HL Deb 04 June 1997 vol 580 cc650-700

3.20 p.m.

Viscount Cranborne rose to call attention to the case for measures at the Intergovernmental Conference in Amsterdam designed to enhance the ability of the European Union to compete economically worldwide and thereby lay the foundation for jobs and prosperity throughout Europe; and to move for Papers.

The noble Viscount said: My Lords, I am grateful for the opportunity to raise the question of jobs and prosperity in the context of the IGC. This afternoon I particularly look forward to the maiden speech of my noble friend Lord Lloyd-Webber.

The Government have put job creation at the top of their agenda. They also clearly recognise that a prosperous Europe with high levels of employment is important for us as well as for our European partners. I fully agree with the Government on both those objectives. Jobs and prosperity are after all self-evidently good and, like everyone else in this House, I do not share the instincts still to be found that there is something morally superior in squalor and dependency. It smacks perhaps too much of some of the less attractive early Christian fathers before the Bench of Bishops. A prosperous Europe with jobs is more likely to be a Europe that is politically stable and less susceptible to the lure of authoritarian parties of both left and right.

There is no doubt that that part of Europe which forms the European Union is rich in the broadest sense of the word. Gross domestic product per head ranges, I think I am right in saying, from something over 22,000 dollars per capita in Denmark to about 12,000 dollars in Greece. The EU is the world's largest trading bloc. It has a combined economy as broadly based and as diverse as any, rivalled perhaps only by that of the United States of America. Our combined cultural and intellectual inheritance is a source of both pride and, I venture to say, of strength. Our geopolitical position ensures that we are at the fulcrum of world stability. If Europe is at peace, the world as a whole will be unlikely to be engulfed in war.

We are all aware of these formidable assets. It was perhaps above all the sense that Europe had wasted them in the first half of this century, particularly in self-destructive war, that impelled the fathers of the European Union to found the European Communities in the first place.

We also know that in the last few decades, certainly until the 1980s. the core western European economies were the cynosure of all expert eyes. Growth was steady, social compacts brought industrial harmony, prosperity was high and unemployment low. They were the envy of many, particularly, dare I say it, of the United Kingdom itself. One felt the British almost sighing: "Would that we could be like them".

It is a matter for people infinitely more expert than I to say how much of those countries' economic success was due to competitive exchange rates, lack of competition from other economies and the United States' role as the locomotive for the world economy. But it is surely becoming increasingly clear that the performance of what I think are coming to be called the large Rhineland model economies has begun to stumble over the past decade.

It is a stumble that is most starkly evident in the European Union's unemployment figures and, equally important, the employment figures. Since, quite rightly, the Government stand or fall by their performance on jobs, I am perfectly happy, for the purposes of this afternoon's debate, to use jobs as our touchstone. I have also noticed, particularly in the wake of the Question of the noble Lord, Lord Wyatt of Weeford, this afternoon, that there is some argument about the calculation of unemployment statistics. So let me use the Eurostat series which is perhaps as near to a uniform basis as we can get. That series would suggest that of the four biggest European Union economies. Germany's unemployment rate was, last February—the latest figures I can obtain in the series—9.6 per cent.; France's was 12.5 per cent. and Italy's was 12.2 per cent. The United Kingdom's was 7.1 per cent. As at last April, the United Kingdom also had the highest proportion of its population of working age in employment—68 per cent. as against 65 per cent. for Germany, 59 per cent. for France and 51 per cent. for Italy.

Apart from the United Kingdom, where unemployment is falling—and I think the Government would agree that it is falling quite rapidly. however we measure the figures—unemployment in the other three countries remains at best (let us put it no higher than that) stubbornly static. It is clear that our own performance still has some way to go before we can pat ourselves unreservedly on the back. But at least we are going in the right direction. For the moment at least, we seem to be doing appreciably better than the other three big economies in the European Union.

Why are we doing relatively well and why are they doing relatively badly? I believe that in the beginning, and in the end, only successful businesses create jobs. Of course, businesses must be competitive to be successful. It may seem a glimpse of the obvious to say so but I sometimes wonder whether the obvious is forgotten in the Councils of Europe. Economies which provide an environment in which businesses can thrive will be economies which create jobs. They therefore have no alternative but to be competitive.

