERM, and having exercised our opt-out from the social chapter, our European competitors will perceive that all these actions are clearly designed to give us an unfair substantial competitive advantage over them. Indeed, in the case of our opt-out from the social chapter, we have widely trumpeted these advantages. Having battled with continental industrialists in many businesses for most of my working life, I am sure that they will not tolerate this blithe assumption; namely, that you can have all the benefits of the single market without participating in the single currency. Pressure for discrimination, reprisals and covert action, despite their illegality, would be intense and difficult to resist. They would, I believe, lead to confrontations, which will make our recent quarrels on mad cow disease look like a proverbial tea party. This issue is probably the most likely source of whether or not eventually we have to withdraw from the EU altogether.
Against this already daunting background, it seems to me that to indicate our intention not to join the proposed voluntary ERM2, if we become an "out", would be a last straw. I believe that most UK industrialists, particularly those operating European and international businesses, have become increasingly alarmed by the quality of debate in the UK about Europe and the way its tone has markedly deteriorated over the past two years as we now seem to be attacking Europe on any issue we can lay our hands on. We are in danger of becoming the complaining semi-detached or non-participating member of the European Union, no longer able to shape or influence the current crucial debates taking place. To make even a relatively minor concession, therefore, by agreeing to join ERM2, might be regarded as significant and timely in showing that we are not negative on every issue.
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Finally, I do not deny that the EMU has some imperfections—they are there—and that teething troubles and risks are inherent in the process. These have undoubtedly been amplified by the German-French axis endeavouring to push through the concept of the single currency too quickly. However, the basic question still remains. If a hard core of countries go ahead with EMU, we have to make up our minds. We should respond in a positive way. I have no hesitation in saying that the UK should join at the outset and for once live up to our Prime Minister's oft repeated ambition of being at the "heart of Europe".
6.40 p.m.
Lord Roll of Ipsden: My Lords, once again we have occasion to be grateful to the noble Lord, Lord Barnett, for initiating this debate on the basis of a report prepared under his chairmanship. I had the privilege of serving on the committee and of admiring the mastery of his chairmanship. Thanks to it and to the skilful piloting of the report through the main committee by the noble Lord, Lord Tordoff, this report has reached this House in record time, I think. Above all, it has reached the Chancellor, as he wished, in time for him to take it into account in the discussions he had at ECOFIN on Monday last; and of course in good time, should he so desire, for discussion at the Dublin Summit, although that now looks a little problematical in the light of the Chancellor's last Statement.
The exchanges which have taken place in another place and in this House during the past two weeks, culminating in this debate, have been preceded by a most extraordinary and almost tempestuous flurry in the media, with talk about suppression of documents, constitutional principles having been breached, confidence votes, resignations, anticipated elections and heaven knows what. Happily, the Chancellor's Statement a week ago on Monday caused all that to subside, although the exchanges in the other place were still indicative of a great deal of excitement on this.
Even in this House when the Chancellor's Statement was repeated, although I did not hear it, the pages of Hansard indicate the sense of a tremor of turbulence. The debate today has also proved, as is perhaps almost inevitable, that it is almost impossible to discuss specific questions, such as the three issues which are the subject of discussion for the preparation for EMU, without going back to the transcendental question of whether monetary union is desirable or feasible and, if it is, as is believed by some of our partners, whether we should join.
A good deal of the debate today has touched on that. I do not propose to go along that road except to say—and this will be no secret to some of your Lordships—that I very much agree with the positive approach that has been taken by a number of speakers, including the noble and learned Lord, Lord Howe of Aberavon, and the remarkable speeches by the noble Lords, Lord Haskel, Lord Hooson and Lord Haslam, which brought to the debate the experience and the attitude of business to this question. I do not propose to dwell on the broader issue of the desirability of EMU, and indeed beyond that, as was touched upon by a number of your

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Lordships, including the noble Lord, Lord Beloff, perhaps the inevitability of moving eventually to something like a federal structure and comparing that with the United States.
The prelude to these exchanges, as I said, was of a very excitable nature, especially in the media. Some of the things which were said at the time amounted almost to saying that we should not even participate in any of the discussions and negotiations in preparation for EMU—as if anything to do with EMU was the work of the devil and had better be left alone. Although I would certainly not accuse the noble Lord, Lord Bruce of Donington, of being anti-European, some of the so-called Eurosceptics who pronounced sentiments of that kind at the time remind me very much of something that Friedrich Engels, Karl Marx's companion, once said:
"An agnostic is really a shamefaced atheist".
Many a Eurosceptic, I fear, is probably a shamefaced anti-European. To the noble Lord, Lord Bruce of Donington, I would merely say, not surprisingly in view of his experience, that he may perhaps be classed as "anti-European Union" as presently constituted and practised, but certainly not as an anti-European.
I want to deal briefly with the three main issues with which this report is concerned. I shall not dwell at any length on the legal and institutional aspects of the creation of a single currency of the euro and on the operation of the European Central Bank. These are obviously matters of very great importance to those who plan to be members and to ourselves, if we ever become a member; but they are also of very great importance to those outside. After all, even today the constitution and practice of the Fed and what Mr. Alan Greenspan does, and the constitution and the practice of the Bundesbank and what Mr. Tietmeyer does are matters of great concern to us, and I say that with the utmost respect for the outstanding authority of our own Governor. We cannot ignore these matters and if we are outside the European monetary union we must also be very fully aware of the way in which the European Central Bank works and how far an independent Bank of England still outside monetary union can co-operate with it.
The only other remark I would make is to repeat what the report of the committee of the noble Lord, Lord Barnett, says; namely, to deplore the degree of secrecy that surrounds the preparations on this score by the European Monetary Institute. I very much hope that there will be much more openness. I am afraid that bankers have developed a tradition of secretiveness, which the central bankers possess in an even greater degree than their mundane colleagues in the private banking world. I think in this particular instance that ought to be lifted to a very large degree.
The heart and core of these three aspects of preparation is the question of the principles of financial and general macro-economic policy once the monetary union has been created: that is to say, in terms of either a continuation or a revision of the convergence criteria which determine the conditions for initial entry. This is a subject which to my mind eminently deserves very solid discussion, as indeed it is beginning to get in
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ECOFIN and no doubt in the summit meeting and also in public and in our own legislature. It is of great importance and it is a little surprising that there should be doubts on all sides of the political spectrum about the validity and worthwhileness of the principles which have now been set up to guide the macro-economic policy of a monetary union and indeed of those outside. As our committee's report last July and the present report made clear, we believe—and I hope that broadly speaking your Lordships will agree with this—that even if we are outside, the principles of policy are equally applicable to us. I stress the word "principles".
The term "sound financial policy" acquired a bad name in the late 1920s and early 1930s and, if I may say so, the speech of the noble Lord, Lord Bruce of Donington, was a very clear example of the memories left by "sound financial policies" as practised at that time. I am old enough—I am a good deal older than he is—to have lived through that period and to remember what consequences flowed from the so-called sound financial policy, which caused a great deal of economic misery and indeed devastation in certain parts of Europe and the rest of the world. Many people believe, and I share their view, that they made a contribution of some importance to the social and political consequences which ultimately led to the tragedy of the Second World War.
Therefore many people, including the noble Lord, Lord Bruce of Donington, believe that a great liberation took place, to which we should now very much adhere, through the work of Keynes. I am second to none in my admiration and respect for the work of that great man, but he was a man for all seasons—so much so indeed that he was often accused of inconsistency. That produced the celebrated riposte of one of his American disciples:
"There is nothing inconsistent in wearing a straw hat in the summer and a fur coat in the winter".
Indeed, if you study Keynes carefully, including some of the things that he tried to do in the negotiations at Bretton Woods and before that, which were frustrated largely by American policy of the time, you will see that his concept of sound financial policy was very different from that which ruled in the early 1930s in particular.
I remind your Lordships that when he spoke in this House on the post-war settlements—a speech which is well worth re-reading now—he made the remark, "We have come to implement and not to destroy the wisdom of Adam Smith". That may sound strange to some people who regard Keynes as the absolute antithesis of Adam Smith. Therefore, I urge the noble Lords, Lord Bruce of Donington and Lord Peston, who also expressed considerable doubt on this score, to look very carefully at the principles of sound financial policy and macro-economic policy, which are to be applied within the monetary union and also by those outside, but which have to be formulated in more precise guidelines.
The report of the committee of the noble Lord, Lord Barnett, makes it very clear that we are very doubtful, if not opposed, to mechanistic formulae. It may well be that we should try very hard to avoid repeating the formulation of the convergence criteria in the formulation of the guidelines for conduct after monetary

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union has been established, if it is established. In any event, these judgments will have to be based on flexibility, as the committee quite rightly emphasised, especially in times of recession and should possibly avoid mechanistic formulae.
I believe, from what the Chancellor has reported on the discussions at ECOFIN last Monday—and I believe that he will be supported by quite a number of members of the European Union including, perhaps, in the end the French and the Germans, but certainly by many others who may not immediately be members of the monetary union—that he is seeking to have the right sort of formulation for principles which are themselves probably right and proper.
I come finally to the question of the exchange rate mechanism. On that I have very little to add to what the noble Lord, Lord Haslam, has said, with whom I agree a great deal on this point. There are two points. There is the question of whether participation in an exchange rate mechanism for two years is an essential condition for entry into monetary union. I believe that the evidence on that is still not absolutely clear. I know that we have had quoted to us this afternoon the words of the treaty itself, but we have also heard the interpretation given to those words by the Irish Finance Minister and many others. I believe, as the committee does in its report, that, were we to want to join and fulfil all the other convergence criteria, including that of exchange rate stability, but were prevented from doing so because we had not formerly been members of the mechanism, that really would be straining at a gnat. That is a pretty popular pastime in international negotiations, especially in Brussels, but it is a topic on which we perhaps need say no more at this stage.
The other question about the exchange rate mechanism is what happened to the last one, and on that I believe that the noble Lord, Lord Haslam, is absolutely right. It seems to me quite wrong to judge the system on the ground that, after many many years of not belonging to it when it worked reasonably well for all its members, we finally joined—apparently without adequate consultation with our partners—at an exchange rate which was manifestly too high and which finally broke up the system as a whole, not only causing ourselves a good deal of discomfort at the time. Even today, after the pound has risen a great deal (although that has abated somewhat in the past two days) and perhaps become uncomfortably high, the exchange rate in the market is still well over 10 per cent. below what it was when we went into the exchange rate mechanism. So I believe that it would be quite wrong to judge the desirability of belonging to it simply on the ground that we had a vexed experience before.
We asked Mr. O'Donnell, the excellent Treasury official who gave evidence to us, about it and what the reasons were for this reluctance on the part of the Chancellor and the Treasury to join an exchange rate mechanism. We were told, "We believe that the true basis and way of supporting exchange rate stability is to have the right financial and macro-economic policies". To that we all said, "Hear, hear". Obviously, that is taken up in the committee's report. We entirely agree
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with that because it is the basis of exchange rate stability. But that does not dispose of the question of the exchange rate mechanism.
So perhaps I may conclude with this observation. We have reached a point where we are in favour of exchange rate stability, as we jolly well ought to be, because the history of our exchange rate policy over the past two thirds of a century is by no means the most glorious chapter of our economic history. We are in favour of stability in exchange rates and of the basic financial and macro-economic policies that can alone in the long run sustain exchange rate stability. Yet we refuse to join the mechanism.
I must tell the House that some of us on the committee went away with the perhaps unworthy suspicion that in the minds of the Chancellor and the Treasury there are no strong economic arguments against joining an exchange rate mechanism, but rather, shall I say, the fear that it might give the wrong political signal at a time when anything to do with EMU tends to be suspect and to excite opposition. But if that is really so, it is a most bizarre situation because to belong to an exchange rate mechanism can only be of practical significance to us if we are outside the EMU. If we are inside, the question disappears.
6.56 p.m.
Lord Pearson of Rannoch: My Lords, before I descend into some of the murky details of these preparations for European economic and monetary union, it is worth remembering part of the background against which our debate takes place.
Several noble Lords have rightly reminded us that EMU is proposed largely as the mechanism by which European political union will become irreversible. If any noble Lord doubts that he should reflect on what M. Yves Thibault de Silguy, the Economic and Monetary Affairs Commissioner, said a few weeks ago. He said,
"The inability of Europe to respect its agreement for building economic and monetary union would surely affect other areas, the common foreign and security policy … and institutional reform first of all. In what trap would we then find ourselves? Where would we be going? There would be a great danger of seeing Europe drift progressively towards a free-trade zone—precisely what we have tried to avoid for the last 25 years".
That surely confirms that EMU is not primarily an economic or monetary venture, as other noble Lords have said. Its inspiration and aim is political. So, as with the whole European venture, the square-wheeled political cart is again being put firmly in front of the nervous commercial horse.
This is not the time to dwell on the general folly of trying to follow M. de Silguy and his allies beyond the free trade zone which the British people have been deceived into thinking they were joining. But, since the usual channels steadfastly refuse to allow us to debate that folly, I trust that your Lordships will forgive me if I remind noble Lords of two of the principal raisons d'≖tre of the European Common Market, which begat the European Economic Communities, which begat the

