HL Deb 19 February 1997 vol 578 cc756-71

7.53 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out yin the Financial Statement and Budget Report 1997–98.

The noble Lord said: My Lords, this is an annual debate. The cast does not seem to vary. It is small in number but high in quality, although I notice that when my noble friend Lord Henley led on the debate some three years ago he managed to attract a slightly bigger cast than I have managed to do in the two years I have done it. But there we are.

Section 5 is about sending information to the Commission on economic matters. It asks the Government to submit to Parliament for its approval a report which assesses the United Kingdom's medium-term economic and budgetary position. It also says that this report shall form the basis of any submission of information to the Council and Commission which may be required under Articles 103 and 104c of the Maastricht Treaty. These articles relate to the broad economic guidelines and excessive deficits procedure respectively.

The Financial Statement and Budget Report 1997–98, the so called Red Book, provides that assessment. It describes the Government's tax and spending plans and explains how they are related to the Government's economic and political objectives. The front cover of the Red Book states that it forms the basis of submissions to the European Commission for the purposes of multilateral surveillance of economic policies.

In sending information from this report, the Government are simply continuing to co-operate in the long-standing practice of sharing information on economic matters with our partners in the Community. Formal surveillance mechanisms have been established at Community level for more than 20 years now. We have also signed up to the independent examination of our economic performance by other international bodies such as the IMF, the OECD and the G7.

The information which approval under Section 5 allows us to submit to the Commission is already available from the Financial Statement and Budget Report, a publicly available document. This information is simply repackaged to make it more accessible. Indeed in some ways it is strange that approval has to be sought in order to do this.

Surveillance carries no policy control from the Commission or the Council. The broad economic guidelines are non-binding recommendations, although it is interesting that the recommendations made to all member states increasingly reflect the successful economic strategy of the present Government, focusing on maintaining low inflation, consolidating the public finances, eliminating labour market rigidities and introducing more competition. The excessive deficits procedure aims to support sound public finances further by promoting prudent budgetary policies throughout the Community, helping to keep interest rates low. That is clearly in the United Kingdom's interests, as a healthy European economy is crucial to the health of the British economy as I have said on a fair number of occasions from this Dispatch Box.

Surveillance also helps promote the convergence process. The convergence criteria are desirable objectives in their own right. They contribute to economic success and the British Government would be pursuing these objectives whether or not the Maastricht Treaty existed. In the UK, inflation remains low and has been below 4 per cent. for over four years, the longest time for over half a century. The public finances are under tight control, allowing taxes to be cut in the last two Budgets, with government borrowing on a clear downward trend. Interest rates also remain at historically low levels. As a result, the United Kingdom economy is now approaching its sixth year of sustained expansion and the UK has had the longest, strongest and steadiest recovery since 1992 of any major European economy.

Structural convergence is also important, including labour market flexibility. Community level surveillance exercises such as the broad economic guidelines have proved extremely helpful in publicising to other member states the UK's successful approach in this area. We have in this country one of the most flexible and least regulated labour markets in the Community, with more of our people in work and a lower unemployment rate than any major European country.

This debate is not about the Government's economic strategy. It is simply about fulfilling our treaty obligations. Our economic strategy has been fully debated not long since in another place and also in this House in the debate held after the Budget Statement. This debate is about the much narrower objective of transmitting the information contained in the Financial Statement and Budget Report to the European Commission in order to comply with our treaty obligations. I beg to move.

Moved, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in the Financial Statement and Budget Report 1997–98.—(Lord Mackay of Ardbrecknish.)

7.58 p.m.

Lord McNally

My Lords, as the Minister rightly said, this is a small, perfectly formed debate. We can perhaps take comfort in what our American cousins sometimes say—there has not been so much talent gathered together in one place since Thomas Jefferson dined alone.

The debate also has a little nostalgia for me. I have been a Member of the House for just over a year. I remember the nervousness with which I came to the previous debate realising that the noble Lord, Lord Eatwell, would have read every single line of the Red Book and would be ready to dissect it and tear it apart. Noble Lords can imagine what I have been doing for the past few weeks. I also realise that it is a debate about mood and approach. Last year I made the perhaps naïve suggestion that the Government should produce a White Paper on the fulfilling of the Maastricht criteria rather than toss the Red Book to the Commission saying, "Pick the bones out of that".