The Foreign Secretary characterised today's world in terms which I quoted during the opening day of the debate on the gracious Speech—terms with which I agreed at the time and with which I agree now. The world which the Foreign Secretary described is not a world which allows economies to thrive on protectionism. Capital nowadays is too mobile for that, if it ever had been the case, and an increasing proportion of what is sold is in the form of information and services—which are notoriously difficult to control or to measure and which are self-evidently highly mobile. This development alone makes protectionism a loser's game. Governments must be able to compete not just within their own trading blocs but with economies further afield.

As we know, protectionism takes many forms: tariff barriers and non-tariff barriers of a conventional kind, of course, but also a trickier and more insidious form. It is a form often presented in the guise of our old friend the level playing field—an expression of which I seem to remember to my cost the late and very much lamented Lady Seear strongly disapproved. In the interests of fair competition, countries within the existing trading bloc agree to harmonise their tax rates or impose the same social costs or even ban so-called competitive devaluations. The result may eventually be to construct a level playing field, but it will be a playing field which will need a tall ladder to climb up to it and will be expensive to maintain at such a height. The competitiveness of the trading bloc which builds such a high level playing field will decline in relation to its commercial rivals just as surely as if it erected tariff barriers of a more conventional kind.

Part of the motive for this structure is thus to prevent one part of our trading bloc enjoying a competitive advantage over another—a rather questionable procedure at the best of times, since competition is one of the things that induces commercial success. But it is also proposed to compound the felony—if I may call it that—by addressing another objective. That objective is by any measure a noble one. It is to protect the jobs of workers in the European Union, to protect their health and safety and to ensure that they are not exploited by unscrupulous employers. In doing so it is hoped that the direct effect will be beneficial, of course, but it is also hoped that all sectors of society will discover an interest in the great European project—that they will, if you like, become part of the team. Much of the cost of those measures which is ratcheted up ever increasingly is borne by employers.

The difficulty about that approach is that, although it worked until about 10 years ago, it does not altogether seem to be working now. The high levels of unemployment in France and Germany are evidence enough of that. In fact, your Lordships will be aware that in comparison with the United States, which I believe has created about 36 million new jobs in the past 20 years, the European Union has created only about 5 million, half of them in the public sector. Indeed, it is hardly surprising that employers are reluctant to create jobs in sufficient numbers when for every £100 in wages a German employer must pay an additional £31, a French employer an additional £41 and an Italian employer an additional £44. As your Lordships will also be aware, the figure for the United Kingdom is £15.

The burden on employers is also compounded by a burden on the state which is reflected in high levels of taxation and, since people worldwide are increasingly unwilling to pay high taxes, in high levels of deficit in government accounts. The result is a vicious circle which locks in high levels of unemployment to government fiscal overstretch. It is a vicious circle which contributes very substantially to an increasing lack of competitiveness. It is also a vicious circle from which the United Kingdom has begun to escape, very largely thanks to the reforms initiated under the leadership of the governments led by my noble friend Lady Thatcher, whom I am delighted to see in her place today.

The World Economic Forum's global competitiveness report as recently as a fortnight ago highlighted the fact that the United Kingdom had risen to seventh in the world competitiveness league. Incidentally, I noticed that the Chancellor of the Exchequer implied on the "Today" programme that he did not accept the report's findings. He said that he preferred another report that put the United Kingdom in a much worse light. I must say that the right honourable gentleman has made downplaying good news almost a way of life. I know that in the long years of opposition it is arguable that it has served his party well. But, with the responsibilities of office, it would perhaps in the end serve this country ill. So perhaps the noble Lord the Lord Privy Seal could tell us when he comes to reply whether he welcomes that report. If it is right that our policies over the past 18 years are raising competitiveness and creating jobs, it would be precisely wrong now in Amsterdam to open this country to a European social model.

Let me remind the noble Lord the Lord Privy Seal of what the report said. Of the United Kingdom it said: The two decade long restructuring in terms of privatisation and deregulation is finally paying off, putting the United Kingdom into a strong competitive position for the new global economy". It goes on: What we see in the United Kingdom is an economy reborn". By contrast, the authors expressed alarm about the position in other major European economies. I quote again: The chronic crisis in declining competitiveness in the European Union stems from its fiscal and labour market policies. Strong points—such as outstanding technology, management and infrastructure—are weighed down by the extensive welfare state and a rigid labour market. France is stuck in its 23rd ranking. Germany has slipped two places to 25th and Italy ranks 39th". The report goes on to say: Until the painful but essential reforms are met, these countries will continue to suffer from sluggish export growth and excessively high rates of unemployment".