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European Communities, which begat the disfigured and dangerous infant we observe today in the shape of the European Union.
After the last war those two raisons d'≖tre were, first, to dilute Germany into a new-fangled cocktail, disguised as a market, to prevent her going to war yet again with her neighbours; and, secondly, to create a bloc capable of standing up to the growing menace of the Soviet Union. At the time both those aims were entirely honourable, but neither of them makes sense today, although Herr Kohl and others of his generation are clearly worried that Germany still cannot be trusted.
If I could ask Herr Kohl one question it would be: "When did a democratic nation such as the modern Germany last cause a war?" But, alas, I fear that he and his army of bureaucrats and politicians in Brussels are in too much of a hurry to pause for such thoughts. Hence their headlong dash for political union, mounted on the crippled horse of EMU, which, upon closer inspection, turns out to be just as incapable of flight as the bird from which it obviously takes its name. Let us have a closer look at some of this animal's teeth.
One of the most obvious problems is that the weaker economies of Europe do not have the faintest hope of achieving genuine convergence with that of Germany in the timescale involved before Stage 3 of EMU, and they do not have the faintest chance of maintaining any bogus convergence which they may have been allowed to fudge thereafter. The latest assurance that we have on this came yesterday from Mr. Prodi, the Prime Minister of Italy, who promised his people that the special euro tax which they are being forced to pay to get into the fools' paradise of EMU will be reimbursed as soon as Italy is safely inside.
So for a very long time—longer than their peoples will tolerate—the richer countries will have to subsidise the poorer countries. Alternatively, the federal European budget necessary to sustain the inevitable national imbalances has been estimated at between 5 and 7 per cent. of Community GDP, as opposed to 1.2 per cent. now, which is unlikely to be accepted by the donor national parliaments.
I remind your Lordships that although half the present budget is spent unwisely on agriculture most of the rest goes on so-called "structural" support to the poorer economies. Greece, Spain, Portugal and Ireland between them get some £25 million per day until 1st January 1999. But then this largesse stops, and unanimity among the 15 countries of the EU is required before new funding can be agreed. If, as seems almost certain, new funding is not so agreed, that will make the "four poor", as they are known, even poorer and less able to maintain any reasonable criteria within EMU. It is perfectly clear, too, that with these kinds of strains on it the euro will be a weak currency, which would do enormous damage were it ever to fall apart. I hope that the noble Lord, Lord Peston, will not mind my joining in his complaint that the convergence criteria do not contain any criterion for unemployment. When one considers the pain which the convergence criteria are causing across Europe, surely this must be a serious worry.
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There is much more that can be said to show why the EMU is quite simply not designed to fly in spite of all the disciplinary measures before us, but time does not permit. Most of the arguments are clearly set out in the recent publication by my right honourable friend David Heathcoat-Amory, A Single European Currency—Why the United Kingdom must say "no", which I have recommended to your Lordships before. I should remind your Lordships that Mr. Heathcoat-Amory was the Minister for Europe before moving to the Treasury where he was closely involved in the preparations for EMU. His views are, therefore, based on experience which I submit cannot simply be ignored. There are copies of that publication in the Library. I would be happy to obtain a free copy of it for my noble and learned friend Lord Howe (who I regret to see has left us) and any other noble Lord who would like one. I mention this publication again because, as far as I know, no one—least of all the Government—has been able to refute its conclusions. These are that we should refuse to join a single currency, and that we should do so now. We should therefore have nothing to do with the papers in front of us, except to veto anything which might tie us to the ill-fated project of EMU in any way.
This leaves me with the question of how much we may already be committed to EMU through our unfortunate adherence to the Treaty of Rome. Paragraph 2 of Protocol 11 of that treaty says that,
"Paragraphs 3 to 9 shall have effect if the UK notifies the Council that it does not intend to move to the third stage [of EMU]".
Paragraphs 3 to 9 give us our much-vaunted opt-out, the principal articles which would not apply to us if we did opt out being set out in paragraph 5. But none of these exemptions applies until we say that we will not join Stage 3, which my right honourable friend the Prime Minister refuses to do for reasons which are very well set out in the leader in today's Times entitled "A major mi stake".
My first question to my noble friend the Minister, of which I have given notice, is this. For how long will any agreements that we make before we say that we do not want to move to the third stage last? Will they last until we say that we do not want to be part of EMU, or will we be stuck with them thereafter? My second question is more difficult. When one looks at the actual articles that will not apply to us—even assuming that we have said that we do not want to move to stage 3—they do not give much comfort, especially when we consider the way in which the Luxembourg court has just behaved over the 48-hour week. I have time to give your Lordships only one example of the kind of wording in the treaty which would apply to us even after we had opted out. I refer to Articles 103, 102a and 109m, in that order. To render them vaguely intelligible, I should paraphrase these articles as follows. I quote Article 103:
"Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of Article 102a".
Article 102a includes the duty on member states to:
"conduct their economic policies with a view to contributing to the achievement of the objectives of the Community".

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Paragraph 2 of Article 109m reads as follows:
"From the beginning of the third stage and for as long as a Member State has a derogation"—
that is the United Kingdom after it has said that it will not go to Stage 3—
"paragraph I shall apply by analogy to the exchange-rate policy of that Member State".
Paragraph I has already been referred to this afternoon by my noble friend Lord Tebbit. It commits us to treat our exchange rate policy as a matter of common interest and to respect "existing powers in this field".
There are many other articles from which we shall not be exempted even if we confirm our opt-out, which, like the ones I have mentioned, must make us very worried were they ever to be judged by the Luxembourg court. As far as I can see, the whole of Article 103, which goes on in much the same vein as the part that I have quoted, would be actionable before the court under the enforcement procedures of Articles 169, 170 and 171 of the treaty and would allow the court to fine us. Can my noble friend comment on this?
I turn to the problem of ERM2. If the UK wanted to join EMU and the Council found that it fulfilled the necessary conditions (whatever they may turn out to be) I do not imagine that anyone would let a small matter like the treaty wording get in our way. There might well be agreement with all parties to the contract to ignore Article 109j 1, third indent. But what may be more sinister about ERM2 is that it appears to be a different system from ERM1, which was in the Maastricht Treaty and as such was subject to heavy parliamentary scrutiny. We are told that ERM2 will work on a hub-and-spoke basis. This contrasts with the current ERM which uses a "parity grid". I confess that I am not enough of an economist to appreciate the finer points of the differences between the two systems, but the proposed system is being imported by intergovernmental agreement rather than parliamentary sanction. Would my noble friend care to comment on this?
I have three very brief and easy questions for my noble friend. First, we are told that submitting convergence programmes will be compulsory even for the "outs". Can he say what penalties there will be if we are held not to have submitted them? Secondly, we are told that the Government will want to consider whether the Commission's proposals on the stability pact on budgetary discipline in Stage 3 are fully consistent with the principle of subsidiarity. Does my noble friend accept that that would be a waste of time because subsidiarity has proved to be the sham that some of us forecast at the time of our Maastricht debates? If my noble friend can correct me on that I shall be much encouraged. My third and final question is the simplest. If my noble friend believes that my right honourable friend the Chancellor has copper-bottomed guarantees against the fears that I have expressed, can he tell me whether the "Titanic" was copper-bottomed?
7.9 p.m.
Baroness Ramsay of Cartvale: My Lords, I rise with great diffidence to speak in this debate among so many distinguished and experienced voices on this subject. I do so because it is a subject about which I care, and have worked with in my Foreign Office career, and because I strongly believe that it is important for there to be as wide as possible a participation in this discussion, both in your Lordships' House and indeed out in the country at large.
When I said recently in my maiden speech that I sometimes despaired of hearing a sensible public discussion of important European issues in this country, I should have of course realised that a shining exception would be your Lordships' House.
I congratulate the Select Committee on the outstanding quality of its work and its reports—both Preparations for EMU, with which we are dealing today, and the previous, inextricably linked, report An EMU of Ins and Outs. The evidence, reasoning and conclusions are all admirably cogent and detailed, yet clear. Of course the issues involved in considering the preparation for EMU do require intellectual rigour and detailed analysis. They cannot be reduced to facile generalisations or sweeping judgments, but that should not mean that the basic issues should not be capable of being presented straightforwardly so that even non-economists can participate in the discussions. The committee has succeeded admirably in achieving that.
Because—here I find myself in agreement, I think, at least partially, with my noble friend Lord Bruce of Donington—it is all too easy to become bemused by the statistics and the equally frightening and offputting jargon involved in all this, "Ins" and "Outs" are easily grasped, but "pre-ins" as opposed to "opt-outs" and "first wavers" and "second wavers" and so forth, leave most people "not waving, but drowning". And yet it is vital that the importance of this decision for us all is understood, along with the immediacy of the already decided timetable.
The basis for understanding why we are all engaged in this enterprise at all, is the answer to the question often posed: "Why when it is causing so much trouble do we need to have a single currency at all—why not continue trading in our national currencies in a common market?". I cannot do better than quote the answer of the President of the Commission, Jacques Santer, in his speech to the European Parliament just over a month ago. He said:
"The single currency is of paramount importance for the Union. To round off the single market and secure a lasting stable basis for its competitiveness. To develop a monetary policy that is geared to the needs of the European economy. Finally to establish its place on the world financial markets".
I have been struck forcefully by a set of simple, straightforward figures. Europe creates one-third of the world's wealth. The USA creates only one-fifth, but its single currency (the dollar) is used as settlement currency in 40 per cent. of international transactions. That brings many advantages to American business, which a single currency could offer Europe and which individual European currencies could never hope to achieve. I am afraid that that includes sterling.

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I am not for a moment pretending that the issues involved in joining EMU are at all simple, and even less that the timetable can necessarily be judged congenial for us, but two sentences quoted in the excellent paragraph 28 (the main recommendations) in the Select Committee's report An EMU of Ins and Outs leap off the page at me. They are:
"The arguments about accession of the 1970s have no place in the 1990s. The current debate should be conducted in the language of progress not the rhetoric of the battlefield".
I could not agree more. We need a debate which is based upon the realities of today. Europe now is not the Europe of 1973. The whole Continent has changed fundamentally, as has the European Union and its relationships with the rest of the world. Concepts of Europe as a free trade area or even as a common market are out of date, although one could be forgiven for thinking otherwise from the way debates, even now, are conducted in this country.
There have been many eloquent speakers in the debate, who have already covered so many aspects of the subject that I think a positive contribution from me would be to make a much shorter speech than I might otherwise have done. I shall conclude therefore with one final thought. Unlike a former President of the United States, we should have no difficulties with the vision thing. Surely we can raise our eyes up from the minutiae of convergence criteria and see the goal of increased economic stability and prosperity for our own country and the European Union, and surely we can devote our skills and energies to the preparations for achieving that.
7.16 p.m.
Lord Fairfax of Cameron: My Lords, I compliment the noble Lord, Lord Barnett, and the committee on the report. In particular, I compliment the noble Lord on his clear summary of it. When speaking No. 19 in the debate, there is some danger, as my noble and learned friend Lord Howe said, of self-repetition. I shall try not to repeat myself, and I shall try to avoid repeating what other speakers have said. I agree strongly with the powerful and balanced speech of the noble Lord, Lord Owen. On an issue such as this, which causes so much polarisation, that was a nice balanced presentation. As I believe the noble Lord, Lord Peston, said, there is a need for balance in this debate.
I shall comment upon the speech of the noble Baroness, Lady Ramsay. I cannot resist picking up what I see as the tremendous irony of her quoting M. Santer on the justification for EMU. I see that she is not listening at the moment, but he has a small interest in this matter. So I hardly think that he is the most dispassionate person to comment upon the rationale for it.
However, like the noble Baroness, the greatest service I can do after such a long debate is to make my comments as concise as possible, and I shall try to do that. I turn first to an important point which has attracted some heat during the past week. I welcome the statement made by the Chancellor yesterday that there is no possibility of the canard that the stability pact sanctions could apply to those countries, such as the UK, that might opt out of Stage 3 of EMU. If history proves his assurances to be correct, I welcome them.
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My next comment is not particularly original, but I shall make it. I refer to the recent example of the working time directive which is of itself a controversial political issue. Ignoring that fact, it is hardly surprising that the people of this country have little or, in some cases, no faith in the equity of some of the decisions emanating from the institutions of the EU. If the Chancellor has obtained, as he said yesterday, an assurance on the face of the documents, then that at least is to be welcomed.
I shall make some comments directed more to this side of the House. I echo the comment of the noble Lord, Lord Owen, that there has been too much of saying one thing but doing another in relation to the European Union. There is too much code. In terms of the debate in this country, there is a need for more openness and honesty with the people. I am happy to say that several years ago I voted against the Government in favour of a referendum on the Maastricht Treaty. The suppression of debate and moves against a referendum have been repeated time and again. In the past couple of weeks considerable heat has been generated for similar reasons. I ask for more government openness on these issues.
We are talking about honesty, and I wish to compliment the noble Lord, Lord Hooson, on his honesty today. The noble Lord said that we are talking about a political and not an economic agenda as regards the EMU. The Government owe it to the people of this country to be a little more honest in their pronunciations in that regard.
Secondly, it is not comprehensible to the electorate that the Government apparently do not have an opinion on the EMU at this stage of the debate. During the debate on the Maastricht Treaty, and in relation to the development of the European Union institutions, my noble friend Lord Skidelsky took the analogy of the construction of a house and said that one blinks and it is built; it creeps up day by day. My noble friend Lord Pearson referred to some of the history and I shall not repeat that. The development from the original Coal and Steel Community, which originally started after the war, to where we are today is inexorable. We have reached the stage where the edifice is almost constructed and the electorate will find it unacceptable that the Government do not have a view on the issue. I refer in particular to the fact that in the past couple of days the Government should rule out going into the first wave of the EMU.
Finally—and the point is directed to the Government—the electorate and potential Conservative voters in particular will not understand that the tail—namely, a minority in the Cabinet and in the Conservative parliamentary party—should be seen to be wagging the dog as regards this issue.
Lord Pearson of Rannoch: Hear, hear!
Lord Fairfax of Cameron: My Lords, I am grateful. As has been said by the commentators, no wonder the party opposite looks so happy. This is one issue in respect of which clear blue water could have been put between the parties. I understand that Sir James Goldsmith has rightly used the issue as a justification

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for creating the apparatus of the Referendum Party and putting a question to the people. At present there is nothing to choose between the parties. At least the Liberal Democrats are open and honest in their point of view.
There has been so much fudging. Of course, the party opposite is as divided as the party on this side of the House. It is unacceptable that the tail should wag the dog in this way. I fear that it is no way for a Government seeking re-election to behave.
7.25 p.m.
The Earl of Longford: My Lords, the noble Lord, Lord Fairfax, made an interesting speech. I read the Sun every morning and I would expect him to receive a very good reception in that newspaper. With any luck, he might even be on the front page. I believe that the noble Lord has a big future in the tabloid press. I suppose that his support for Sir James Goldsmith is what one might have expected from an extreme Euro-sceptic. Is that the right word? Someone disclaimed the title "Euro-sceptic"; but the noble Lord could be called a Euro-sceptic without offence—
Lord Fairfax of Cameron: My Lords, in answer to that question, I wish to make it plain that I travel widely on business and spend about three months of the year abroad. I consider myself to be an internationalist. To the extent that the description "Euro-sceptic" is pejorative, I would disclaim it. But, as was said by the noble Lord, Lord Owen, when asked whether one is in favour of Europe, one could ask what exactly is meant by Europe. I would answer the question in that way.
The Earl of Longford: My Lords, I believe that "Euro-sceptic" is a fair description of the noble Lord, and of Sir James Goldsmith almost equally fair. However, it is a free country and anyone can talk any kind of nonsense. I have done it in this House for 50 years so I do not see why the noble Lord should not carry on along the same lines.
For many years I have been what might be called a convinced but moderate pro-European. In 1948, I arranged for Dr. Adenauer to take part in a conference in The Haig. In those days such permission was not given automatically to a German leader. Dr. Adenauer met Winston Churchill. Afterwards I asked him how he got on with Winston. He said, "I knew that Winston Churchill had said that Germans are either at your throat or at your feet". During the hour of my country's humiliation, I was not going to humiliate myself by pressing myself on him. Winston Churchill came across and embraced him warmly, so all was well. Therefore, I have been involved with a friendly attitude towards Europe for many years.
As time went on the issue became more alive. In 1950 I was Minister for Civil Aviation and I called on Dr. Adenauer again. He misunderstood my importance. He begged me to beg the Labour leaders to join the coal and steel pact which was then being drawn. When I came back with that message it was brushed aside. Important documents from the Treasury renounced the
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attempt to join Europe as tying ourselves to a corpse. That was in 1950, but the corpse has shown a few signs of life since then. No one disputes that today the standard of life in Germany and France is a good deal higher than it is in this country. I do not wish to make a party point but, after all, our Tory friends have been in power for most of the time. Let us realise that things have moved on a little since we missed the bus in 1950.
We come to the present time and I back my noble friend Lord Peston. I am so out of touch with economic thought that I am a slavish follower of my noble friend in any matters economic. I am also out of touch with the City. For eight years I was chairman of a bank, but I would slavishly follow my noble friend Lord Chandos in matters of the City. However, in the last resort, one must offer a few thoughts of one's own.
My attitude is the same as that expressed by my noble friend Lord Peston on behalf of the party—and I understand that it is also the official attitude of the Government—namely, that we shall become involved in a single currency if it suits our interest at the time. I agree with that and would hardly have ventured to take up your Lordships' time if there were not one particular point that I wished to make with strong conviction. Every Labour Government since 1929 has been bedeviled by a run on the pound, actual or potential. I shall come to our Tory friends—and I seem to be in a very amicable mood tonight—in a few moments. They have had their own troubles. But I am dealing with the Labour Party.
Every school child knows about the bankers ramp of 1931, and I shall come onto the post-war period. The crises of 1937 and 1949 left their mark on two very gifted Chancellors of the Exchequer—Hugh Dalton and Stafford Cripps. In a way, neither ever recovered. Hugh Dalton collapsed in health and became involved in a minor indiscretion which certainly would not have occurred if there had not been that crisis some time earlier. Stafford Cripps, the most honourable of men, was led into what can only be called an economy of the truth in regard to the intention to devalue. He died soon after.
I was a humble member of the Labour Cabinet of 1964 and I remember very clearly our first meeting. The decision had been taken three days earlier by the leaders of the Cabinet not to devalue but at the end of the first Cabinet meeting, I do not think that I am giving away a secret if I say that we were told that the pound had had a good day. Throughout the whole of that government, we were haunted by that wretched thing—the pound. The right policies, and even the policies which pleased the country, were in the end always affected by what the money men would do with the pound. That was the situation with that Labour Government.
The noble Lord, Lord Healey, would tell us about the troubles in 1976 and Tory leaders will recall very painfully what happened to them soon after they came into power in 1992. I think that most people would agree that the credit of the Tory Government never really recovered from the troubles which overtook them on that front.