The problem is that the whole approach to Maastricht and EMU is now for the Government an exercise not in government but in political damage limitation within the Conservative Party, so this debate is tucked away. I have to say to your Lordships that that is perhaps done with some wisdom if the debate that we held on 31st January is an example of the quality of the House of Lords when it debates Europe. I suggest that people read that debate in the cold light of day and see it as a kind of xenophobes' convention. When it was not Germany planning world domination, it was the French or the Italians fiddling and defrauding us. It was a very disturbing picture of the view that some noble Lords have of the world.

The problem that the Government have with the Maastricht criteria—and the Minister hinted at it a little in his speech—is that for domestic general election reasons they have to play up economic success and proclaim how good performance has been against the Maastricht criteria. That implies, certainly on economic grounds, that there should be no reason at all why Britain should not be in a position of leadership in the debate about EMU and the single currency. The truth is that of course we are in a strong position in terms of making a decision. The weakness is a political one on the part of the Government in taking a decision.

My worry is that what we are seeing now is the same problem that has beset Britain in relation to Europe for over 50 years. We have always been chasing the game. We did not join the Iron and Steel Community and we did not attend the Messina Conference. In fact, the only time when Britain has been ahead of the game and playing a role at the heart of Europe was in the mid-1980s when the noble Baroness, Lady Thatcher, as she now is, signed the Single European Act and the noble Lord, Lord Cockfield, as he now is, was given the backing to initiate the single market.

But at the moment I see in the Government a dangerous self-delusion. It reminds me of an earlier period in my life when I was a young Labour Party official. I was told that we were socialists and that what we were pursuing was in the real interests of the workers. I was told that in Europe there were social democrats and that those milksops could not really defend the interests of the workers. Then the Labour Party actually paid for me to go to those European countries. I found that the workers there were doing a darn sight better under social democracy and Christian democracy than seemed to be achieved by all the Clause 4 rhetoric of the Labour Party.

Thankfully, I believe that the Labour Party has emerged from that ideological cul-de-sac. But just as it has emerged, lo and behold, the Conservative Party decides to walk into one of its own. Its delusion is that somehow the British economy, which we are all pleased to see is recovering, is now the envy of Europe; that there is a whole range of European countries which are looking with envy across the Channel to this Utopia of economic success.

The truth is that the facts do not add up. In 1996 the UK Government deficit was the highest in the European Union apart from Greece and Italy. Inflation in the United Kingdom was higher than in every EU country apart from Greece, Italy and Spain. Our interest rates were higher than in every other EU country apart from Portugal, Greece, Italy and Spain. Only Austria and Greece had worse current account balances. Real income in nine other EU states rose faster than in the United Kingdom. It is really just self-delusion to pretend that the British economic recovery from a government-inflicted recession somehow now makes us the envy of Europe.

The Minister is one of the more robustly realistic Europeans on the Government Benches—

Lord Graham of Edmonton

My Lords, steady on there. That is a bit thick!

Lord McNally

My Lords, if that does not do for the Minister, nothing will. But from other Members of the Back Benches on both sides of the House we get the most ludicrous idea that somehow there is a world outside Europe in which we can prosper. The figures do not add up. The average German spends three times as much on British goods as the average American. France spends as much on British goods as almost the entire Commonwealth. Holland, with only 15 million people, takes up exports greater in total than exports to the six Asian tigers, China, Indonesia and the Philippines together. We sell more to Sweden than to the whole of Latin America, from Mexico to Cape Horn. I could go on. I point these facts out not in a claim for a Fortress Europe, but simply to say that the idea of "Out of Europe to the open sea" is really "Stop the world, I want to get off'. We have got to make Europe work; that is where the prospects lie for the British economy.