That is the reason for the concern that I expressed to your Lordships during the debate on the gracious Speech, when I said that the advocates of the European Union social model were "Little Europeans" and that they covered their nakedness by accusing its critics of being "Little Englanders". The Little Europeans think that the economies of western Europe are together powerful enough to be able to afford the European social model and to prosper in the new world economy that the Foreign Secretary so eloquently and elegantly described to us. The trouble is that powerful economies often think that. If the House does not think me too fanciful in drawing the comparison, the Ming and Manchu empires thought that and their economic weakness led to their political annihilation at the hands of what they considered to be barbarians.

I also noted that the noble Lord, Lord Jenkins of Hillhead—I am sorry to see that he is not in his place today and I apologise to him for not giving notice that I intended to refer to him—described my remarks in the same debate as a "farrago of nonsense". I cannot quite imitate his pronunciation and I hope that the House will forgive me for that. I know that the noble Lord is a very great man of extraordinarily wide experience, whose judgments, he may feel, must be accepted without supporting evidence. However, in view of the importance of the subject, I wonder whether, this once, he might have favoured us with a little supporting argument instead of merely bald assertion, particularly when all the known facts seem to be against him.

Businessmen in Europe are, contrary to what he and the noble Baroness, Lady Symons, in the same debate maintained, concerned about over-regulation and high non-wage labour costs, since they damage investment and jobs. For instance, Technic, a British tyre manufacturer, relocated a factory from Germany to the United Kingdom. As short a time ago as 17th February 1997, the chief executive, Mr. Peter Webber, stated: Productivity in Germany was low because the workforce was limited to the number of hours and days it could work". He added: There is no doubt that if Britain were to follow the example set on the Continent, small businesses would find it very difficult to flourish or even survive".

I am sure that the noble Lord the Leader of the House would agree with me that the main source of new jobs is in small businesses, as we have demonstrated in this country over the past few years.

It would also be worth reminding the House that as recently as 17th January this year the head of the German CBI, Hans Olaf-Henkel, said: We have too rigid labour laws. We have too high social costs and taxes. We work the shortest working week in Europe. The German government spends 50 per cent. of GDP as opposed to 42 per cent. in Britain. No wonder we have a problem".

I could continue. There are endless examples at my disposal but I do not wish to weary the House.

So, when very shortly the Prime Minister goes to Amsterdam, he will have to decide whether he agrees with the diagnosis of our European partners or whether he wants to pursue the policies that have begun to work here. I must confess that he shows slight signs of schizophrenia on this subject. As Mr. Peter Riddell pointed out in The Times on Monday, the Prime Minister shows some signs of accepting our diagnosis. Indeed, I understand that he has repeatedly expressed his belief in flexible labour markets and the importance of the single European market, which, if he will allow me to say so, is perhaps the greatest achievement of my noble friend Lord Cockfield. Those expressions of belief are extremely welcome from the Prime Minister, particularly at a time when the French elections have shown that France would rather duck making herself competitive and when, as we have seen, the German Government seem to have surrendered their determination that any single currency should be a strong one, much to the Bundesbank's displeasure.

For similar reasons, I am delighted that the President of the Board of Trade, according to this morning's news, wants to examine ways of making our economy more competitive. I must say to her that she could do worse than examine the conclusions of her two immediate predecessors. Those conclusions and the policies that flowed from them have not only received the approval of an academic report—the one from which I quoted—however eminent; they have also received the endorsement of businessmen worldwide, which is perhaps more to the point. We are now the largest recipient of foreign direct investment into the European Union, totalling (I am informed) in 1995, £160,000 million.

As I said, those signs are welcome. However, they are only one side of the story. I am sorry to return yet again to the social and employment chapters and the working time directive, but they encapsulate so completely the spirit of the policies that have produced high unemployment in Europe that it is difficult not to do so.