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There it is. That is a permanent danger overhanging this country. It is not easy to find an answer. We want the City to succeed. It is a great national asset and we do not want to shut down the whole place or to make it a fortress. We must have free movement of money. How is that to be secured? It is very difficult, as government after government have discovered.
That brings me to my central contention. I am placing before the House a very strong submission that the only way in which we shall ever avoid those destructive runs on the pound, which has destroyed government after government, is a single currency. There will not be runs on the pound under a single currency. That is a very strong argument in favour. I do not say that that is the only argument or that it out balances all other arguments; but if all the other arguments are balanced, then that argument should be decisive.
7.32 p.m.
Lord Taverne: My Lords, I start by adding my congratulations to the noble Lord, Lord Barnett, and his committee on their excellent report and, indeed, their earlier excellent report An EMU of "Ins" and "Outs". Unfortunately, I was not able to be present when that was debated; but in my view, that was a very good report.
I was planning to say something about the stability pact, but having listened to the very impressive speech of the noble Lord, Lord Grenfell, there is nothing more to be said. The noble Lord, Lord Grenfell, and the noble Lord, Lord Roll, have said it all. Therefore, that saves quite a bit of time.
There are two main points on which I wish to concentrate. The first is the question of timing. There have been different moods about the starting date of 1999. At one stage it was the fashion to say that the date was quite impossible. At other stages, it was the fashion to say that EMIJ in 1999 was absolutely inevitable. Throughout, I have always felt that there was always a very strong probability that it would happen in 1999; that there would be a core of member states which would then start monetary union.
On balance, I still believe that it is likely to happen but I must confess that I am now not as sure as I was. I very much agree with the article by Ian Davidson in the Financial Times today—he always seems to me to show very considerable insight when he writes about Europe—that the French lorry drivers' strike was a very dangerous development indeed. It is likely that at some stage in the future, further cuts have to be imposed by the French Government. After the lorry drivers' strike, it is extremely likely that there will be widespread social unrest to resist those cuts. Indeed, the social unrest may frustrate those cuts. The effect of that and the impact which further strikes may have on growth could play havoc with the French Government's plans to cut down their deficit within the limits imposed by the Maastricht Treaty.
Indeed, there may be some doubts too about the future of the German deficit. Forecasts of growth are always very difficult to make. They could easily be wrong in a year's time by 1 to 2 per cent., and that order of
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difference to the German growth rate, if growth is 1 to 2 per cent. below the forecasts of the government, would have a very serious effect on the German deficit. If one were to find in a year's time that either Germany or France had a deficit which was, for example, 3.5 per cent. of GDP and rising, that would be quite different from a deficit of just over 3 per cent. and falling.
Therefore, while I still believe that the likelihood is that a core group will start monetary union on 1st January 1999, we should be wise to start thinking about what we should do if EMU had to be postponed, because delay would be extremely serious and if one were in favour of monetary union, one would have to think about limiting the damage.
The best suggestion that I have heard was the one made by my noble friend Lord Dahrendorf that one should stick to the date of 2002 for the introduction of the euro but consider postponing for a year, or possibly 18 months, the locking of exchange rates.
However, the main point that I wish to make is that it is no good merely repeating like a mantra, "Yes, it will happen, it will happen; it will happen", when there must be some possibility that it will not happen or at least that it will have to be postponed.
The second point that I wish to make follows the speech of the noble Lord, Lord Haslam. The Government would be very wise to listen to the warnings which he gave in his speech. I believe that the case for monetary union is on balance a good one. There are definite risks but it seems to me that the benefit outweighs the risks. I quite agree with the noble Lord, Lord Owen, that it is quite possible for people to be pro European Union and yet to have doubts about, or to be against, monetary union itself. However, it does not help the case of those who wish to present a balanced view to misrepresent the case in favour.
I do not believe that the noble Lord, Lord Owen, was right to argue that the champions of monetary union are those committed to a federal Europe and, indeed to a country called Europe. He was quite rightly taken to task by my noble friend Lord Wallace of Saltaire and the noble Lord, Lord Grenfell, because that is a complete misrepresentation of opinion on the Continent. One does not find that feeling in France in any quarter of which I am aware.
But while it seems to me that the case in favour of joining a monetary union is on balance a case in favour, it seems to me also that the case against rejection of monetary union, if it is started, is enormously powerful. That is particularly true because of the position in which we now find ourselves in this country. We have a number of very important objectives to be obtained inside the European Union: we want to achieve enlargement; we want to achieve the completion of the single market, which is by no means complete; we want to ensure that Europe is a centre of free trade and that there is no growth of protectionism, and there are several forces in Europe which work towards protectionism; we wish to see an end of state subsidies which lead to unfair competition; we wish to see wider liberalisation; we

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wish to see a further reform of the agricultural policy; and we want to see the right developments in the future negotiations about the budget.
So we have many important objectives to achieve inside the European Union. Yet at the same time the Government boast of the fact that we are completely isolated in Europe. At the moment we have no friends left in the European Community. It is no way to win friends constantly to threaten the use of the veto, and to do so in a rather petty way. It is not as if the Prime Minister is a de Gaulle. The Prime Minister may have certain good qualities; but he certainly does not have the vision of a de Gaulle, or the personality of a de Gaulle, or the consistency of a de Gaulle. One has only to look at the disaster of the policy of non-co-operation over BSE. One has only to look at the way in which the Government are threatening to veto the whole of the intergovernmental conference, if we do not get our way regarding the 48 hours directive, which we did not vote against in the first place. It is a most extraordinary way to pursue our interests in Europe, which must depend on the building up of alliances. How can we possibly hope to achieve our objectives unless we have friends?
The reason for this extraordinary way of conducting foreign policy is not that there has been a careful evaluation of our interests; it is simply appeasement of those on the Conservative right who seem to suffer from, in Nico Henderson's phrase, a form of "Euro-scepticaemia". The Government have succeeded in creating an atmosphere in which the other countries in the European Union would now rather that we left. Let us suppose we qualify, and we then say no in this present atmosphere. We would not be like the other countries, such as Spain, or possibly Italy, which may or may not join because it was felt that they did not qualify. Let us suppose that we qualify, and then say no. We would be a ship in the convoy which has been holding others back in the past but is now determined to head off in a different direction. The rest would want to see that ship go. We would find ourselves in a position where we would be bitterly at odds with the other nations in Europe, and we would not be in a strong position to bargain.
Let us suppose there is a core Union in 1999. Evidence was given to the committee on its inquiry on "Ins" and "Outs" by Mr. Christopher Taylor and Mr. Arrowsmith. Let us assume for the moment that those who joined would be Germany, France, Austria, Luxembourg and the Netherlands, plus Belgium, Finland, Ireland and Denmark. Let us assume—which one by no means can do—that Spain and Italy are not part of the core. Therefore there would be nine participants and six non-participants. Italy, Portugal, Spain, Sweden, the United Kingdom, and Greece do not qualify or do not wish to join.
The nine participants would not only account for half the population of the Community, but also two-thirds of the Community's gross domestic product. I quote from the report:
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"Not only would the nine participants also account for about two thirds of the Community's total trade, they would be much less trade-dependent on the six non-participants than the six would be on the nine; 42 per cent. of the trade of the nine takes place between themselves while only 24 per cent. of their trade is with the six; conversely, only 16 per cent. of the trade of the six takes place between themselves, whereas 45 per cent. of their trade is with the nine".
There is no doubt that the bargaining power would be very much in the hands of the "ins" and not of the "outs". In an atmosphere of bitterness one would find that devaluation—which might be forced upon us—would be seen as unfair competition. Our banks are likely to be excluded from Target. Many issues would arise under the Investment Services directive where it would be easy to carry out what we would regard as discrimination, and they would regard as simply looking after their interests. Exactly the same is true under the Capital Adequacy directive. Liberalisation would be set back. Causes we would champion would not necessarily appeal to the others, and the fact that we championed them might be seen as the kiss of death. We have already seen that to some extent with the pension fund directive, which was very much in our interest as originally drafted, and which finally had to be withdrawn by the Commission—that was an important move to us—because it was given a twist which would have been against our interests.
Therefore there would be more and more acrimonious meetings of the Council of Ministers, and public opinion whipped up by a xenophobic press would turn more and more sour. If one starts to think about it, there is a real danger that we would find ourselves losing the benefits of a single market, and we might find ourselves eventually out of the European Union. It would be different if we were to say, "We shall join but not yet. We are very much in favour of joining in principle but at this particular time we cannot do so". If we were part of a government who were constructive in their approach to Europe that would be a different matter. We would then find ourselves very much in the same position as the "pre-ins" as they are sometimes called—the others who wish to join but do not yet qualify. That would be quite a different story. But if the background is the present attitude of the Government to the intergovernmental conference, which they are threatening to veto; our present attitude to the ERM, on which several noble Lords have spoken; our present attitude towards the European Court of Justice; and our constant abuse of the Commission; the danger I have mentioned would be very real.
It seems, unfortunately, that there are only two voices of sanity in the Government: those of the Chancellor of the Exchequer and the Deputy Prime Minister—and perhaps one might add—although it has not been publicly heard—the Secretary of State for the Environment. The least we can do is to express strong support for the Chancellor of the Exchequer in his firm stand. Long may he prosper in seeking to promote a constructive approach within a Cabinet that seems oblivious to our real interests in Europe.
7.47 p.m.
Viscount Chandos: My Lords, after a long and interesting debate I thank my noble friend Lord Barnett for his introduction of today's debate and for his clear and measured summary of the report on the preparations for economic and monetary union.
My noble friend Lord Peston suggested from these Benches in his opening remarks that his speech would be inordinately long. I believe that your Lordships will agree with me that it was not a moment too long. However, as the time is now quite late, and my noble friend has stated so effectively the views of those on these Benches, I shall attempt briefly to knit together a few themes of the debate.
I believe that the debate can be broken down into three topics. Noble Lords have addressed their remarks to different mixes of those points. First, there is the fundamental question of the prospective net benefits of economic and monetary union, as and when it is achieved. This broader question is, of course, the subject of the Select Committee's earlier report, An EMU of `Ins' and 'Outs', to which my noble friend Lord Barnett and other noble Lords understandably referred. Some noble Lords, including the noble Lords, Lord Tebbit, Lord Pearson and Lord Fairfax of Cameron, have argued that these benefits would not be significant, or even that they would be negative. I do not believe that that is the case. I am heartened by the large majority of noble Lords today who seem to feel the same way. Shortly I shall advance my arguments as to why this is the case, where I feel that I can add anything to what other noble Lords have said.
The second topic is strictly the narrow subject of today's debate; namely, the preparations for economic and monetary union, which is the subject of the latest report by Sub-Committee A of the Select Committee. It was inevitable, and in my view correct, that today's debate should see its scope enlarged beyond this narrow topic as attitudes towards the preparations for EMU can only be considered in the context of where one wants to end up, as my noble friend Lord Peston again argued cogently.
It is clear that in the case of a number of noble Lords and others outside this House—those who may represent the bad company into which the noble Lord, Lord Owen, fears he will be thought to have fallen—their response to the issue of preparations for EMU is essentially part of the continuing campaign to resist the UK's membership of EMU or the establishment of EMU even without the UK's participation.
However, for the majority of your Lordships and, I believe, the country at large, the debate on preparation for EMU, the work of your Lordships' Select Committee, and the efforts of the Chancellor of the Exchequer—which, like my noble friend Lord Peston I generally support and applaud in this respect—are intended to maximise the chances that EMU will be established successfully and that it will in the end prove to be in the interests of the UK to join but to ensure that if EMU is established and the UK does not choose to opt in our interests and those of other "outs" are as well protected as possible.
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The third theme—although related to the question of preparations for EMU it is nonetheless distinct—is that of tactics. By that I do not mean the tactics of how the Government keep their unruly factions in order but the tactics needed to achieve and exploit the strongest possible negotiating position with our European partners over the establishment of EMU; and hence, in the longer term, to return the UK to the centre of the development of the European Union. That is an objective in particular which sorts the constructively critical sheep from the determinedly destructive goats. I hope that my long friendship with the noble Lord, Lord Owen, will therefore survive my inclusion of him in the former category.
Like my noble friends Lord Peston, Lord Barnett and Lord Haskel, the noble and learned Lord, Lord Howe of Aberavon, and others, including the noble Lord, Lord Taverne, I believe that the arguments for eventual participation by the UK in EMU, if a little more than finely balanced, are nonetheless the aggregation of a number of benefits with comparable but currently lesser drawbacks. Just as the public sector borrowing requirement is the difference between two very large numbers, the case for EMU is a delicate balance between two substantial weights.
We have heard a range of opinions but, as I have said, I, and I suspect the Minister, will be encouraged that a marked balance of today's speakers symbolises the current balance of arguments for EMU participation. As my noble friend Lord Peston said, we should be wary of overstatement and simplification of the argument by both sides. For instance, I read the following passage from the speech to the CBI conference in October by Sir John Hoskyns, a former adviser to the noble Baroness, Lady Thatcher, and currently chairman of Burton Group and EMAP. He said:
"We are … told that a Single Currency would save on transaction costs. But the best estimate for a developed economy is a one-time saving of about one-tenth of one per cent. of GDP. I have never heard transaction costs ever mentioned at a board meeting".
I know that on at least one of his boards Sir John may have been hearing too much guerrilla gunfire to catch anything else. But I know that many companies' boards are constantly concerned with currency instability, unnecessarily high and volatile interest rates and other frictional costs incurred as a result of the exchange rate regime in which we now live.
He also grossly underestimates the potential one-off benefits of eliminating intra-European foreign exchange transactions, with eminently cautious and independent economists estimating those at up to 15 times Sir John's alleged best estimates. As evidence for this, there was by chance an article in today's Financial Times about the preparation of major European banks for EMU and the systems and other costs likely to be incurred—running a little counter to the impression left on the noble Lord, Lord St. John of Bletso, from his ringing around the London financial institutions. The article included the following paragraph:
"Revenue losses, on the other hand, now look likely to be much greater than initially expected. Emu will wipe out foreign exchange trading between member currencies, taking a huge slice out of revenues for some continental banks".