The Minister was quite right. We have a vested national interest in making Europe work efficiently. Quite frankly, unless the Government begin to take notice of the voices that are beginning to assemble elsewhere in our society and take some leadership action, then they are going to do extreme damage. The encouraging factor about what is happening now is that, perhaps belatedly, the City and industry, and those who control inward investment, are beginning to raise their voices about the need for leadership on these matters. For example, the assessment of the respected law firm Wilde Sapte is: What has become very clear is that the single currency will become a reality and that it will start on 1st January 1999. Fog in the Channel really does seem to have cut the Continent off from Britain. On this side of the Channel we seem to have been under the mistaken impression that the whole idea of the single currency would come apart at the seams before it ever saw the light of day, with the result that neither Major nor Blair would ever have to decide whether to take Britain in or exercise the Maastricht opt-out and stay out. What has only recently dawned on us is that most European governments and peoples are, enthusiastically or not, committed to the single currency". Are we never going to learn the lessons of Europe? Wilde Sapte goes on to say, It is likely that those countries not in at the start will try to get in soon after. Even Denmark is not going to stay out if the only 'out' is the UK". Does that sound familiar? Even I am old enough to remember, after we stayed out of the Messina Conference, the attempts to form EFTA. We are not going to be able to form some EFTA currency as a rival to the euro. Our fate will be beggar-my-neighbour devaluations, constantly high interest rates and a status which will not long be tolerated as an off-shore sweatshop. That is why we are now getting warnings from the captains of British industry such as Unilever, BP and the rest. That is why some of the much-vaunted inward investors Ministers are so proud of are sending up distress signals.

Perhaps I may now give a quote from the City. Michael Cassidy, writing in the Financial Times says, There is a much bigger prize to be won from being at the heart of Europe under a unified currency. As the financial centre of a market of almost 400 million people, London could overtake New York and Tokyo to become the world's number one international financial centre, an asset to Europe and an asset to Britain". The message is clear. The country has no further time for drift. It is time that our political leaders faced up to the realities and the responsibilities. The decision on EMU and the single currency is a political decision with political implications. My party has never flinched from that. The truth is that British industry, British inward investors, our financial institutions and our trade unions all see the value of an early decision on the single currency. But what do we find? What is the reality? What is the background to tonight's debate? One only has to read tonight's headline in the Evening Standard which states: Ritkind v Ken: now it's war". That is what is said about our Foreign Secretary and our Chancellor of the Exchequer and what is probably the single most important decision that this country has to take.

The reality behind that headline and so much obfuscation at the Dispatch Box both here and in another place is that this Government are riven from top to bottom on Europe. They are incapable of taking the decisions that this country needs on EMU and the single currency. It is inevitable now that the key decisions will have to be taken by a new Parliament. The strength of my party, with its clear commitment to Britain, is that every vote for a Liberal Democrat and every Liberal Democrat returned to Parliament will argue for that strong leadership which is now so lacking. We shall support a British Government who are willing to provide that leadership. That is why I await with interest, and shall listen with great care, to the clarion call that I now expect from the noble Lord, Lord Eatwell.

8.12 p.m.

Lord Graham of Edmonton

Follow that!

Lord Eatwell

My Lords, annual rituals are often fun. The annual Budget debate, for example, is always exciting, even if, as was the case this year, nothing happens. We look forward to it every year in the hope and belief that revisiting familiar territory will bring something old and something new.

Last weekend when I was contemplating this evening's debate, I thought rather sadly that this particular annual ritual would bring nothing new. Incidentally, I am delighted to see the Government's two leading participants in this annual ritual present on the Government Front Bench. Once again, despite the protests which have been made for the past four years from all sides of the House, the Government have shown their contempt for Parliament and for Section 5 of the European Communities Act by regurgitating the Red Book for debate rather than providing a report in the form required by the Act. Once again, despite annual criticism, the Government have stated in paragraph 2.09 of the Red Book: The Government's fiscal objective is to bring the PSBR back towards balance"— that is, to borrow nothing—while at the same time ensuring, that when the economy is on trend the public sector borrows no more than is required to finance its … capital spending"— that is, to borrow something. The Government say that they will borrow nothing and borrow something in the same sentence.

Last year the noble Lord, Lord Mackay, sought to answer my criticism of an identical statement by simply repeating it, but no amount of repetition will make a false statement true. No amount of repetition will remove the fact that that fundamental statement of the Government's fiscal objectives is internally contradictory.

Anyone who has concern for Britain's reputation abroad must be worried by the fact that a document that fails to contain a clear, logically consistent statement of the Government's economic policy should be forwarded as a report to the European Commission. There are many inconsistencies in the document. First, it is not a piece of sober, technical economic analysis but an overtly political and partisan document. As well as the customary fudging of the figures, there are paragraphs of self-congratulatory puffs of selective quotations from distinguished international bodies. It is all rather like the selective quotations on posters for second-rate theatrical shows.