The Government are fond of pointing out that so far only two measures have been introduced under the social chapter: works councils and unpaid leave for fathers. The important words are "so far". Equally, four important categories of directive under the social chapter are subject to qualified majority voting: working conditions; consultation of workers; equality between men and women in the workplace and health and safety—classic opportunities for closet protectionists intent on building a high-level playing field to exploit on the grounds that everyone is against sin and no decent person would dare question provisions under such heads.

When in opposition the Prime Minister promised to do what he has now announced; that is, that he would sign the social chapter. However, at the same time he promised we would be able to pick and choose which provisions we would accept. That is fine for the five areas where unanimity is necessary; but what about the areas where QMV applies?

Perhaps the Lord Privy Seal could confirm what he failed to confirm during the debate on the gracious Speech—I accept that time was at a premium—that the only way the UK could pick and choose, as the Prime Minister used to want, is to maintain the opt-out we negotiated and to introduce those provisions of which the Government approve in the British Parliament? If that is indeed so—and I am advised that it is—the Lord Privy Seal might also like to reflect that that approach has another advantage. It would mean we could repeal provisions that did not work without the consent of our partners. The Prime Minister's approach is to bet the Bank on a rank outsider on an extremely tricky, small country course. It is not too late to change his mind.

I hope that the noble Lord the Lord Privy Seal will be able to tell us which Prime Minister the British people will have negotiating on their behalf at Amsterdam. Will it be the Prime Minister we have sometimes glimpsed, who understands that competitiveness is what sustains a successful economy? Or will it be the Prime Minister who is willing to sacrifice British interests for the sake of European unanimity? Lloyd George is alleged to have said of Sir John Simon: "He sat so long on the fence that eventually the iron entered into his soul." By Amsterdam the Prime Minister will not have had time to have to suffer that painful experience. But he is nevertheless going to have to make up his mind. It would be nice for all of us to know the answer before he goes.

My Lords, I beg to move for Papers.

3.42 p.m.

Lord Barnett

My Lords, I join with the noble Viscount, Lord Cranborne, in welcoming the noble Lord, Lord Lloyd-Webber, and hope that his maiden speech will be as successful as his music—albeit to a smaller audience: one of better quality if I may say so.

I promised the noble Viscount, Lord Cranborne, when we came into the Chamber earlier, that I would try to agree with some of his comments. It would make too long a speech for me to refer to the points with which I disagree; but I agree strongly with his Motion, to call attention to the case for measures at the Intergovernmental Conference in Amsterdam designed to enhance the ability of the European Union to compete economically worldwide and thereby lay the foundation for jobs and prosperity throughout Europe". From listening to his speech, one could be forgiven for wondering whether or not the noble Viscount himself agreed with the Motion. If he agreed with it and that jobs are, as he put it, the touchstone of the matter, one would assume that he agrees that that requires the UK to work within the European Union for precisely that objective. However, he did not seem to be saying that. Indeed, he went on to refer to the social chapter as though that was the reason for the high unemployment in various countries in Europe. That is simply not the case, as he must be well aware.

The noble Viscount spoke of taxation. I shall not follow him; I spoke enough on taxation matters when the noble Baroness and I debated them in another place. He spoke of the fact that we are now seventh in the world competitive league tables. He argued that that was because of the low levels of taxation under the previous Administration. That is what I understood him to be saying, but I presume he meant personal taxation and not total taxation. If it was a reference to total taxation, he would be incorrect and I am sure that the noble Viscount would not want to be incorrect.

I want to concentrate this afternoon on the real issue; that is, economic and monetary union. It may not strictly be on the agenda at Amsterdam, but with France and Germany in the situations in which they find themselves at the moment and approaching only 18 months from January 1999 when economic and monetary union with the single currency is intended to start, it is impossible not to discuss the issue. One recognises that there are other important issues on the agenda at Amsterdam, but there is none more important than economic and monetary union and a single currency.

I should have liked the noble Viscount, Lord Cranborne, to have been more positive in his endorsement of the European Union. I hope he was not intimidated by the presence of his noble friend Lady Thatcher—I see from his face that he was not. It is vital for the long-term future of the United Kingdom that we play a full and positive role in the European Union. I hope that my noble friend Lord Richard will be making a positive speech today as opposed to one such as that which we have just heard.