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One bank's lost foreign exchange profit is a customer's cost saving. If only intuitively there must be very significant savings, direct and indirect, from EMU, if that can be achieved prudently, for companies and individuals alike. I wholeheartedly commend to the noble Lord the Minister the comment of my noble friend Lord Haskel, that a systematic campaign of information for businesses is already overdue.
However, there are clear potential drawbacks, as we have acknowledged. The European Union's workings and the Commission's budget do not necessarily accommodate the sort of fiscal transfers that would be essential for the long term success of EMU, in particular in the context of constrained labour mobility which realistically we must assure will persist for the foreseeable future.
The institutions of the European Union, even if younger than the British constitution, have nonetheless grown over 40 years in a far from ideal way—in many cases from a less than perfect starting point. I commend to the Minister the remarks of my noble friend Lord Peston about the need to ensure the democratic accountability of the future European central bank. I hope that the noble Lord, Lord Tebbit, will take that at least as a sign that on these Benches the last thing we want to do is to remove the ultimate powers of decision making from the British people.
The big question of course is the one raised by the noble Lord, Lord Owen. Can substantial convergence, such as would allow a stable single currency and long-lasting EMU, be achieved within a union of nation states rather than a single European state? While that is obviously linked to the extent of the fiscal transfers and to the labour mobility to which I previously referred, and is even then arguably the most difficult of a host of difficult questions, I believe that on balance it can be, particularly in the context of the ever-increasing constraints applying to independent economic action by even the largest countries in the European Union as the markets continue their relentless globalisation.
The issues relating directly to the preparations for EMU—the stability pact, reinforced convergence, the legal framework for the use of the euro and ERM2— have all been fully discussed today and I have little to add. However, I, too, am puzzled by the interpretation of the Maastricht Treaty that says that compliance with a more lenient and flexible ERM is not bound by a treaty obligation to be a member of a more rigorous ERM. It may be straining at a gnat, but it certainly strains my powers of understanding. Perhaps it was an even better decision of mine not to follow a family tradition of following the law.
I should like to say a few words about negotiating tactics which are of paramount importance in preserving the value of the UK's opt-out and in protecting our self interest. Our European partners should have no doubt that we are committed to assisting in the creation of EMU if at all possible and to our own entry if we believe that, objectively, it is in the best interests of the country. The noble and learned Lord, Lord Howe of Aberavon, is justifiably regarded as the leading expert
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on the difficulties of giving this sort of impression when, from above and below, support for that line is somewhat erratic. His comments today about the Chancellor's difficulties in this area should be carefully noted.
I have suggested previously that President Teddy Roosevelt's advice to "talk softly and carry a big stick" can be well applied to European negotiations. We should not, on the other hand, regard the vigorous pursuit by other countries in these negotiations of their own self-interest as evidence of their aggressive, barbaric or bellicose national temperament; rather as an example of the determination needed—often subtly applied—to create a European Union or an EMU which best serves each country's interests.
I do not believe that the comments of the noble Lord, Lord Owen, displayed the nationalistic arrogance imputed to him by the noble Lord, Lord Wallace of Saltaire, and I am sorry that the noble Lord chose to revive long past disputes. When I look at where a number of noble Lords, including myself, now sit, I wonder whether the reforms by the noble Lord, Lord Tebbit, of labour market mobility can explain the wide diaspora of former allies.
Lord Tebbit: My Lords, I cannot answer that question for the noble Viscount; however, I can assure him that, but for my labour law reforms, Mr. Blair would not be leader of the Labour Party.
Viscount Chandos: My Lords, I thank the noble Lord for his contribution on that front as well. I am sure that he looks forward to the consequences of that next May.
Like other noble Lords I was pleased to hear the unequivocal commitment by the Prime Minister and the Deputy Prime Minister not to rule out joining EMU in the course of the next Parliament. However confident (but not over-confident) we on these Benches may be about the composition of the government by the middle of next year, it would still be damaging to the country's interests for this Government, in the interim, to have taken such a position. It is the national interest that determines our pleasure at this announcement, not, as the noble Lord, Lord Fairfax of Cameron, suggested, any view of party advantage.
I cannot, however, resist asking the noble Lord the Minister a question which he may feel he should refer to his right honourable friend Dr. Mawhinney. Will the Conservative Party allow candidates to stand at the next election with a commitment in their election addresses to oppose the UK joining EMU in the lifetime of the next Parliament? I do not expect the Minister to be able to answer that question this evening, but I am sure he can imagine how much I should enjoy receiving in due course his written reply.
In the meantime, I conclude by noting with approval the Motion tabled by my noble friend Lord Barnett and by looking forward to the continuing vigorous, critical and constructive exploration of the prospects for EMU by this Government and the next.
Lord Beloff: My Lords, before the noble Viscount sits down, perhaps I may ask him a question. I was very

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interested in his idea that there should be some political control of the proposed European central bank. Has he discussed that idea with Herr Tietmeyer?
Viscount Chandos: My Lords, I have not had the pleasure of doing so. However, I hope that colleagues of mine will be doing so in the course of next year.
8.11 p.m.
Lord Mackay of Ardbrecknish: My Lords, as always on these occasions we have had a most interesting debate with many excellent and well-informed speeches. I can only re-echo the remark of the noble Baroness, Lady Ramsay of Cartvale, who is a newcomer to these debates. She said that she excluded your Lordships from her accusation in her maiden speech that the debate on European issues in the country was not very well-informed.
That certainly cannot be said of the discussions in this House, which also encompass a whole range of views on European issues. We had, as I suppose I must call us, the usual suspects taking part. We almost know what each one of us will say before we stand up. Perhaps that might encourage us to make shorter speeches. I apologise as I do not suppose that mine will be too short since I must answer a fair number of very serious points, including the report of the committee chaired by the noble Lord, Lord Barnett. The usual suspects are the noble Lord, Lord Barnett, my noble and learned friend Lord Howe, my noble friend Lord Tebbit, and the noble Lord, Lord Peston. It was good to hear in an economic debate a positive and thoughtful speech containing actual proposals emanating from the Front Benches of the party opposite.
We also had some additions, some newcomers, to the usual list of suspects. The most interesting speech in that category—indeed perhaps in any—was that of the noble Lord, Lord Owen. He made a very telling point. He said that you can be keen on Europe and on the idea of a single market and a united Europe, and yet not be keen on the idea of a single currency. Like the noble Viscount, Lord Chandos, I thought it a pity that the noble Lord, Lord Wallace of Saltaire, was rather uncharitable in his comments on the noble Lord's speech, harking back perhaps to previous battles on other issues.
The portrayal by the noble Lord, Lord Wallace, of the English as saying, "We are right and you on the Continent are always wrong", is just what irritates me most about the Euro-fanatics. Sometimes when I come to these debates I listen to the Euro-fanatics and I become a Europhobe; then I listen to the Europhobesas my noble friend Lord Tebbit will be unhappy to hear—and I do not quite become a Euro-fanatic again but I move back to the position, as I have said a number of times at this Dispatch Box, that the European Union is a very important part of our economic and political make-up and we absolutely have to be there, whether or not we are in an EMU and whether or not an EMU comes about. I did think that the noble Lord, Lord Wallace, was uncharitable. However, I was pleased to hear his complaint that the English seem to take the view that they are always right. As the noble Baroness,
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Lady Ramsay of Cartvale, and I know full well, that is not the case—but it may well be the case that the Scots are always right.
The Liberal Democrat position which came through in the three speeches made from those Benches, by the noble Lords, Lord Hooson, Lord Taverne and Lord Wallace, was almost that if the continentals say something then they must inevitably be right and we should jolly well just bow down to them. As I have said before to the noble Lord, Lord Jenkins of Hillhead, it is that kind of attitude which I am afraid is turning an unfortunate number of the British public against the European ideal. Those who are in favour of our continued membership of the Community have to be careful about the language that they use. Indeed, I commend to noble Lords on the Liberal Democrat Benches the speech of their noble friend Lord Dahrendorf in the debate that we had on this subject in July. I thought it a very interesting and thoughtful speech. It certainly gave me cause for concern when I heard the issues that he raised from the position of influence that he once held inside the Commission.
We heard those who were fanatically pro-European; and we heard those who are against. The noble Lord, Lord Bruce of Donington, spoke of discipline. I wonder mildly—especially perhaps in answer to the question put by the noble Viscount, Lord Chandos—what Dr. Mawhinney might do in relation to different candidates in the Conservative Party taking different views on this issue. As I think everybody knows, there will be Conservative candidates standing at the next election who will take different views on some of these important issues. That is what a democratic party is about. It is not like the Labour Party, where I understand there is now more than a proposal—indeed there is a Tony Blair red card system of discipline. I wonder whether it will be extended to the Benches opposite. If it is, I shall be very worried for the future of the noble Lord, Lord Bruce of Donington. Perhaps he may have to find somewhere else in the House to sit.
I shall not refer to every speech. That would take too long. Also, many noble Lords reiterated in different ways a number of the same issues arising from the committee's report. I shall merely say to the noble Earl, Lord Longford, to the noble Lord, Lord Roll of Ipsden, and to my noble friend Lord Beloff that I always admire those speakers who stand up and speak without notes. All three noble Lords made interesting and stimulating contributions. I found the discussion of my noble friend Lord Beloff about American history very interesting. I know that many people think it easy to compare Europe with America, but I have never felt it was a sensible comparison. With far greater expertise than I, my noble friend Lord Beloff explained clearly why we should not make too ready comparisons.
I say to the noble Lord, Lord Roll, that I can remember the days when the Government's line on joining the ERM was that we would do so "when the time was ripe", or a similar phrase. I also remember all the great and the good who wanted us to join. They never made any qualifications about the level at which we should join; it was "You join" and, like 1066 And All That, it would be a Good Thing.

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Perhaps I may take my noble friend Lord Haslam up on the point about competitiveness. One of the problems which concerns the Government and which I have expressed from this Dispatch Box on a number of occasions is that the European Union does not seem to be worried about competitiveness. That is why most of the members have unemployment figures markedly higher than ours and going in the wrong direction, while ours are going in the right direction. It is not just a matter of competitiveness inside the European Community but competitiveness in a wider world, including the Pacific Rim and the emergence of China in the first years of the next century.
Lord Haslam: My Lords, if I may intervene, I made the point that it was not a question of competitiveness but that we believe that we can have our cake and eat it. We wish to have all the benefits of the single market without being in the single currency. That would be the focal point, together with the fact that we have abandoned the ERM, we have opted out of the social contract and all that. We may believe that the average German industrialist will benignly see us, first, receive inward investment on that basis and, secondly, compete with us in the market on that basis, but he will clearly not. At the end of the day, it will be the source of the biggest confrontation we face. We cannot have our cake and eat it in this situation.
Lord Mackay of Ardbrecknish: My Lords, I do not wish to go into a long discussion with my noble friend on the point. The danger of the path he suggests we should take is that we should impose on ourselves the same social costs as the Germans, French and Italians have imposed on themselves. Then we may see some of the same unemployment problems that have been caused there. That worries me.
Lord Haslam: My Lords, we are getting into a debate, but the important point is that we should discuss the issues with them. We have a good record on the issues but we have no voice with the other countries; we are so confrontational with them that we cannot persuade them of what we should do. It is our strength that we have a good record and should try to instill it into them, but their receiving mechanism is switched off.
Lord Mackay of Ardbrecknish: My Lords, I hope that it is not switched off. Recent comments which I have read by leaders of German business suggest that they know well that what we say in regard to costs is correct. I should have thought that BMW's investment in this country and the coming of Siemens to the north east is an indication that some German businessmen are voting with their feet.
Perhaps we may leave that for the moment and return to the Select Committee's report. First, perhaps I may say to the committee on behalf of my right honourable friend the Chancellor that we are sorry that the Chancellor's reply was only received today. He attended the Council of Finance Ministers on Monday, the
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council went on much longer than was expected and we wished to give the committee the most up-to-date position. ECOFIN continued until late on Monday night. To add to complications, the Treasury was shut for most of yesterday with a fire. I apologise to the noble Lord, Lord Barnett, and his committee for the lateness of the letter from my right honourable friend the Chancellor.
Much of the discussion at ECOFIN was about defining "exceptional and temporary". There is little doubt about that and I hope that your Lordships will accept that in the circumstances I have described, with the meeting going on rather long and the fire in the Treasury, those "exceptional and temporary" conditions will excuse the delay in replying.
I turn to the committee's report. Yesterday, when I repeated the Chancellor's Statement, we stressed that EMU will affect the United Kingdom whether or not we choose to participate. It is therefore essential that we consider thoroughly the practical issues. They include the three latest proposals that are the subject of the second report of the committee: the stability pact, ERM2 and the legal framework for the euro. The report is a valuable contribution to the debate.
We firmly support the six propositions made previously by the committee, repeated in the report and by the noble Lord, Lord Barnett, in his speech. Specifically, we agree on the importance of sustainable convergence and budgetary discipline in all EU member states. We welcome the committee's emphasis on the importance of protecting one of the main benefits of EU membership for the UK, the single market. The Government share the committee's view that exchange rate stability is important in making the single market work and that sustainable convergence is the critical condition for exchange rate stability. Those propositions have underscored much of the Government's position towards the three proposals addressed by the committee and before your Lordships today.
On the stability pact, the Government welcome the committee's conclusions. They agree on the importance of budgetary discipline and sustainable convergence. The committee correctly identifies the conflict inherent in finding a level of fines which strikes the right balance between "effective deterrence and credibility". Its solution to this—to stress again the importance of countries not joining EMU until their economies have achieved sustainable convergence—is the right one. Whether or not the UK chooses to join a single currency, it is in our interest that EMU is a strong and sustainable currency union. The system of sanctions, including fines, should be set at a level to work as effective credible deterrents. Of course, the best deterrent is one that is never actually used.
Perhaps I may say to my noble friend Lord Tebbit in regard to the fines, there is a long procedure leading up to the fines. It is laid out in Article 104c. I shall not go through all the detail, but it is there, with a number of steps before we get to the end point of fines. So it is not a situation where all of a sudden we leap from a country reporting that it has excessive deficits to it being fined. There is a long procedure between the two events. The hope is that, as with every good deterrent, it will never