Secondly, there is a distressing number of economic errors—technical errors and inconsistencies—which it would be advisable to remove from the document if it is to be subject to scrutiny in Brussels. Central to that scrutiny is the level of the government deficit, yet it is extraordinary that on that vital issue there is serious confusion in the document in the discussion of the decline in the PSBR. In paragraph 2.11 of the Red Book we are told: The projected improvement in the PSBR is largely driven by the Government's tax and spending policies". However, if we turn to paragraph 3.48 we are told that, the continuing fall in the public sector deficit is mirrored by a decline in the private sector … financial surplus from 5 per cent. of GDP in 1995 to … 2 per cent. in the first half of 1998". Moreover, paragraph 3.26 tells us that the behaviour of that private sector financial balance is driven primarily by the decline in the personal sector savings ratio. Which is it? Is the public sector balance the outcome of changed spending patterns in the personal sector or the outcome of changed tax and spending policies? The Government do not seem to know. The answer to that question is vital in assessing the true health of the Government's finances and the true health of the British economy. Are we repeating the errors of the Lawson "boom and bust" when consumer spending created an illusory financial health and an illusory government surplus? The Government do not seem to know. They just face both ways.

However, the report contains one very clear statement with respect to the Maastricht criteria. It is the statement that the UK will in 1997 satisfy the Maastricht criteria on public deficits and debt required for entry into economic and monetary union. It is a positive statement. It is made several times in the report. It is a statement about the ability of the UK to enter the single currency.

At last we have something real to celebrate, for today there has been a significant restatement of government policy on the single currency. Indeed, there have been several restatements—all contradicting each other. This evening the Minister has a unique opportunity to clarify government policy. He is the only Minister in the entire Government who will be standing at the Dispatch Box today answering questions on government policy towards the Maastricht criteria and the single currency. Some are born great, some grow to greatness, some have greatness thrust upon them—the Minister has had this moment thrust upon him, so will he tell us clearly and simply this evening, when the Foreign Secretary said on the radio this morning, On balance we are hostile to the single currency", was he stating government policy—yes or no? When the Chancellor of the Exchequer said today that the Foreign Secretary's statement was a "slip of the tongue", was he stating government policy—yes or no? Both cannot be right. Are the Government "on balance … hostile" or was the use of the word "hostile" a "slip of the tongue"? Given the importance of this matter, I give way to the Minister so that he can answer those questions.

Lord Mackay of Ardbrecknish

My Lords, I can assure the noble Lord that I shall deal with those points in my summing up.

Lord Eatwell

My Lords, if the Minister cannot answer that question, can he clarify something else that Mr. Rifkind said today? On "The World at One" Mr. Rifkind said, referring to the single currency: We are very much against joining in 1999". However, the noble Lord, Lord Mackay, told this House on Monday that the Government's policy was, we will … enter EMU only if we believe that it is in our national interest".—[Official Report, 17/2/97; col. 455.] Which is it? Are we keeping the issue open?

Lord Mackay of Ardbrecknish

Yes.

Lord Eatwell

I hear the Minister saying "Yes". We are keeping the issue open. But the Foreign Secretary says that we are very much against joining in 1999. The Minister appears to be reluctant to answer these questions. Perhaps he is trying to decide which side he is on.

At five o'clock this evening the BBC reported that at least three Cabinet Ministers, including Mr. Brian Mawhinney, had lined up behind Mr. Ritkind. It did not tell us how much support the Chancellor enjoyed. Perhaps the Minister will support the lonely Chancellor. I am sure that the officials in the Box would be ready to provide a sign-up list for those on the Government Benches who wish to do so.

After all, to his credit the Chancellor has maintained a consistent argument in support of the Government's refusal to say whether or not they will enter the single currency. He has argued that by refusing to say yes or no at this stage he has preserved Britain's bargaining position. He has played his cards close to his chest. The Foreign Secretary has totally destroyed the Chancellor's bargaining position. The Chancellor can no longer claim in negotiations that Britain is neutral on the issue.