I strongly support the idea that economic and monetary union should be on the agenda at Amsterdam. That does not mean that I support the idea of a federal European Union state. That is not on anyone's agenda other than that of the extreme Eurosceptics. Nobody is in favour of that kind of policy. The major issue therefore concerns what is to happen to economic and monetary union. As I say, it must be placed on the agenda at Amsterdam. If it is not, can my noble friend say that we will seek to put it there? I am sure that he intended to answer that question. I mention it en passant so as to remind him in case it is not in his notes.

There is much uncertainty following recent events. However, we know certain things about the background to economic and monetary union. We know that there is much uncertainty about the French and German position. I have done a fair bit of creative accounting in my time, but never to quite the same extent as that which is taking place in France and Germany. I never sought to revalue gold and transfer it to the Treasury. It is not a bad idea, though at that time it may not have given us quite so much money. Equally, I never thought of transferring pension funds from a publicly-owned corporation to the Treasury, as happened in France. I tried to stop people spending money when I was in the Treasury; I never thought of bringing it in in that way. We know that without France and Germany at the outset there will not be any economic or monetary union. The committee which I had the honour to chair reporting on the consequences of, An Economic and Monetary Union of "Ins" and "Outs" was unanimous when it too came to that conclusion.

We know that the presidents of France and Germany, though much weakened at the moment, are still determined, if not desperate, to take their two countries into a European monetary union on 1st January 1999. We know, not just in terms of the Maastricht criteria for 1997, that many countries which want to be in the first wave, including France and Germany, on a strict view—even if we ignore the fiddles—do not meet the criteria on the grounds of the convergence sustainability. That is the crucial matter; it is not simply a matter of achieving 3 per cent. GDP and borrowing in 1997. What happens thereafter is much more important.

I understand that the new French Prime Minister wants to relax the criteria in two crucial areas: first, unemployment, about which the noble Viscount, Lord Cranborne, was extremely concerned, as we all must be; secondly, the political accountability of the European Central Bank. I hope my noble friend will tell us whether the Government support the new French Prime Minister in that regard. I certainly hope so for myself. If he does not feel like upsetting the Government at this early stage in his career as a Cabinet Minister by telling us his personal views, perhaps he can get our noble friend Lord Simon to tell us instead. I have an idea what his views are. I am not sure about the views of my noble friend.

Even more important is the need to press for some delay in the start of economic and monetary union. I say that recognising that some have now come off the fence on this issue and have come down on the side of delay. I am happy that I made the case in your Lordships' House before the election. I hope my noble friend Lord Richard will also support delay. Will we be proposing it ourselves if no one else does?

I make it clear again that I strongly support both the European Union and economic and monetary union. But as I have said before, there is no reason to rush into this. The European Union is not a temporary union. It will be there for centuries. So why on earth do we need to rush to have it start on 1st January 1999? That will only benefit the extreme Euro sceptics, who, I am bound to say—I do not know whether I see any of my noble friends here—are too stupid to recognise that to push ahead at the wrong time will only help the Euro sceptics in their objective of destroying the European Union. It would certainly help to destroy the European Union if economic and monetary union started without members having sustainable convergence. I fear that there are far too many member states which do not have that sustainable economic convergence, leaving aside the whole matter of whether one gets into it in the 3 per cent. of GDP and borrowing in 1997. We have already seen the political damage which countries like France and others have done to themselves in terms of rising unemployment in a blind dash to meet the Maastricht criteria. I hope we can do something about deferring the whole question of the starting date of economic and monetary union.

I sum up by asking my noble friend these questions. Will he seek to put EMU on the agenda at Amsterdam? Will the Government support the new French Prime Minister in his wish to relax the Maastricht criteria in terms of employment and the accountability of the European Central Bank? Will he favour delay in the start and will he propose it? Those are the real issues which I hope will be discussed at Amsterdam. I hope my noble friend will be able to give us the kind of reply which the debate deserves.

3.53 p.m.

Lord Taverne

My Lords, I hope that the noble Lord, Lord Barnett, will excuse me if on this occasion I do not follow him in debating the future of monetary union. I prefer to stick more narrowly to the Motion moved by the noble Viscount, Lord Cranborne. However, like the noble Lord, Lord Barnett, I agreed with one or two parts of the noble Viscount's speech. Unfortunately, I cannot say the same for his general thesis, which I summarise in his own words, "At Amsterdam we must not open the United Kingdom to the European social model".