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need to be used. Undoubtedly, however, such is the importance of convergence that it would be foolish to have a system which did not have as its ultimate backstop some kind of deterrent effect.
The Statement made by my right honourable friend the Chancellor in another place and repeated here by myself has, I hope, helped to clarify what aspects of the stability pact and related convergence procedures will apply to the ins and outs respectively. It is, however, perhaps worth my while repeating the key points now.
The stability pact proposals relating to excessive deficits are based on Article 104c. If the UK opts out, it will be under no obligation to avoid excessive deficits. It will not be subject to sanctions or fines as a result of running deficits although, of course, the Government would want in any case to avoid excessive public borrowing. If we were to participate, the obligations and the possibility of sanctions would apply to us. But we would have a strong interest in ensuring that all participants in the euro behaved responsibly, to avoid forcing up interest rates in the single currency area as a whole.
Separately, the proposals presented to the committee contained an indication that there would be additional procedures under the article of the treaty concerning the broad economic guidelines—Article 103, which would apply to the outs. The broad economic guidelines already exist. The expected additional proposals will be procedural. They will require all member states to provide convergence programmes. That is, explanations of their economic policies.
We already do that voluntarily by bringing them to the House annually when we have a short debate. The only obligations that would be possible would be procedural ones to produce that programme. I wish to say to my noble friend Lord Pearson of Rannoch that Article 103, on which he questioned me, allows the Council to make procedural rules for multilateral surveillance. It is under that article that the Commission proposes that all member states should be required to submit stability or convergence programmes relating to the consistency between their economic policies and the broad economic guidelines. We are happy for member states to be required to submit convergence programmes. They already do it; we have done it over a number of years. I cannot recall whether my noble friend has taken part in some of our debates on the report, but we have had them, I have led them three times. Perhaps I may attempt to put my noble friend's mind at ease. If the Council finds that convergence programmes are failing to meet the broad economic guidelines, the worst that can happen is for it to make non-binding recommendations, that is, so far as the outs are concerned.
My noble friend also asked me—and now is the moment to answer the point—about Article 102a. That applies to the UK whether we are in or out. Common sense argues that all members of the single market should take account of the Community as a whole when running their economies. Single markets work better with a degree of co-ordination in certain economic policies, in particular sound public finance and low
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inflation. We want other member states to run their economies in those ways. It is good for our own economy. Your Lordships will recall that only last week I mentioned that 60 per cent. of our exports and imports are with the European Union. Therefore, it is absolutely important that the economy of the whole of Europe is run sensibly and in the best interests of each member state.
Perhaps I can say to my noble friend and to my noble friend Lord Tebbit that I do not see any prospect of a member state being taken to the European Court of Justice for failing to honour its obligations under that article, unless it were to do something deliberately to destabilise the single market and the Community as a whole. The circumstances in which the European Court would be asked to adjudicate are so extreme that I do not believe any sensible government, including any government of this country and certainly not a Conservative government, would place itself in a position in which they could be accused of trying to destabilise the single market.
Lord Tebbit: My Lords, perhaps I may interrupt my noble friend. I am very interested in what he just said. He accepted that there is a locus for the Court to intervene in some circumstances, which he describes as "extreme". Is he telling me that it is the view of the Government that the Court would have a locus to intervene and rule upon the conduct of a member state?
Lord Mackay of Ardbrecknish: My Lords, I am trying to give my noble friend a fairly straightforward answer and not attempting to pretend that in extremis there may not be a position where it is possible. But I do not think my noble friend ever envisages that we should get into that extreme position where we could be accused of wanting to destabilise the whole system. Perhaps my noble friend might want to destabilise the whole system but I do not believe that he would, because that would destabilise our economy as well. I know that there is nothing that my noble friend would want less than to destabilise our own economy. I hope that I have made that position clear.
Lord Pearson of Rannoch: My Lords, perhaps my noble friend will forgive me for interrupting. I fear that it will be claimed by some other member state or even by some major industry that we were acting in that way: perhaps we had opted out altogether; perhaps they felt that we had too much of an advantage. Because those clauses are not covered by opt-out, it could then go to the Court, about which some of us have the gravest doubts.
Lord Mackay of Ardbrecknish: My Lords, I shall reiterate what I said at the very beginning of my comments on Article 102a; namely, that I see no prospect of a member state being taken to the ECJ for failing to honour its obligations under that article. I shall leave my answer to my noble friend at that.
The Government support economic policy co-ordination and surveillance. They already receive recommendations about economic policy from other

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international bodies: the IMF and the OECD. I am happy to say that we usually receive reasonably benign advice from the IMF, unlike the party opposite who received rather telling advice from the IMF about 20 years ago or thereabouts. About 20 years ago this week, I think, the IMF were giving some instructions to the then Labour Government about what they should do.
Lord Bruce of Donington: My Lords, is the noble Lord aware that his reference to the Labour Government's relationship with the IMF during the period he mentioned is wholly inaccurate and has been proved to be wholly inaccurate on a number of occasions? In point of fact, the amount of the financial advances made to the United Kingdom in 1976 was repaid within a matter of months. The whole facility was unnecessary because an error was made by the Treasury to the tune of £4 billion in its estimate of the PSBR.
Lord Mackay of Ardbrecknish: The Labour Government may well have repaid the money, but initially they had to ask for it and initially to the IMF. My recollection is that the noble Lord, Lord Healey, had to make a hurried change in his plans and come back from the airport to deal with the matter. I just make the point that we do listen to the advice of bodies such as the IMF and the OECD.
Any recommendations from the Council of Ministers—I want to emphasise this—would be non-binding. That is clear from the treaty, not least under Article 189. My right honourable friend the Chancellor has also gained agreement that the report from ECOFIN to the European Council in Dublin will make the non-binding nature of any such recommendations explicit. I hope that that might be accepted by my noble friend Lord Pearson and others as a positive step to put what I think is described on the face of the papers as the British position.
I turn to the proposals for a new exchange rate mechanism—the ERM2. There is now full acceptance that ERM2, like the existing ERM, will be voluntary. It will be based on intergovernmental agreement, also like the existing arrangements. The Government agree with the committee that exchange rate stability is valuable for making the single market work well. They believe that the essential conditions for exchange rate stability are sound public finances and low inflation. On both those measures the UK has a good story to tell.
The Government have made clear that they have no intention of rejoining the present exchange rate mechanism or any similar arrangements. The committee is, however, concerned that prior membership of ERM or ERM2 might be needed to join the single currency. To that I would reply that the Government's view is that de facto exchange rate stability is more important than membership of a mechanism which has changed substantially since the treaty was written and which allows currencies to fluctuate within 15 per cent. bands rather than the original 21 per cent. bands. I urge your Lordships to
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look at Article 109j, to which our attention was drawn by my noble friend Lord Tebbit. Article 109j talks about:
"the achievement of a high degree of sustainable convergence".
Then it lists a number of items: a high degree of price stability; sustainable government financial position; and then:
"the observance of the normal fluctuation margins provided for by the Exchange Rate Mechanism".
The fact is, as I said yesterday, that when that was written the normal fluctuation margins were the narrow band, not the broad bands which we now see. Also, the overriding qualification is the original one at the beginning of the paragraph: the achievement of a high degree of sustainable convergence. I believe that it was the noble Lord, Lord St. John of Bletso, who pointed us in the direction of a quote from Ruairi Quinn, the Irish Finance Minister. It was in the evidence that Mr. Gus O'Donnell gave to the committee of the noble Lord, Lord Barnett. Mr. Quinn said:
"We are deliberately trying to ensure that a country that meets all of the convergence criteria would not be penalised by the formal and legal requirements of ERM membership".
Therefore, it seems too early to judge how the conditions for membership will be interpreted. The Council, meeting as heads of government, will not decide which member states qualify until 1998 at the earliest and all these issues will be taken into account. I should have thought that against the background of Mr. Quinn's remark, my noble friend can rest assured that if he then wishes us to join the euro, we shall not have had to be members of the ERM prior to making that decision and joining it.
On a related point, I note the committee's desire to be kept informed about decisions on ERM2. That is why the Chancellor wrote to the committee when he felt unable to provide the document written by the European Monetary Institute. Although the formal agreement on ERM2 will not be based on Community legislation, I can assure the noble Lord and his committee that they will be kept informed nonetheless.
I now turn to the legal framework for the euro, about which not much has been said. It is an important aspect, certainly in relation to the financial markets and the City. The proposal consists of two draft regulations—one under Article 235 of the treaty, the other under Article 1091(4). Negotiations on those have now progressed since the original proposal.
The Government are pleased that the committee recognises the importance of adopting some of this framework under Article 235. The Government have supported the use of that legal base and favoured the adoption of the regulation as soon as possible in the interests of giving markets greater legal certainty about the euro, especially concerning contract continuity and the rules for conversion and rounding. It also means that this legislation, which is of great importance to the United Kingdom's financial sector, will apply unambiguously within the United Kingdom whether or not we adopt the single currency.

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It is our view that the Article 1091(4) regulation cannot apply to the United Kingdom if we do not participate in the single currency. Paragraph 5 of the United Kingdom protocol would specifically disapply Article 1091(4) from the United Kingdom in those circumstances. My right honourable friend the Chancellor secured at ECOFIN this week amendments to the regulation that make clear that its application is subject to the United Kingdom protocol.
As to the substance, the Article 1091(4) regulation is now confined to the monetary law of the participating member states and to the detailed arrangements for the transitional period. As such, the regulation is relevant to the participating member states only. The key provisions on contract continuity which are necessary in all member states are now in the regulation under Article 235. I am happy to provide the committee with reassurance on that point.
I see that I have spoken for nearly half an hour; I could continue for some time longer but that may try the patience of your Lordships. To sum up, we believe that the United Kingdom is in a very enviable position on the single currency. That is thanks to the opt-out which the Prime Minister obtained at Maastricht. We now have a choice on whether or not to join the single currency. My understanding is that the party opposite—the noble Earl, Lord Russell, is not in his seat; he sometimes chides me about that phrase—the main party opposite now seems to believe that that is a perfectly sensible and welcome position in which to be.
The Government's decision will be taken on one basis only—that of the national interest of the United Kingdom. That decision will be taken only when we have a clearer view of the implications for Britain. Again, I think—I think—I welcome the opposition party, after a lot of huffing and puffing on this issue, to that point of view as well. We still cannot know which countries will meet the necessary conditions for joining the single currency, what degree of convergence will have been achieved by 1999 or what the economic circumstances will be. There are also some important decisions to make on the technical aspects of the introduction of the single currency. It would be a mistake to make a decision as important as this without the benefit of all the facts. As my noble friend Lord Beloff said at the end of his speech, we should take care. That is good advice from whatever point of view in the European debate one comes.
In the meantime, we will continue to play a full part with our European partners in the preparations that are necessary. It is essential that the United Kingdom's voice is heard in these discussions. EMU will affect this country whether or not we take part. If EMU goes ahead it is essential that it is based on firm foundations. If it were to fail, it would have disastrous consequences for the European Union and for the single market. Those arguments I feel—and hope when I read the debate again—received widespread support in your Lordships' House this afternoon. I welcome the report. It is a helpful and useful report. We look forward to many more discussions with the committee submitting more papers, keeping it busy for much longer, and also to
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taking part in debates in your Lordships' House about the reports, though perhaps we can all hope that they do not last quite as long as this one.
8.34 p.m.
Lord Barnett: My Lords, I thank the noble Lord—I usually refer to him as "the Minister" because I find it difficult to say his name—for his response. I agree with much of it, especially as I have already said it and particularly since I quoted the Chancellor's letter, of which I assume he has a copy. I am grateful to him.
After such a long debate I doubt whether many of my noble friends will want me to reply at length. It occurred to me that I could take an hour and a half but, as some of my noble friends wish to speak in the next debate, I shall try to avoid that.
We have had, in the main, an excellent and serious debate. Noble Lords who heard it will agree with what I said at the outset when I referred to the excellence of the noble Lords on my committee. They proved it in their speeches here today.
I hope I will be forgiven if I do not refer to every speech in the debate—I can see that I will be so forgiven. I am neither sorry nor disappointed that I did not convince the Euro-sceptics, on either side, whether they are smiling, or not smiling, of my argument. I know that the noble Lord, Lord Tebbit, likes to smile occasionally to make himself look nicer than he really is. Let me make it clear that I have always said he is a nice fellow, but he does not like to let anybody know that he is so nice. He may feel that it is an insult to be called a "nice fellow", but that is what he is. I am not surprised that I did not convince the Euro-scepticsindeed, I would have been surprised if I had done so—to change the view that they have held for a long time.
The idea that outside EMU or the European Union—in the words of the noble Lord, Lord Tebbit—we could manage our own economy is absolute nonsense. That point was made by the noble Lord, Lord Grenfell. We cannot ignore what is going on in the real world of Europe and elsewhere. We cannot manage our economy ignoring all of that. Sterling and our economy will be seriously affected whether we are in or out, and if we are out altogether we will have no say or influence in what is happening. That is why I hope noble Lords will accept that that point is a nonsense.
Lord Tebbit: My Lords, perhaps the noble Lord will allow me to intervene. As the noble Lord, Lord Barnett, complimented me—I hope it was a compliment—I should perhaps thank him. But what he said is simply not true. Of course our economy is affected by what goes on elsewhere in the world, in the same way as a ship is affected by wind, weather and tide. But that is not a reason for the captain of the ship leaving the bridge and handing the ship over to somebody else. That is the difference. That is what the noble Lord, Lord Barnett, is saying we should do.
Lord Barnett: My Lords, I hope noble Lords who heard that statement will accept that that is an even greater nonsense than what the noble Lord, Lord Tebbit,

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said earlier. Of course it is a nonsense. Our relationship with the European economy has nothing whatever to do with a captain running a ship. We are running our economy and can only do it in relation to those with whom we trade; that is, the world and particularly Europe where we sell 60 per cent. of our goods. I will be happy to take up the arguments of the noble Lord, Lord Tebbit, on many other occasions—I see he is smiling and does not want me to do that.
I must say this to the noble Lord, Lord Owen. First, I hope that he was not too embarrassed by those who agreed with him—I see him smiling so he was not too embarrassed. The noble Lord made it clear that he is not a Euro-sceptic; indeed, he said that in terms so I accept it. He said that it would be difficult to have economic and monetary union without convergence. Of course that is true. That is what I said. If we had economic and monetary union without convergence it would be a disaster. If the noble Lord and other Euro-sceptics do not want economic and monetary union or they want to see it destroyed, the easiest way to do so would be for it to start with member states whose economics were not converging. I hope that when he reflects on it, the noble Lord, Lord Owen, will recognise his mistake.
Secondly, the noble Lord talked about the model moving towards a single European state. He was taking up the point made by the noble Lord, Lord Beloff, who also thought, for that reason, that our report was irrelevant. However, my noble friend Lord Grenfell made an important point. He travels round Europe more than I and many noble Lords do. He has not found anyone who wants a single European state. That is not what we are arguing about. We are talking about having a sensible economic and monetary union with those member states whose economies converge sensibly and can be seen to be seriously and sustainably converging in the way I have described. I am happy that the noble Lord, Lord Owen, is happy that both major parties are to have a referendum. I am assuming that Sir James Goldsmith will not win the election and have a majority in the House. If we decide to go into economic and monetary union both major parties will have a referendum.
My noble friend Lord Peston said that he hoped we would retain membership of the European Union and stop sniping from the sidelines. I could not agree with him more about that. It is precisely because the present Government are doing that that we have less influence than we should have. My noble friend appeared to be an agnostic, not an atheist, on our joining an economic and monetary union. He said that he did not know whether he was in favour of EMU or not. If he wants to withdraw that, I shall be happy to allow him to intervene.
Lord Peston: My Lords, I must not have been listening to myself speaking. I am certainly in favour of joining EMU as long as the relevant conditions are met, which I take to be the position of what I might call all rational individuals.
Lord Barnett: My Lords, my noble friend will reread his speech tomorrow morning. I am glad to hear what
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he has just said. We should not have an economic and monetary union if there are not the appropriate circumstances and there is not sustained convergence among the member states which join. He also said something which brought a smile to the face of the noble Lord, Lord Tebbit. He said that the European Central Bank must be democratically controlled. The noble Lord, Lord Tebbit, smiled because he and the noble Lord, Lord Beloff, when it comes to matters relating to the European Union, literally do not believe anything they are told. He said that the opt-out is no guarantee. But if you do not trust the partners with whom you are entering into an agreement, you should not join. That is the point of both noble Lords. They do not want to join because they do not trust our partners. I trust some more than others, like I do in your Lordships' House—like I even do with my noble friend Lord Bruce of Donington. When it comes to European Union matters I trust him implicitly to say something with which I shall disagree.
The noble Lord, Lord Tebbit, expressed a fear about fiddles. I am beginning to feel that we talk so much about fiddles that my experience might mean that I should be on the vetting committee. I have a little experience in the area—not with wheezes, although I referred to that in my book, as the Minister said. As I indicated in my opening remarks, if member states are allowed to join without sustained convergence it will be a disaster. That is what my noble friend Lord Peston was talking about. I hope that the Council of Ministers will in due course allow in only those member states which have sustainable convergence.
As my noble friend Lord Grenfell said, we should not disparage countries coming in late. Not all 15 member states will come in at the outset. Some will come in later. I do not think it would be helpful for the UK to come in that late if we have met the terms.
I shall not refer to anyone else. I thank all noble Lords who have spoken. We have had excellent and serious speeches, even from those with whom I normally, usually, often and regularly disagree. I commend the Motion to the House.
On Question, Motion agreed to.