The Foreign Secretary has said that Britain is very much against joining in 1999. The Chancellor can no longer claim that Britain has the right to be fully consulted on the organisation of the European Central Bank and the future of ECOFIN; no longer can he claim that Britain has an equal voice in discussions on the stability pact. The Foreign Secretary has kicked away the chair on which the Chancellor has been sitting. No longer is he sitting at the conference table; he is sprawled on the floor.

What has the Prime Minister had to say about it all? Has he supported his Foreign Secretary or his Chancellor? When asked to comment on the statement of the Foreign Secretary, did the Prime Minister use the word "hostile"? No. Did he say that it was a slip of the tongue? No. Did he say that he was very much against joining in 1999? No. The Prime Minister said that in his view we should enter the single currency only if it were "positively beneficial" for Britain. Let us consider that statement. Can one imagine the Prime Minister saying that Britain should enter the single currency if it were not positively beneficial? Can one imagine Mr. Major saying that, although he knows it is harmful, we should enter the single currency all the same? Of course not. Everyone on all sides of the debate agrees that if something positively beneficial can be done for the British economy it should be done. If it is not positively beneficial it should not be done.

The statement of the Prime Minister is meaningless. It is the statement of a Prime Minister with no policy other than procrastination. He is the Micawber Prime Minister, hoping for something to turn up to rescue him from the Conservative Party. At a time when his Foreign Secretary and the Chancellor of the Exchequer violently disagree with each other—or are at war, as the noble Lord, Lord McNally, said—on the most vital issue facing the country since the Second World War and his government are in total confusion, the Prime Minister is incapable of providing the leadership that the nation deserves.

All that the country can be sure of is that the Prime Minister will follow wherever his party leads. He is a weak man, with no policy other than procrastination. He is terrified of his own party and incapable of providing leadership on the most vital economic issue facing this country. The Prime Minister has today demonstrated beyond all reasonable doubt that he is incapable of leading his party, let alone the country. His party has today shown beyond all reasonable doubt that it is incapable of providing this country with the government that it deserves. It should go—now.

8.24 p.m.

Lord Mackay of Ardbrecknish

My Lords, we have certainly had a debate this evening which is different from the one that we normally have on these matters. I welcome it because it allows us to cover new ground. I am more than happy, as will be obvious in a few minutes, to lead from this Dispatch Box, if indeed I am the only Government Minister who speaks about such matters from such a platform this evening. Whether or not that is greatness being thrust upon me I am not entirely sure.

I start with the comments of the noble Lord, Lord McNally. There have been a number of extremely good debates in this House on the European issue and the single currency. I was not present at the debate one or two Fridays ago. That may have been a little below par. Perhaps it was because the Liberal Party made the mistake of calling a Division, which, if I remember rightly, it failed to win. I say to the noble Lord, Lord McNally, that among those very good debates there have been some interesting observations by his noble friend, Lord Owen—if indeed the noble Lord, Lord Owen, can still be counted as his noble friend. The noble Lord, Lord Owen, made a very interesting speech, as did the noble Lord, Lord Dahrendorf, in a debate last summer in which he expressed very considerable doubt about the single currency. Only on Wednesday 5th February the noble Lord, Lord Ezra, came to his feet in one of the many question and answer sessions on these matters. He accused me of misrepresenting the views of the Liberal Democrats when I suggested that it would sign up for anything in Europe and whether it was good or bad for Britain did not much matter. The noble Lord, Lord Ezra, said that it was his party's view that we should keep an open mind, which he believed was also the Government's view, and if the situation was such that it could join it would do so. I welcome the noble Lord, Lord Ezra, and his party to my train in this regard. I believe that it is a change of stance that more closely resembles the position I have taken from this Dispatch Box for the past two or three years on these important matters.

The noble Lord, Lord McNally, was critical of Britain's economic performance. He aired before us some statistics which he believed showed us in a bad light. If one looks at the Commission's 1997 annual economic report, which was written as a result of submissions last year by the United Kingdom and other countries, it states that the UK recovery was of longer duration than that in the rest of the EU and was sustainable with inflationary pressures subdued. It cites the United Kingdom Government's policies as the cause of this favourable outcome, in particular the macro-economic policy setting and the supply side reforms. It notes that fiscal consolidation resulted in a significant turnaround in the public finances and that, post-Budget, the deficit was expected to meet the 3 per cent. criterion in 1997. Further, it expresses the view that the Government should meet their target of 2.5 per cent. underlying inflation.