The trouble with the approach shown by the noble Viscount was the rather facile generalisation about the contrast between the UK/US model and the continental model. It is argued that it is the unregulated flexible labour markets of the United Kingdom and the United States which create jobs and that it is the heavily regulated and inflexible labour markets of the rest of the European Union, with their heavy social security burdens, which destroy jobs. United States and United Kingdom good; the rest of the European Union bad. With great respect, that seems to be a meaningless generalisation which is riddled with fallacies and which obscures some of the real issues that have to be addressed.

I shall look at the generalisation first. Because of the barriers of language and culture there is immense diversity between the labour markets of the different parts of the European Union. Indeed there is probably more diversity within the individual labour markets of the countries of the European Union than there is between the European Union and the United States. Perhaps I may give as an example the present levels of unemployment. Those have to be treated with great care because different figures are produced and one has to consider the different stages of the cycle in which different countries find themselves. If one takes the average, in recent years at least 30 per cent. of the population of the European Union have lived in conditions of lower unemployment than the United States. The United States has one unique difference in that it has a much higher degree of regional mobility of labour, although one could also say that inside Sweden there is a high degree of mobility of labour. However, there is no evidence that jobs are created and destroyed more rapidly in the United States than in the European Union. Next, there is no evidence that wages are more flexible in the United States than in the European Union.

I wish to cite an article by Professor Stephen Nickell of Oxford University which analyses differences in labour markets. If one looks at the percentage increase in wages in response to a 1 per cent. fall in the unemployment rate, in the long run one gets a very large effect in Italy of 12.9 per cent. and in Sweden of 12 per cent. but a low response rate in the United States of 0.94 per cent., in the United Kingdom of 0.98 per cent. and in Germany of 1.01 per cent. Again, there is no uniformity inside the European Union in the regulation of employment in job protection. It is very low in the United Kingdom and very low in Denmark. It is very high in the southern countries of the European Union, but one has to take into account that they have a far higher level of self-employment, which is the most flexible form of employment of all.

There are different benefit systems within the European Union. I cite again the article by Professor Nickell. One finds that there is a low level of unemployment benefit, and a replacement rate in the United Kingdom of some 38 per cent., which is much lower than that in the United States. But one also finds a very low rate of unemployment benefit replacement in Italy. Elsewhere it is much higher. What is perhaps in some ways more important is the duration of unemployment benefit, which has a considerable bearing on the willingness of people to return to work. It is very low in Italy and it is relatively low in the Netherlands, but the period is four years in the United Kingdom, Germany and Ireland. One finds a very diverse pattern indeed.

If one looks at the question of union structure and the influence of unions in terms of bargaining, one finds that the influence of unions is weak in the United States and strong generally in the European Union. However, that can be balanced, and the effect to some extent mitigated, by the strong collective role of employers throughout most of the European Union. There is a wide difference in the active policies to get people out of unemployment, especially long-term unemployment, and into work. There is a wide variation in terms of payroll taxes, with Denmark having practically no payroll taxes at all.

Professor Nickell's article goes into great depth about the different factors in the labour market which affect unemployment. What are its conclusions? First, there seems little doubt that a very high level of unemployment benefit with a high replacement rate is harmful to unemployment if it is allowed to run on. But if it is of short duration and if there are very active policies to encourage people to take jobs, then that harm is negatived. Secondly, there seems little doubt that strong union influence tends to have an adverse effect on employment, particularly if there is collective bargaining on a unified national basis, but not if that is offset by strong employer co-ordination, as in the Netherlands, for example, where inflation is extremely low and unemployment is lower than it is in the United Kingdom.

There is little doubt that, overall, high taxes, not just payroll taxes, but also income tax, have an adverse effect on employment. However, it is the overall tax picture that one must look at, not just that of payroll taxes. There is also little doubt that poor educational skills at the bottom of the market have a very adverse effect on long-term employment. But the evidence also suggests that laws of employment protection and those which relate to hours of work have little employment effect.

In the past a number of commentators have mentioned the stress experienced by Germany, and the noble Viscount has also referred to this. It is interesting and significant that nobody cites the case of the Netherlands, which is probably the most successful economy in Europe, bar possibly Ireland, at the present time. It has a lower rate of inflation, a higher rate of growth, and a lower rate of unemployment than us, although again the figures have to be treated with some caution.