Dignity at Work Bill [H.L.]
8.45 p.m.
Lord Monkswell: My Lords, I beg to move that this Bill be now read a second time.
The Dignity at Work Bill is to counteract bullying at work. My aim in opening the debate is to explain the background to the Bill, the reasons for it, how it came to be formulated and to explain what it does and how it is envisaged it will work. But before I do that I would like to put on record the tribute we all owe to the late Andrea Adams, who was a key player in raising the public profile of the scourge of bullying at work.
The Bill is the workplace equivalent of the anti-stalking Bill which the Government are to bring in later this year. My involvement started earlier this year.

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My union, MSF, has been concerned for some time about bullying at work. I was prevailed upon to convene a meeting in the House of Lords on the subject and was amazed at the response. I arrived for the meeting to find all the seats taken and some people still standing. We had to bring in extra seats and I was lucky to commandeer one to enable me to chair the meeting.
At the meeting we had a wide range of people. We had victims of bullying at work, with some of the most harrowing tales you could ever hear. We had counsellors, people who are involved in helping to alleviate some of the psychological traumas that afflict the victims. We had people involved in training provision, providing services to victims, employees and employers on the subject of bullying at work and prevention strategies. We had academics in the field of psychology and social sciences with knowledge of the subject, and we had representatives of staff associations and trade unions with experience of the problem.
Out of that meeting was born the Campaign Against Bullying at Work and I have to declare a non-pecuniary interest as the chairman of the campaign. Here I would also like to pay tribute to Chris Ball, the voluntary sector secretary of MSF, and Roger Lyons, the General Secretary of MSF, for their support and assistance in the campaign.
From my experience with those involved in the campaign it would be very easy to provide a long catalogue of examples. However, I fear that even if I were to try to disguise the identity of those involved there are risks of intrusion by tabloid journalists into victims' lives which would do them no good. I shall, however, give the House one example of a man who worked successfully for 15 years and then experienced 18 months of workplace bullying and suffered a nervous breakdown. His name is Tim Field and I can quote his case because he has made a full recovery and is now involved in helping and counselling others who have suffered bullying at work.
From that example we can see that it can cause grave psychological damage to the individual. I would stress that it can result in a significant loss in company productivity, so employers also have a right to be concerned. It can also result in the inability of the victim to work and the need for medical treatment for the victim, both of which will result in a drain on the public purse, something I am sure will be of interest to the Government.
One of the questions your Lordships will no doubt ask is: what is the incidence of bullying at work? Anecdotal evidence suggests that it is fairly widespread and a growing problem. We also have the results of surveys. The University of Stafford surveyed more than 1,000 people, of whom 51 per cent. had experience of bullying at work. My own union, MSF, surveyed 396 workplace representatives covering 140,000 people: 30 per cent. said that bullying was a significant problem. Only last week the Institute of Personnel and Development published the results of a survey conducted by the Harris Research Centre of just over 1,000 workers in the United Kingdom. That reported that one in eight people have been bullied at work in the last five years. We
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also learned early on of the good work done by staff associations and unions, working with company management to develop policies and practices to combat bullying at work.
Here I could again quote examples of good practice negotiated by my own union, MSF, with employers. However, to avoid any charge of vested interest I will quote the example of the Yorkshire Independent Staff Association which, having had to deal with a case of bullying at work and following consultation with its members and negotiation with management, now has a formal company policy on harassment and bullying at work.
It also became apparent that these good practices needed statutory reinforcement and that parliamentary action is needed. I pay tribute to the union solicitors who have drafted this Dignity at Work Bill. It is born out of the twin experiences of the race and sex discrimination legislation and also out of the experience of lawyers and union officials in trying to get legal redress for employees who have suffered bullying at work. I would also like to thank the Clerks—the "civil servants"—of the House of Lords, who have also contributed to the Bill's current formulation.
I now turn to the Bill itself. Clause 1(1) confers the right to dignity at work on all employees. Clause 1(2) defines a breach of the right of dignity at work as any of the following: persistent or recurrent behaviour which is offensive, abusive or demeaning; verbal or physical intimidation; persistent or recurrent behaviour which is malicious or insulting; penal sanctions imposed without reasonable justification; or changes in duties or responsibilities to the employee's detriment and without reasonable justification.
Clause 2 confers protection on an employee if the employee brings proceedings under the Act or is involved with proceedings by way of giving evidence or is suspected of giving evidence. Clause 3 confers dignity at work rights to contract workers. Clause 4 enables complaints by employees about breaches of the Act to be presented to industrial tribunals. Clause 5 provides for an employer to have a defence against claims of breach of the right to dignity at work if the employer has a policy, and has implemented the policy as outlined in Schedule 1 of the Dignity at Work Bill, and has repudiated any acts complained of and taken all steps as are reasonably necessary to remedy any loss, damage or detriment suffered by the complainant. Clause 6 provides that an industrial tribunal shall, if the case is proved, require the respondent to pay compensation to the complainant and recommend that the respondent take action to obviate or reduce the adverse effect of any breach of the right to dignity at work. Clauses 7, 8 and 9 are supplementary and relate to interpretation, the Short Title and commencement, which shall be two months after the Bill is passed. Schedule 1 details arrangements for the dignity at work policy, and Schedule 2 details the consequential amendments to the Employment Rights Act 1996 and the Industrial Tribunal Act 1996.
The object of the Bill is to enshrine good practice in law. The aim is to try to prevent bullying at work from taking place and, if it does take place, to provide redress

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for the victims, either through the actions of their good employer under the dignity at work policy or by recourse to an industrial tribunal where a bad employer either has no policy or is not prepared to implement properly such a policy. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Monkswell.)
8.55 p.m.
Baroness Gould of Potternewton: My Lords, bullying, harassment and victimisation can take many forms. The list is endless but typically consists of unfair and excessive criticism, publicly insulting the victim, ignoring the victim's point of view, constantly changing or setting unrealistic work targets, withholding information in order to embarrass, undervaluing efforts, shouting and abusive behaviour. All of these this important Bill is attempting to eradicate.
While we have protection against sexual or racial harassment, there are many people who have no such protection because they fall into a gap in legislation to cover people who have complaints of this form of bullying. My noble friend referred to the findings of the Institute of Personnel and Development whose report was published last week showing that one in eight people have been bullied at work in the last five years. The report went on to say that over half of those who have experienced bullying say that it is commonplace in their organisations, and a quarter say that it has got worse in the last year.
If that is the case we need perhaps to investigate why that might be. Increased pressure on staff and managers to meet targets, especially unofficial targets, creates an environment in which intimidation and victimisation are almost unavoidable. While a tough, competitive environment does not create bullies it can certainly aggravate their behaviour. It can also create job insecurity, organisational change and uncertainty, poor working relationships generally and excessive workloads. Unfortunately, harassment and bullying can be seen as strong management, the effective way of getting the job done.
Such action by senior managers can be seen as a green light to others to behave in a similar fashion but, as my noble friend said, this can seriously backfire on employers. Staff working in an atmosphere of fear and resentment do not perform well, with the resultant reduction in productivity. Morale levels fall while absenteeism through sickness increases and staff resign. All these things result in significant losses in both human and financial resources, costing industry billions of pounds a year in lost labour. It is estimated that 40 million working days are lost each year because of bullying at work; more than 160 times the number of days lost through strikes.
However, it has to be the impact of this conduct on the recipient and not the intent of the alleged harasser that determines acceptable or unacceptable behaviour. The impact can be devastating. People who are constantly bullied or harassed lose their self-confidence. Their self-esteem is lowered and their health is
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damaged. Workplace bullying can lead to sleeplessness, migraine, back pains, panic attacks and stress-related illnesses such as depression and anxiety. Nearly three-quarters (72 per cent.) of victims of bullying, according to the IPD survey, say that they have suffered from work-related stress in the last five years. This is borne out by the findings of Professor Carey Cooper of UMIST, a leading expert on stress, and also by the Health and Safety Executive in its published guidance for employers on preventing stress at work. This makes clear that bullying can be a cause of the problem and that preventive measures must include action to eliminate bullying wherever it exists.
The biggest ever survey of workplace union safety representatives carried out by the TUC showed that occupational stress is the major health and safety issue in the workplace, with bullying estimated as accounting for 14 per cent. of stress-related conditions. In spite of this, bullying at work is still a largely unrecognised problem. It is regarded as something that happens in the school playground. In the work environment it can too often be seen just as a personality clash. Verbal threats can be dismissed as unimportant and people who complain can be seen as weak or as troublemakers.
The IPD survey shows that one-third of victims did not raise the problems with anyone at work. They were afraid that they would not be believed and that it would worsen their position; for some men, it did not fit the macho image. And where aggressive management is part of the organisational culture people are unwilling to challenge individual bullying behaviour.
The whole question of victimisation at work is increasingly being seen as an important issue throughout Europe. For example, Norway recently improved its Work Environment Act to provide protection for employees. In Finland a study by the Finnish Institute of Occupational Health's department of psychology concluded that psychological terror at work is most conspicuous at workplaces that are characterised by competition and unequal treatment of workers. In Germany, a campaign, Psycho-Terror at the Workplace, has been active for some time and is growing. In Sweden, a new legal provision, which came into force in 1994, outlaws offensive discrimination at work. It makes clear that bullying is an organisational issue and that employers have a duty to provide a working environment which will actively discourage bullying.
In this country, as my noble friend has illustrated, concern is growing. The number of complaints being pursued is also growing. Trade unions have successfully challenged workplace bullies through workplace grievance and disciplinary procedures, industrial action, tribunals and the courts—a move which has focused the minds of employers' liability insurers and employers themselves. But because these existing legal remedies are not specifically designed to deal with harassment and bullying, the position is far from satisfactory.
Currently, employers have a legal responsibility under Section 2(1) of the Health and Safety at Work etc. Act 1974 to ensure, as far as is reasonably practicable, the health, safety and welfare at work of all their employees. This includes protecting their mental as well as their

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physical health. While the Act does not specifically mention the psychological symptoms of bullying, recent cases have established that an employer may be held liable for damages for psychological injury and stress-related illnesses suffered by employees as a result of their work environment.
Trade unions have for some considerable time been encouraging employers to adopt anti-bullying policies. But a survey carried out by MSF shows that only 28 per cent. of employers have an official policy. Within that 28 per cent. there are, however, examples of good practice. For example, two very differing organisations, the Consumers Association and the Littlewoods Organisation Ltd., have both introduced a code of practice on the protection of dignity of women and men at work, designed to promote a healthy working environment where all employees are given the dignity and respect to which they are entitled, free from bullying and intimidatory behaviour. The aim is prevention, by promoting awareness among staff on the definition of bullying, through leaflets, dignity at work policy statements and briefings at induction courses. They do, however, recognise that this is not sufficient and have established both formal and informal procedures to deal with situations where the policy may have been infringed, including training staff to act as counsellors who can advise anyone who feels that they have a complaint.
If more employers took a responsible stance, this legislation might not be necessary, but, unfortunately, that is not the case. Legislation is necessary for the 72 per cent. of employers who have no official policy for tackling this serious problem. I hope, therefore, that we will hear from the noble Lord the Minister that the Government will respond favourably to this Bill and assist its passage through the House.
9.3 p.m.
Lord Rea: My Lords, the House should be grateful to my noble friend for introducing this Bill. I believe that he and my noble friend Lady Gould of Potternewton have demonstrated that unacceptable behaviour towards employees at work takes place on a wide scale. He and my noble friend Lady Gould argued persuasively that legislation is now overdue and necessary.
However, we know that Private Members' Bills, especially those starting in your Lordships' House, do not often get on to the statute book unless they have government approval or, at least, government neutrality. I know that from my own experience six years' ago with the Junior Doctors (Hours of Work) Bill, which passed all its stages in this House only to be killed by the single word "object" by a government whip in another place. The Opposition can do that too even to Bills which have government approval, as happened to the Commonwealth Development Corporation Bill of the noble Lord, Lord Trefgarne, last year.
But my Bill on junior doctors' hours served a useful purpose. It put the subject on the political agenda and was the centrepiece, for a while, for a campaign which went on to achieve a change for the better, although of course the basic problem is still with us and will be until
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the number of consultants and trainee posts in hospitals are increased and more routine work is done by nurses and other staff rather than by junior doctors. But I digress.
This Bill opens the batting, as it were, on an important subject. I do not need to remind noble Lords that all anti-discrimination legislation, which is now in place, was preceded by many failed attempts to get legislation through. But the legislation eventually got on to the statute book, usually not in as strong a form as some advocates would have liked, but nevertheless it is in position as a basis for legal action when abuses take place. There is no doubt that sex and racial discrimination has diminished greatly because the legislation exists.
The kinds of behaviour outlined in the Bill, which will become offences, are found at all levels of work other than perhaps at senior management level although even there people higher than them can sometimes cause trouble. The recent report quoted by my noble friend Lady Gould certainly shows that middle managers are not exempt. In one sense perhaps they are doubly vulnerable to abuse from above, which is often expressed in very subtle ways, and ridicule or loss of loyalty from those below. Case histories are available which show how mental breakdown can occur in these circumstances.
However, middle managers may well express their anger that should be directed at their superiors, by making life difficult for those that they in turn manage. In a well-managed organisation it should be possible for any employee who feels aggrieved to take up the problem with their line manager and face them with it; in many good firms there are grievance procedures in place. However, we all know how difficult that can be. Many employees fear that the response may be that "if they don't like it, they can lump it or leave". With high unemployment, an employee may feel that he or she has no alternative but to stay and put up with unacceptable behaviour on the part of his or her boss or line manager. If legislation were in place such behaviour would be an offence and would be curbed. Some power would be given back to the aggrieved person.
Although there has been recent interest in the problem of bullying, particularly of middle managers, it is the lowest grades that are likely to be the recipients of dissatisfaction passed down the chain. At that level there is little control over how tasks are to be done. In badly managed organisations the least skilled workers are the ones who are likely to be treated with the least dignity—or the most indignity. They are also in a vulnerable position because they are the least likely to be able to obtain alternative employment.
A number of recent epidemiological studies have looked at the reasons why health status decreases directly in line with decreasing occupational status. The most detailed work—the Whitehall II Study—focuses on 12,000 civil servants. It is easy to divide civil servants according to their employment grade from permanent secretary down through 13 grades to clerical assistants, messengers and porters. There is a steady rise in mortality rates and sickness absence as one descends