The report also notes that the UK labour market continued to strengthen. It states that this strong performance could be attributed to the Government's deregulatory labour market measures. The Commission further recognises that the UK's unemployment rate of 7.9 per cent. was much lower than the EU average of 10.9 per cent. More recent figures for November 1996, using Eurostat and OECD bases for collecting those statistics, put the UK at 7.5 per cent., whereas Germany is at 9.3 per cent., Italy at 12.2 per cent., France at 12.5 per cent. and Spain at 22.3 per cent.

While I do not believe that all economic indicators can show a green light at the same time, unemployment is a serious economic measure because it affects the wellbeing of lots and lots of our fellow citizens. I believe that our success in reducing unemployment over the past four years is very significant. It is interesting that the Commission has drawn particular attention to that.

I was delighted to hear the noble Lord, Lord McNally, express appreciation of the amount of trade that the UK did with the European Union. He is absolutely right. But we also do a lot of trade with the world. One cannot forget that aspect. To a certain extent, in trading matters we look both ways. As I have said on a number of occasions, it is not an either/or operation, which is why it is so important that fellow members of the European Union are economically successful and prosperous. We depend upon them to sell a lot of our goods and services. Equally, we depend on the rest of the world. We are a very big player in international trade. I do not believe that the noble Lord, Lord McNally, would disagree if I said that we should not allow Europe to become inward-looking and forget that it must trade with the rest of the world. That is very important.

The noble Lord, Lord McNally, made some remarks about inward investors. But, by Jove, they are still coming in significant numbers. We continue to see announcements of significant inward investment coming not only from other parts of the world but from Europe. Companies such as Siemens, which I have previously mentioned at the Dispatch Box, are coming to this country and setting up in north east England, where they are very welcome. They are deciding that Britain is the place to manufacture.

As regards the international aspect of the City, London handles more international currency business than all the other EU countries put together. London will continue as a major international financial centre whether or not we are in EMU and whether or not EMU comes into existence. The noble Lord said that we were indulging in wishful thinking if we thought that EMU would not happen. We have always made it clear that we understand the strong commitment to EMU in other member states. But we believe that the decision as to whether to join should be for us to make in the interests of the British economy.

One of the problems about today's debate was well illustrated in a report for the Economic Intelligence Unit written by the noble Lord, Lord Currie. I am sorry that he is not present, but I shall not quote anything that he will find embarrassing. One of the many interesting comments he made was: It ought to be clear at least that issues as big as these"— that is, joining a single currency— require the most careful consideration. The questions involved are complex and reasonable people may well disagree about them. Yet all too often the debate on EMU is conducted in terms of headlines and slogans from entrenched and unalterable positions, often without regard to the facts". While the noble Lord, Lord McNally, may point a finger at some Members who normally sit behind me, I can also point a finger to some of the Euro-fanatical friends by whom he is surrounded. The matter requires a great deal of serious consideration.

From the point of view of the British economy, it is interesting that the noble Lord, Lord Currie, states elsewhere in the article: Labour market flexibility will greatly help with the implementation of EMU, but is necessary with or without EMU for a successful and dynamic European economy". That is a message that my right honourable friend the Prime Minister took to the Continent recently in his speech and it is a message that my right honourable friend the Foreign Secretary is taking to the capitals of Europe as he makes his speeches. The noble Lord, Lord Currie, goes on to state: EMU could hinder business: for instance, by encouraging Europe-wide comparisons in wage negotiations, or by promoting further social legislation as part of a broader trend towards federalism. These dangers need to be guarded against". I could not have put it any better myself.

I turn to the comments made by the noble Lord, Lord Eatwell, who seems to have had an interesting day reading the press. I too had an interesting day reading the press. I found of considerable interest the article by the noble Lord, Lord Desai, which was published in the Sun—

Lord Eatwell

My Lords, does the Minister read the Sun?

Lord Mackay of Ardbrecknish

My Lords, of course I read all the newspapers. One must not read only the serious newspapers giving political points of view and other articles of news with which one agrees. The noble Lord, Lord Eatwell, probably gets no further than the Guardian or the Financial Times, but I try to read a broad spectrum of the British press.