Let us look at the case of Germany. There is no doubt that there are many weaknesses in Germany and that a number of German industrialists are complaining about the high level of taxation and other disadvantages from which they suffer. Of course, it is nothing new for industrialists to complain. Sometimes their complaints should be taken with a pinch of salt and one should look at the overall picture. Nevertheless, at the moment Germany suffers from a high rate of unemployment—higher than it has had for a long time. While it is not dissimilar to that of the United Kingdom, if one takes into account the OECD adjustments, it is still rising whereas ours is falling, as the noble Viscount rightly pointed out.

Germany suffers from high costs and, as a result, often new factories are no longer built in Germany, but in places where labour is cheaper. That applies particularly to unskilled labour. There is also a certain lack of innovation under the German system. particularly in developing the newer technologies which seem to depend on a liquid capital market of the kind for which the German system does not provide. However, one should bear in mind that the main reason for high German unemployment has been its macro-economic background. It has been the result of unification and the settlement with the East of one ostmark for one deutschmark. It has been the result of the very high wage settlements of 1989, 1990 and 1991 in which the German unions also insisted on maintaining a high level of wage settlements for unskilled workers.

The result of these high wage settlements was to produce a reaction from the Bundesbank to create a much more disinflationary climate than would have otherwise been the case. The whole of Europe has suffered from the deflationary policies of the Bundesbank, which flowed directly from German reunification and its consequences. It is the disinflationary policies of the Bundesbank in contrast to the much more balanced policies of Mr. Greenspan of the United States, which are the main cause of German unemployment and which have had a pretty adverse effect throughout the rest of the European Union.

The second point which needs to be made is that one should not underestimate the strength of German industry. When the noble Viscount referred to the sluggish export growth of Germany and France, one should bear in mind that German export growth has been better than ours. If one looks at the German record over the past 10 years it has been quite impressive. There has been a steady increase in the unit costs of labour of 0.9 per cent., but, despite that, there has also been an increase in their share of the export markets of 0.1 per cent. per year. The reason is that they have sold on quality. When we boast about our competitive position and our labour costs, let us remember that in the long term our future cannot lie in selling on low costs. In the end we cannot compete with the low wages of the Pacific Rim countries; we have to sell on quality.

We have many lessons to learn from Germany in this respect. They sell on quality and the key to their success in that regard, particularly in the medium technology companies, has been the very high level of intra-company innovation, which in turn has been based on a very high level of training, which in turn has been based on a very high level of security of employment and a steadiness of shareholding and ownership. It would be incompatible with an economy in which companies were bought and sold like widgets.

So one must remember that the German achievement has been considerable, despite their disadvantages. They have a very high level of skills which we would be sorely pressed to match. They are not likely to abandon their institutional structures and it would be an error if they did. Those structures have brought them strength in the past, although there are many respects in which they too could learn from the Anglo-Saxon experience.

What are the morals to be drawn from this? The first is that one should not preach at Amsterdam or anywhere else about British superiority and how the British miracle should now be the model for the rest of Europe. We have caught up a bit on productivity, but we are still a long way behind compared to Germany or France. Certainly, we have certain strong points in the creation of new innovative companies through a liquid capital market, particularly in areas like bio-technology.

But the rise in German unemployment and the fall in our own has a very great deal to do with the economic cycle. We had a deep depression and started coming out of it earlier. They had depression and disinflation at a later period. The cycles of the two are out of whack. Indeed there is some evidence now that German industry is beginning to recover. We must also remember that our levels of retraining and skills are very low. We have something like three times as many unskilled people in industry as Germany.

I suppose that I agree with the noble Viscount that to pursue some of the measures which some people seem to advocate, including an employment chapter in the IGC, is not likely to be very productive. I doubt that they will have much effect. I believe that he is absolutely right that the most important single struggle must be against protectionism. We would be very well advised—as the Government seem keen to do—to stress the need for the completion of the single market as one of the prime objectives of the European Union.

I have not yet had time to digest it, but there has been published recently a report which looks extremely interesting. It has been produced by the Action Centre for Europe. It is the Sheppard Report which looks at the whole question of competitiveness in Europe. I am glad to see the noble Lord, Lord Simon, here. He is a great expert on that subject and he has made a great contribution to the question. It would be wise to concentrate on the completion of the single market and to promote measures to create a more liquid capital market in Europe as a whole. But let us avoid generalisations and boastful talk about the marvels of the British miracle and economic recovery. Let us not caricature the social market as something which it is not.