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through the grades. Professor Michael Marmot of University College London who directs the research grouped civil servants into six categories. He found that known risk factors for coronary heart disease, including for example cholesterol, smoking, exercise and diet, accounted for only about one-third of the social gradient in mortality, leaving a persistent gradient in which the experience of work itself might well play a significant role.
The study also showed that high demand in the work role was not associated with increased sickness absence of the employee if he or she had a high degree of control over the task involved. However, if the subject felt that he or she had low control over the task involved, a high workload or demand led to higher sickness absence. If one has no control over what is coming at you, inevitably stress rises. If one has control high demand and corresponding creative achievement can be health enhancing. That appears to be so in the higher grades of the Civil Service.
Members of Professor Marmot's team, particularly Dr. Eric Brunner, are working on the physical and biochemical mechanisms through which such stress can lead to ill-health; for example, coronary heart disease. If work status can itself be important in determining health through a stress mechanism, factors that increase stress such as those referred to in the Bill, for example abusive behaviour or changes in duty without justification, are highly likely to cause a further deterioration in health.
Understanding of human health is often enhanced by observing animal behaviour. Two American biologists, Drs. Sapolski and Mott, observed a free living troupe of baboons in East Africa and classified them into dominant and subordinate groups. Coronary heart disease risk factors found in blood taken from representative samples of each group (after they had been immobilised with anaesthetic darts) showed that the dominant group had a significantly better coronary risk lipid profile than the subordinate group—precisely reflecting the findings of the Whitehall study of civil servants. Dr. Brunner writes:
"The violence involved in the production and maintenance of the baboon hierarchy suggests that the human primate would be well advised to take this animal model, if anything, as a cautionary tale".
We are not discussing crude physical violence in this Bill—I believe that is covered by existing legislation—but more subtle long-lasting verbal or psychological aggression. Other evidence exists to show that prolonged low grade stress has biochemical effects which are associated with ill health. I hope that these remarks will help to convince the noble Lord, Lord Lucas, and other noble Lords that this Bill is a serious and necessary measure, if the right form of words can be found, that will assist in encouraging good employment practice in Britain. To echo the words of the noble Baroness, there is a possibility of creating a virtuous circle: better working conditions may lead to better health of employees, which in turn may lead to better productivity which, spread across the whole economy, will lead to greater output. That could lead to more primary wealth creation benefiting the health and well being of the whole population.
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I should like to close by quoting the words of John Ruskin more than 100 years ago:
"It may be proved, with much certainty that God intends no man to live in this world without working"
which may suggest that the Government have not always been very godly. I continue:
"but it seems to me no less evident that he intends every man to be happy in his work. It is written 'in the sweat of thy brow', but it was never written 'in the breaking of thy heart"'.
9.15 p.m.
Lord Haskel: My Lords, I congratulate my noble friend Lord Monkswell on his initiative on this Bill, but I must confess that I approach the Bill with mixed feelings. That is because I am reluctant to impose more regulations on business and industry, and I am sure that is what the Minister will tell us. I am sure that he will also tell us that some of the rights in the Bill are already included in any reasonable contract of employment. For instance, most contracts of employment include a clause about fair treatment. They include a complaints procedure. They include a clause about changes in duties and responsibilities.
In addition, as other noble Lords have said, most employers realise that bullying at work is counterproductive. It is not good for business. As my noble friend Lord Monkswell told us, it causes absenteeism and ill health; it causes people to be less productive, and to concentrate less and make more mistakes.
Yet, bullying does go on, as we have heard from the surveys about which noble Lords have told us, even though, with flatter management structures and more open management styles, there is less need today for people to put up with that. After all, one can now e-mail the chairman from the shop floor, and no one will know about it. However, it is difficult to draw the line, because some managers think that creative tension is necessary for people to perform at their best.
So bullying does go on. Not only is there actual or threatened physical violence, there is also the mental violence caused by shouting or abusive or threatening behaviour. Noble Lords have catalogued the methods by which people are manipulated—excessive criticism or humiliation, hectoring them in a manner that can lead to a nervous breakdown, harassed until they leave, and unachievable work targets, and that happens at all levels. Of course it is not right that it should happen, but there is no doubt that it does.
There may be more going on now as work becomes more pressured with increased competition. Also, people will put up with more abuse to retain their jobs as work is scarce. As my noble friend Lady Gould told us, we are all familiar with the harassed manager being told by his boss to, "get it done and I don't care how". So he or she in turn pressures the staff.
Years ago it was necessary to introduce health and safety legislation to provide physical protection for people at work. It has been effective. A health and safety culture has been created within which most of industry works. Perhaps that can show us the way to a kind of mental version of that culture.

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There are things that we can learn from the way the Health and Safety at Work etc. Act 1974 works. The Health and Safety Executive does not seek compliance only by threatening court action. That is a last resort. It seeks compliance with the regulations by inspections, but also by organising seminars, workshops, and publicity campaigns designed to inform employers of the regulations, and to persuade them that it is good for their business. Also the earliest health and safety regulations were very prescriptive; for example, laying down temperatures at which people could work and weights which they could lift.
My noble friend Lady Gould mentioned the 1974 Act. That Act introduced the concept of reasonable practicability. As a result, many firms have a written health and safety policy which defines the "reasonable practicability" of their particular business. That is part of the agreement between employer and employee. Some of those policy statements also deal with stress, long working hours, working at night, and action to be taken in the event of fatigue. That approaches a dignity at work concept. After all, every employer has a duty of care to their employees, and every employee has a duty of care to their employer. It is useful to have a policy statement defining those duties.
However, nowadays people seem to want more from work than just employment. They seek dignity and respect, and courses are now appearing at management schools—particularly for middle management—on how this respect and dignity can be earned and how it can be given. Cranfield University School of Management makes a particular effort in trying to give managers an insight into their own and their staff's psychology in order to achieve this. Counselling and therapy are also offered. Equally, victims can go to a voluntary management committee created specifically for this purpose—that is if they can be encouraged to do so.
However, all this is fine for the majority of people who are reasonable employers and employees. But there is always the unreasonable employer and employee. There is always the unreasonable person who will bully mentally and physically. Now that we are more aware of these dangers it must be right for these innocent victims to have the protection of the industrial tribunal and the law. At the same time, every effort should be made to see that the tribunal is the last resort. I agree with other noble Lords that it is far more constructive to introduce good practice and awareness of the damage that can be done by bullying than to go to law. Now that we have become aware of mental health and safety there is a need for a mental health and safety Act. That is what this Bill tries to cover. Therefore, I support it and in doing so I quote from the Charter of the World Health Organisation. It states:
"A state of complete physical, mental and social wellbeing does not consist only of the absence of illness or infirmity".
9.21 p.m.
Lord McCarthy: My Lords, we have had an excellent short, if somewhat one-sided, debate. I wish to do three things. First, to congratulate the noble Lord, Lord Monkswell, on raising the subject. I believe that we shall hear a great deal more of it. As the noble Lord,
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Lord Rea, said, he has opened the batting. It is an excellent subject for a Private Member's Bill and we hope it makes some progress in both Houses.
Secondly, I wish to comment on the arguments relating to the need for the Bill and the current legislation. The Minister may be going to say—and if he does not it will be because I said that he will—that we already have legislation which admirably covers the area of the Bill. Comments have been made about that by Members on this side of the House and I wish to say a little more.
Thirdly, I wish to examine the Bill and say why I believe that some parts can be changed to the improvement of its objectives. I also wish to comment on some of the difficulties which would arise if we passed the Bill as it stands. Of course, there is no reason to suppose that we shall do so.
As the noble Lord, Lord Monkswell, rightly said, bullying at work is a growing problem. We have heard various surveys quoted by various speakers. Notably, and perhaps the most reliable and most worrying, there is the recent survey of the IPD.
The noble Lord, Lord Monkswell, and others, have made clear, as has the IPD survey, that when we talk about bullying at work and when we seek to remedy it by legislation we are going beyond talks and action which merely try to raise performance. The criticism of managers, attempts to raise the performance and improve the level of efficiency of staff, is not bullying. We are also going beyond the occasional horseplay of comrades at work. We are talking about industrial persecution and the kind of persecution which is deeply resented. That is one of the defining characteristics of the noble Lord's Bill.
For example, we are told—and if we believe what we read it must be true—that the musicians in the pit of La Scala thoroughly enjoyed the insults of Toscanini. They used to induce him to be more and more insulting because they enjoyed it. However, strangely enough, musicians in the Vienna Philharmonic deeply resented the very similar sarcasm of Karajan. Therefore, we are talking about resentment, coupled with persecution. We are not talking about jokes, asides and incidental remarks. We are talking about serious matters. There is ample evidence to suggest that such bullying is growing and ample evidence as to why it is growing. Previous noble Lords have stressed these matters in this debate.
I want to turn to the strengths and weaknesses of the existing law. It is arguable that the most effective form of protection against bullying at work at the moment is to go to an industrial tribunal and complain, successfully, that the acts complained of constitute constructive dismissal. One resigns, leaves the job aid says that the employer has made the position impossible so that one could not continue.
Indeed, it is a fact that if one reads many of the cases quoted in the law reports, there are some very interesting examples of where the law works now. Those cases also demonstrate that there is a great need for such law. There was a famous case in which insults to a supervisor

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by his superior, including the remark, in front of his staff, that he "must be brain dead", constituted constructive dismissal.
There was a case of a manager who was forced to undertake menial tasks, again in front of his staff; for example, loading a lorry. That constituted part of a case of constructive dismissal. There was another case of workmates who forcibly cut the hair of other workmates. That also was part of a sustained case of constructive dismissal. There are cases where very systematically and persistently cleaning agents were put into employees' tea. The employer did not feel that it was his business to do anything about that. That constituted a case for constructive dismissal.
Those cases of constructive dismissal demonstrate to us that there is a law dealing with those issues and it is a good job that that is so. They illustrate also that significant cases of industrial bullying exist and that the courts, when they get hold of them, do their best to deal with them.
But of course there are three problems with the constructive dismissal solution, if the Government wish to pray that in aid as to why we need not go any further. First, the employee must resign in order for there to be any possibility of compensation. The employee must resign and take the employer to a tribunal. Of course, if the employee loses he or she will not get the job back. They are out. So extreme action must be taken: employees must first separate themselves from their employment in order to achieve any redress.
Secondly, the amount of compensation that can be obtained after unfair dismissal is significantly limited. Most important, a fundamental breach of contract has to be proved. The employee has to prove that the employer's acts or acts of workmates, which the employer has not prevented, have destroyed the relationship of trust and confidence. That is quite fundamental. It is a common law matter. The common law assumes that there must be in that employment contract an element of trust and confidence. Therefore, it has to be shown that the employer's act has destroyed fundamentally the possibility of continued employment. I suggest to noble Lords and the Government that a very great deal of bullying can take place before one reaches the point at which a court will say that there has been a fundamental breach of the employment contract.
Therefore, spokespersons for the Government have pointed out that we must also have in our minds the criminal justice system in the form of the Criminal Justice and Public Order Act 1994, and in particular Section 145 of that Act. That makes it an offence to cause "intentional harassment, alarm or distress." You do not have to dismiss yourself in order to seek redress. However, there are weaknesses. A higher level of proof is required. You cannot really take action yourself. We are discussing a criminal act; you have to approach the police to get action taken by them. What you get at the end of the day is not compensation, redress or reconciliation; what you get, if you can sustain your case, is revenge. You might get the employer convicted and put away for six months, but that is not what we need, or what we want. We do not want revenge; we
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want reconciliation, and acceptance of responsibility. As the noble Lord, Lord Haskel, said, we want a higher level of industrial relations, and in the end we need a civil remedy.
The third possible way forward, which may be advanced by the Government, is to suggest that many of these incidents are forms of sexual or racial discrimination. Certainly applicants often present these cases in terms of sexual or racial discrimination—and tribunals decide that this is not the case; although if one considers the composition of legislation, there are ways in which incidents, that in other areas would be termed industrial bullying, can constitute the basis for sexual or racial discrimination.
However, as we all know, not all bullying is based on racial or sexual prejudices. That is the problem. Most bullying is personal. In some ways that is the worst thing about it because at least in the case of sexual or racial discrimination or harassment of any kind the victim can console himself or herself—if it is a consolation—that the incident was not personal. The individual can tell herself that others do not like her because she is a woman. An individual can also tell himself or herself that he or she is not the "right" colour, and that there is nothing personal in the attacks. But the incidents we are talking about constitute personal attacks on individuals who often cannot defend themselves. There need not be sexual or racial discrimination. All the incidents may be undertaken by people of the same race or the same sex. We are talking about bullying and persecution. That is what we are trying to deal with in this Bill.
Finally, I wish to say a few words about the form of the Bill. This is important. As the noble Lord said, it is in some ways a well drafted Bill. It has some novel features. However, there are three aspects of it which I cannot accept. I wish to refer to those aspects briefly this evening so that if we proceed to the Committee stage the noble Lord might like to consider those points.
First, I refer to Clause 1 and what I would call the forms of indignity. In effect this is an exemplary list, but that is not clear because the clause does not state that there could be other cases. We are given five examples of bullying, but they seem to form an inclusive list. That is dangerous because one might discover a form of bullying which is not contained in the list.
I also find the criteria a little inconsistent. Abusive behaviour or unjustified criticism must be persistent. However, that is not so in the case of verbal or physical intimidation, which apparently need not be persistent. I am not quite sure why that is so. Apparently, changes in duties or the imposition of penal sanctions can be justified. It is for the employer to show that they are justified. However, insulting or demeaning behaviour apparently is not subject to justification. It is like sexual and racial discrimination in that regard. I am worried that the courts may treat such lists as cumulative; namely, that an individual needs to have been subjected to more than one offence on these lists. I suggest to my noble friend that one can have exemplary cases as illustration. But I prefer a general overall definition of industrial bullying, indignity, or whatever we wish to