On Monday I was being tempted to join, to adjudicate or to be the umpire or referee in the "Ken and Eddie Show". I resisted the temptation. Interestingly enough, unbeknown to me, down the corridor the Governor of the Bank of England was saying to a Select Committee of the other place much the same as I was saying at this Dispatch Box. I must say to the noble Lord, Lord Eatwell, that tonight I shall resist the temptation to intervene in what I might call the "Ken and Malky Show". As I am a little sceptical about what I read in the newspapers, I shall attempt to explain to the noble Lord, Lord Eatwell, exactly what the Government's position is and has been for some time on the single currency and whether we should join.

We have made it perfectly clear, and reaffirmed it time and again, that we believe in continuing to negotiate and to be in all the discussions on policy so that when the time comes we will take the decision in the best interests of Britain. I thought that that was now the policy of the Labour Party, having changed from its previous policy. On many occasions its Members mocked me at the Dispatch Box when I produced the policy with which it now seems to agree; that we should take a decision later and do so in the interests of Britain.

We take the firm view that the single currency will affect us whether or not we are members. Therefore, even if we were not in it, it is necessary that we help to secure a stable single currency over the long term, if that occurs. That is very important. We believe that when we take that decision it must be clear that the necessary economic convergence has taken place. If it has not taken place we believe that it will be better for Europe as a whole to delay and to get it right rather than to rush ahead.

Our conclusion, on the information that is now available, is that the convergence criteria are very unlikely, although not impossible, to be met in order to allow EMU to proceed safely on 1st January 1999. On that basis, there is a strong argument for delay by the European Union as a whole. If it proceeded without reliable convergence we would not of course be part of that and we have made that clear for some considerable time.

On 2nd February last year, my right honourable friend the Chancellor of the Exchequer said: We will only agree to take part in a single currency if it is in our national interest to do so, given the circumstances at the time". He went on to say: Any decision will be based on a hard-headed assessment of British national interest in terms of jobs, capital investment and our ability to sell goods and services in the world market. In evidence to the Treasury Select Committee in another place, the Chancellor made it clear that a starting point would be whether it was going to work, whether it was going to last and whether it was going to achieve the advantages which the architects intended. Those would be the criteria. He said: I would decide whether in the circumstances of the British economy at the time, it seemed likely to be in the British interest to participate or not". That makes clear the Government's position in regard to the single currency. It has been a position about which we have been clear for some considerable time. I hope that that helps the noble Lord, Lord Eatwell, to understand clearly our position—

Lord Eatwell

My Lords, the Minister provided a most interesting tour d'horizon but he has failed to answer the questions which I asked. Simply, when the Foreign Secretary says, "On balance, we are hostile to a single currency", not in 1999 or at any particular time, was he stating government policy—yes or no—or was that, as the Chancellor of the Exchequer said, a slip of the tongue?

Lord Mackay of Ardbrecknish

My Lords, I thought that I had made the position perfectly clear. The balance of the argument would have to show very clearly that it would be to our benefit to change our system and go into the single monetary system. That is what Malcolm Rifkind was saying too. As I said earlier and as we have said for some time, we believe that it is very unlikely that the circumstances will be right by 1st January 1999, not just for us but right across Europe. In those circumstances, it would not be wise not just for us to join but for an attempt to be made to start the single currency if those convergence criteria have not been clearly met.

Lord Eatwell

My Lords, with all due respect, that is not what the Foreign Secretary said. He did not say that there was a balance to be struck. He did not say that we shall consider the circumstances at the time or even that we might consider the circumstances in the second round. He said: We are hostile to the single currency". That is not an issue of balance. Is that Government policy?

Lord Mackay of Ardbrecknish

My Lords, I have just explained what Government policy is. I have not had an opportunity to see what the Foreign Secretary actually said but in the context of what I have said, I believe that what he said, if it has been quoted to me correctly, is totally consistent. It depends on what happens this year, next year and in 1999 as to whether it can be started on 1st January 1999. As I made perfectly clear, at present we are very sceptical as to whether the convergence criteria will be met sufficiently well by most of our fellow Europeans in order to get the single currency off to a stable start. If it does not do that, I suspect that it would be a very dangerous voyage not just for us to start out on but for all our friends to start out on.

I go back to the speech made by the noble Lord, Lord Dahrendorf, last summer. The worst thing that could happen to us all would be to have an unstable single currency which would cause huge damage and internal pressures on the European Union. I should not wish to see that at all. Despite the efforts of the noble Lord, Lord Eatwell, I do not believe that there is quite the contradiction between the policy that I have outlined and what I suspect, when one sees the proper text of it, the Foreign Secretary was saying and the context in which he was saying it. That will be found when tomorrow morning dawns and the reports are seen in greater detail.

As regards being on track to meet some of the convergence criteria, it is extremely interesting to note that in the Red Book it is quite clear that we show there a projection to get the PSBR down below the 3 per cent. level in 1997–98 and in fact to get it to zero towards the end of the century. That is the position which is projected in the Red Book.

Indeed, the PSBR figures for January give us every confidence that that will be achieved, because the PSBR in January showed a repayment of £5.8 billion, a larger payment by £2.2 billion than was made in January of last year. Indeed, in the year to January, the PSBR was £9 billion lower than the equivalent period last year. Therefore, January was an excellent month for the public finances. Those figures are further confirmation that borrowing is on a clear downward path. We are now comfortably on track to meet the budget forecast and we may do even better than that. Some commentators in the City whom I read this morning in the financial pages of some of the newspapers other than the Sun seem to believe that also. I found the article by the noble Lord, Lord Desai, quite interesting enough for the Sun without having to turn any more pages of that newspaper. But I read in other newspapers the financial comment from the City that the position looks very encouraging.

The noble Lord, Lord Eatwell, asked me what is driving down public sector borrowing. Strangely enough, public sector borrowing is a subtraction sum of two very large figures, as I said before. One is the Government's income from taxes and so on and the other is government spending. What is driving down public sector borrowing is that we are controlling government spending extremely tightly. We have recently had an endorsement from Mr. Gordon Brown, no less, in relation to government spending over the next two years. He seems to be perfectly content with our spending plans across government. We have had to keep very tight control over our spending and we shall continue to do that. As I say, the PSBR is the difference between that tightly controlled figure and the amount of money that comes in in VAT, income tax and so on.

Therefore, I believe that we are in an encouraging position. I was not sure what the noble Lord, Lord Eatwell, was implying when he asked me about entering a single currency if it was not positively beneficial. Of course this Government have no intention of entering a single currency if it is not positively beneficial to this country. I wonder whether his right honourable friend Mr. Blair envisages that if he were ever in a position to make those decisions, he would enter the single European currency if it was not positively beneficial. That would be the most amazing statement and any policy statement of any kind, even a negative statement, would be amazing from the Leader of the Opposition who seems to want to try only, if he possibly can, to echo our policies. As far as I understand it, he too thinks we should make a decision when it is right and proper to do so. After a bit, he decided that we were right as regards the referendum and that he too should promise a referendum before we enter a single currency. I shall not go into the other fields of government where the party opposite appears to be trying to pretend that it believes in some of the same things we believe in. If the public believes that, it will be better with the original—that is, ourselves—rather than a copy. But there is no point in electioneering in this House because, as I should point out to the noble Lord, Lord McNally, none of us has a vote in the forthcoming election so there is not much point in trying to persuade us as to how we should cast our non-existent votes.

The convergence criteria and the report that we are sending to the Commission are extremely important. I refer not just to the convergence criteria to reach that point but I refer also to the stability pact to make sure that any country which gets beneath the wire of the convergence criteria can keep its economy underneath the wire. There is no point in just getting in to get a tick in the box in the year of entry and then going out of it again. That would be absolutely pointless. I am sure that everybody, except perhaps a few fanatics, will agree with that position.

We are fully in favour of reporting to the Commission. We believe that the convergence criteria are sensible and that they are absolutely necessary, along with some other qualifications, if the single currency is to start on time. As I said in answer to the noble Lord, Lord Eatwell, we are sceptical as to whether our friends in Europe will meet the convergence criteria. There is now even doubt about Germany meeting one of the important convergence criteria in relation to its public sector borrowing. I believe, as do the Government, that it would be a foolish proposition for us all in Europe to start out on this enterprise, either some of us or all of us, if there was inside the system so much instability that it was likely not to work and not to be to the advantage of Europe.

As usual, we have had an interesting debate. I thank the two noble Lords who have spoken. I look forward to a repeat performance with us in exactly the same positions next year. I commend the Motion to the House.

On Question, Motion agreed to.