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prevent. I believe that a general definition with an additional liability if done by a person acting with the employer's authority would be more useful and practical than the definition on the face of the Bill.
My second problem relates to the employer's defence. I believe that some of these points were in the mind of the noble Lord, Lord Haskel, when he spoke. I understand why there is a proposed procedure; I understand that Schedule I spells out that procedure. I take it that the argument of the noble Lord, Lord Monkswell, is that the Bill will encourage employers to set up and operate such a procedure and that, therefore, one will not need to go to tribunals. But in a way, tribunals operate in that way now. A large part of Schedule 1 is a de jure version of what Tribunals do de facto in sex discrimination cases. I am not sure that it helps to put such provisions on the face of the Bill. If one does so, one encourages the employer to engage in a long-winded defence which makes cases last longer. I fear that people will find that cases brought under this provision will be what is called in tribunal language "multiday cases". That is something that one wishes to avoid whenever possible.
I wish to state briefly why something must be done about the problem of caseload overload which now threatens to destroy existing individual rights in the employment field. Fifty per cent. of cases at ITs are heard only after six months. It can take two years or more to be heard by the EAT. Moreover, all the evidence indicates that the caseload problem is about to become worse for a range of reasons that I do not have time to spell out tonight. Therefore I shall be considering at Committee stage, as I hope will my noble friend Lord Monkswell, a way to deal with the problems he raises which does not inevitably add to IT caseload. One solution might be to build on the individual employment contract, in particular as regards Section 3 of the Employment Rights Act. That provision was the result of European pressure. We might go some way with the ideas behind this Bill if we could take our action via the employment contract.
In the meantime, the Bill embodies a good idea and seeks to deal with a real problem. I am glad that we have had the debate. I look forward to hearing what the Minister says.
9.38 p.m.
Lord Lucas: My Lords, as the noble Lord, Lord McCarthy, indicated, I have reason to be grateful for the lack of attack from my Back-Benchers. I have become used to that in the last couple of debates in which I have taken part.
On this occasion we address a Bill which deals with a real problem. It is put forward with the noblest of aims by the noble Lord, Lord Monkswell. I think that all of us agree that these problems are serious; that they are seriously unpleasant. I have not seen the IPD survey. If the noble Baroness wishes to send me a copy, I shall happily read it, but from what she said, I have no reason to disagree with its conclusions.
As the noble Lord, Lord Rea, said, bullying is a trait in baboons and human beings. It is a fundamental trait in humans. It occurs in every aspect of society. However, it
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is clearly a trait which we can teach ourselves to grow out of. It can be dealt with. As indicated by the noble Baroness, I am most familiar with the issue in dealing with the problem in schools. The House may remember that the Government have taken a number of initiatives to deal with bullying in schools. It is a problem that we treat seriously. We provide a great deal of help to schools in dealing with it. However, as was demonstrated quite correctly by my noble friend Lord Elton in his inquiry into that subject, the best way of dealing with it is by having a whole school bullying policy—one which involves everybody in the school—rather than by means of legislation.
As the noble Baroness, Lady Gould of Potternewton, said, bullying is counter-productive for a company. The noble Lord, Lord Haskel, also made that point. A company where it is rife will be less profitable and effective than its competitors which have a proper policy and look after their employees properly. That must be a great incentive to companies to do the right thing. As the noble Baroness said, quite a number already do, and have serious policies in place to deal with workplace bullying.
There is also a large number of legislative initiatives which touch on this area. The noble Lord, Lord McCarthy, outlined several. If the noble Lord will allow me, perhaps I may cover some of that ground again and add one or two further examples. There are parts of the law that are not well used at the moment and which might well be brought to bear on this problem in the future.
We see this Bill as going far too far in dealing with the minutiae of relationships between individuals. The noble Lord, Lord McCarthy, said as much in his criticisms of the Bill. The way in which it is currently worded, the way in which it defines the offence, would cause substantial problems if it were put into effect. One need only think of applying Clause 1(2) to this House, let alone another place, to see what problems it would cause. "Persistent or recurring behaviour which is offensive" is not a problem here; nor indeed in another place. However, it would cause great difficulty for a drill sergeant. To get through that, we should probably have to retrain half the Army. "Verbal or physical intimidation" is not unknown in this place. I should be grateful for that. The Bill refers to,
"persistent or recurrent behaviour which is malicious or insulting".
That does not happen in this place. It refers to, "persistent unjustified criticism". Given that provision, I could silence the Benches opposite. It further refers to,
"penal sanctions imposed without reasonable justification".
I am not sure that that applies here. And it talks of,
"changes in his duties or responsibilities to his detriment and without reasonable justification".
Were that provision to be enacted, I should be in permanent employment. I am sure that there is no reasonable justification for removing my post which any Prime Minister could ever show. Taking a reasonably light-hearted look at the clause as it is drafted shows the sort of difficulties that would arise were it to be the law. They arise because the Bill's approach trespasses too far into personal relationships.

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The noble Lord, Lord McCarthy, hoped that it might be possible to redefine this clause. I should be very interested to see him try. The principal difficulty in this area lies in getting the definition right, so that there is a proper distance between areas where legislation belongs and areas where it does not.
Between the two there is the area of exhortation—in which, as I said, we have been involved in a major effort in schools. It is, broadly, the way in which the problem ought to be tackled, rather than through trying to hit what is a very intimate human problem with legislation.
I turn to the legislation that is in place. The Public Order Act 1986 created an offence of causing intentional harassment, making it unlawful for a person to use threatening words or behaviour. The offence provides an appropriate penalty for cases where harassment is intentional but which fall short of physical violence. It was introduced to deal with serious racial harassment, but applies equally to harassment on other grounds, and applies to behaviour in the workplace.
Under the Government's Protection from Harassment Bill, which we have not yet seen in this House and which is thought of as the "stalking" Bill, it will be an offence to pursue a course of conduct which causes a person to feel harassment or distress. The Bill does not exclude the offence being committed at work. It also contains civil measures enabling a person to seek an injunction preventing further harassment. Breach of an injunction is also an offence.
The Government do not intend to criminalise normal workplace arguments and the Bill includes a defence for conduct which is reasonable in the circumstances. However, that defence will not protect those who use work simply as a pretext to harass someone without reason. When the Bill comes here, I hope that those noble Lords who have spoken this evening will examine it to see whether it would solve a number of problems which they have raised.
Lord McCarthy: My Lords, I am not trying to be difficult, but is it the Government's intention to complete the passage of the Bill in this Parliament?
Lord Lucas: My Lords, I could not possibly comment on that now but I shall write to the noble Lord. I have no reason to think otherwise as it would be a waste of Parliament's time if we did not.
Bullying can, in extreme cases, lead to stress and illness. That too is covered by law. The Health and Safety Executive has issued guidance which deals with stress at work, including bullying. The guidance derives from the Health and Safety at Work etc. Act 1974. Under the Act, employers have a duty to ensure the health and safety of their employees. Ill health resulting from work-related stress, including the way in which employees are managed, falls to be treated in the same way as ill health due to other causes in the workplace. So the 1974 Act provides a basis for tackling bullying at work. That was mentioned by the noble Baroness, Lady Gould of Potternewton, and the noble Lord, Lord Haskel. It is a part of the legislation which is reasonably actively used at the moment.
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The Employment Rights Act 1996 protects employees against victimisation by their employer for taking certain actions on health and safety grounds or for seeking to assert statutory employment rights. Under general employment law, employees have a contract of employment which is legally enforceable. It involves a mutual duty of trust and confidence. If either side breaks this by totally unreasonable behaviour, the other will be entitled under common law to terminate the employment relationship.
An example of such behaviour is where the employer seeks to impose significant contractual changes without the employee's consent. The employee will have good prospects of succeeding with a claim of constructive unfair dismissal. The noble Lord, Lord McCarthy, showed how useful it was for some aspects of the problem.
Protection is also provided, as the noble Lord, Lord, McCarthy, said, by the Sex Discrimination Act 1975, the Race Relations Act 1976 and the Disability Discrimination Act 1995. They make it generally unlawful for an employer to subject workers to any detriment on grounds of sex, marriage, race or disability.
Cumulatively, those measures provide a broad framework of protections against various forms of unfair behaviour. Moreover, case law has helped to define the law; for example, by making it clear what may constitute sexual or racial harassment. So bullying, although not explicitly covered in law, can in practice often be dealt with under it. Indeed, a case was reported yesterday of an employee who brought a successful prosecution for assault against his employer. It shows that there are remedies under the existing law.
Generally, firms will already have some procedures in place, perhaps along the lines of the ACAS code on disciplinary practice. The Government see such guidance and the Discipline at Work Handbook, together with initiatives by the CBI, the Institute of Personnel and Development and some trade unions as offering more promising means of dealing with unacceptable behaviour at work. The noble Lord, Lord Monkswell, mentioned his own trade union which is prominent in the area. He gave examples of where it has been successful and in our view it is the principal way in which the general problem of low level bullying in its less extreme manifestations should be tackled because it is likely to achieve the greatest success with the greatest ease. I add that the Employment Rights Act 1996 requires employers to notify staff about grievance procedures, so the law already accepts that employees must have a channel for raising complaints.
The Bill of the noble Lord, Lord Monkswell, is a brave attempt to incorporate a right to dignity into legislation. However, the basic concept of dignity at work is difficult to incorporate into law. It is both an imprecise and highly subjective concept and therefore liable to be construed in different ways. We feel that that cannot be good for employers, employees or those who have to apply the law. No one wants to see the law made more complex or confusing, yet that would be the effect of the Bill.

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I hope that what I have said on what we are doing at present and the other opportunities which exist for legislation will provide some comfort for the noble Lord when I say that at this stage we cannot offer him any hope of support for the Bill.
9.50 p.m.
Lord Monkswell: My Lords, I am encouraged by the Minister's response. He started by saying yes, there is a recognition that there is a very real problem, and he finished by saying that he was unconvinced at this stage that the Government should support the Bill. That suggests that they recognise the problem but are not sure that this is necessarily the best vehicle to resolve it.
First, however, I thank all noble Lords who have taken part in the debate, which has been very useful and interesting. A number of noble Lords were able to highlight issues on which I could not expand in my opening remarks. I am particularly grateful to my noble friend Lady Gould of Potternewton who, using her experience of the sex and race legislation, pointed out that those provisions had weaknesses when it came to bullying at work. She also brought in the international dimension. We need to remember that bullying at work is not just a British problem. It is experienced in other countries and it is interesting that other countries have taken action within their own culture to try to solve it.
The noble Lord, Lord Rea, highlighted the medical aspects and the grievous problems that individuals can suffer as a result of bullying at work. My noble friend Lord Haskel very effectively pointed out that bullying at work is bad for business. He identified a matter of which I was not aware; namely, the good work done by Cranfield in its management training for middle management, identifying the need for dignity at work as part of management training.
We are all indebted to the experience and knowledge of the noble Lord, Lord McCarthy, in this legal minefield of an area, if I may so put it. He pointed out the inadequacies of the existing law. I was very pleased to have his critical examination of the Bill and his suggestions for amendments and changes, which I am sure we will be able to accommodate in Committee. I am sure that the Committee stage will be very useful.
I hope that the Minister will be at his place when we have the Committee stage, that he will listen to and be involved in the debates, and that the deliberations as the Bill becomes better as the result of constructive criticism will persuade the Government that it is a good vehicle by which to tackle the problem. It is worth pointing out that the Government have taken action on bullying in schools. It has been raised as a major public issue within the last couple of years. The Government have insisted upon, and have provided money for, a whole school policy to deal with bullying. Whether or not there are incidents of bullying at a school, there is a requirement that every school should have a policy aimed at preventing bullying and tackling it in a sensible and progressive way when it happens. So the schools are tackling the problem.
The Government have pointed out that bullying or stalking on the public highway, if I may so put it, are to be tackled by a Bill that the Government themselves will
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bring in. It will require police action to be taken if someone is bullied or stalked on the public highway. Only last week we had a Starred Question about bullying in the Armed Forces. I was very glad to hear from the Government Front Benches total condemnation of bullying in the Armed Forces and the fact that the Ministry of Defence and the Armed Forces have policies and practices to prevent bullying, to counteract it if it is found, and to take action to deal with it if it occurs. Why should not that apply in industry, in commerce and in employment? We have taken action on schools, on the public highway and in relation to the Armed Forces. But the one area where no clear action is being taken is in employment.
My noble friend Lord McCarthy pointed out the difficulties that arise in the areas of constructive dismissal and the Public Order Act. The Minister mentioned a number of other areas. Perhaps I can quickly run through them. He mentioned the anti-stalking Bill which will provide for police or court action through injunctions. The idea of an employee going to his local police station and reporting bullying at work beggars belief in terms of the way in which employment works. And going to a court for an injunction is an expensive way of dealing with the problem and does not do anything to prevent it. It is a case of shutting the stable door after the horse has bolted.
The analogy was made with the Health and Safety at Work etc. Act. I had experience of that Act going back to 1974 when it was introduced. In the early days it was a powerful instrument of change because managers and employers felt at that point that they ran the risk of being sent to gaol if they transgressed the Act. Unfortunately, the reality is that there have been virtually no prosecutions under the Health and Safety at Work etc. Act which have resulted in managers going to prison. As a result, the Act is not applied very effectively. Good employers operate it well. The problem we face does not concern the good employer. The good employer will have the policies and practices in place. The problem is the mediocre, the poor or downright bad employer who needs to be encouraged to implement the right policies and, if he does not, needs to recognise that he will receive significant penal sanctions.
My noble friend Lord McCarthy raised criticisms in relation to references to industrial tribunals, the likely risk of employers taking a long time over cases and extending the time of the tribunals, and the problem of casework and delay. But this situation is slightly different. There are limits on the amount of compensation that can be awarded in previous normal employment sex and racial discrimination cases. In this case the draftsmen have not put any limit on the amount of compensation that can be paid and there is a requirement on employers to take action to prevent continuation of the problems.
I was intrigued by the Minister's reference to the ability of an employee to take out an action for assault. Again, I suspect that that would tie up the High Court or the relevant court and be more expensive than an industrial tribunal hearing. It is worth pointing out that

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I saw the specific case mentioned and believe that it revolved around a solicitor's office where presumably everyone would be knowledgeable about legal affairs and the way to take out actions for assault.
The Minister's final point in terms of the options for employees to resolve the problem was his calling into aid the actions of unions and their policies and negotiating policies with employers. I am glad to hear that that is thought to be a good thing by the Minister. However, it still leaves us with the problem that not all firms are unionised and not all employers are prepared to negotiate these policies even where there is a union present.
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I hope that the debate and the reading of it by the Government will encourage them to think that we have the right vehicle to tackle this devastating problem of bullying at work. I welcome suggestions from my noble friend Lord McCarthy in terms of the amendments that are probably necessary to make the Bill more effective. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Planning (Consequential Provisions) (Scotland) Bill [H.L.]
A message was brought from the Commons that they concur with the resolution of this House of 3rd December House adjourned at ten o'clock.