4.9 p.m.

Lord Harris of High Cross

My Lords, I am afraid that it is true that old economists never retire, not while there is breath in their body to deplore the overweening ambition of politicians to play fast and loose with the orderly operation of markets. I begin by congratulating the noble Viscount, Lord Cranborne, on his economic tour d'horizon which saves me the fatigue of going over the record of Britain's superior performance compared with the more recent record of the French and Germans. I agree with what he said despite what I thought was a good deal of nitpicking by the noble Lord, Lord Taverne.

I want to take a more reflective and nostalgic view of the political follies that we have witnessed in this country in the past and which we now see in full force on the Continent. As an economist, I must confess to positively rejoicing in the impending failure of the European monetary union. I rejoice in its failure not least as another example of the grandiose political schemes that are brought down by humdrum economic realities. I have said before that if there is one fault in this House—if this House has any faults—it is that we are not sufficiently backward-looking. We have a great advantage compared with the young MPs in another place: we can look back further. Most of us here can recall from direct observation and experience the high political hopes of the post-war years. In 1945 we were all young—at least, some of us were. We were then, as now, enjoying a post-election euphoria. We held our breath as we saw both the great parties—in fact, including the Liberals, all three parties—set their collective sights on combining Beveridge's welfare state with Keynesian full employment, economic growth, stable prices and a fixed exchange rate. It all seemed so simple to brush aside economic constraints.

Alas, 50 years later, we can trace the frustration of each one of those well-intended hopes. Rather like today's innocent Bishops, the Butskellites of those days had the most elevated ideals but, as the Dunkirk spirit faded, they shrank from the economic disciplines necessary for success. That collapse of ambitious party programmes conforms precisely to the predictions of the Austrian economists some 100 years ago. Their elaborate theories can be succinctly rendered as asserting the supremacy of economics over politics. Transient politicians may propose, but permanent economic realities have a way of disposing. In the end, market forces prevail and show themselves to be stronger than puny politics.

Let us take another more homely example which we might now in these post-Thatcher times find it easier to agree upon; namely, the doomed pursuit throughout the 1960s and 1970s by all parties of an incomes policy as a remedy for inflation. How politicians strove to establish what might now be called "convergence criteria" between trade union wage claims and inflation targets! Exhortation gave way to sanctions, yet the result was escalating inflation alternating with recession.

When today's CBI loftily pronounces in favour of the single money, or when Mr. Blair hand picks highly paid businessmen to support his European administration, we should all fasten our safety belts. In the 1960s and the 1970s, the same CBI and some of the great captains of industry meekly fell for every fashionable spoof political panacea—from incomes policy to national planning, from the NEDC to the NEB to the IRC. In his absence, I truly wish the noble Lord, Lord Simon, more success than some of those earlier hopefuls whose names I am tactfully omitting to mention.

So we come to the chequered history of this doomed European project. Growing public disillusion can again be ascribed to the fundamental conflict between noble political ambitions and inescapable economic realities, culminating in a flawed attempt to impose a unitary monetary policy on 15 diverse economies. The baneful consequences of that high-handed political dictation have long been clear in the rigging of the single market. Thus competent market economists would have allotted a major role to clear per se rules outlawing tariffs, subsidies and other restraints of trade, enforced by a truly independent European Court of Justice. As for that "ever-closer union" about which we read, liberal economists would have relied chiefly on spontaneously evolving integration through free trade, based on mutual recognition of national goods and services.

Instead, we have had the bureaucratic nightmare of pervasive, pernickety controls over every aspect of the shape, size and quality of products. At the last count, in 1995, there were 24,000 regulations and 1,700 directives. In an earlier debate, my noble friend Lord Moran compared the 297 words of the Ten Commandments with the 29,911 words of the EEC directive on the export of duck eggs. That misguided crusade for a level playing field is like ruling that competitive cricket is allowed only on perfect pitches where every blade of grass is trimmed to the same length. Such a dirigiste perversion of free markets is attractive to Commissioners whose power, perks and pensions depend on their monopoly of the grass-trimming business. Coming very near home, there are seven former Commissioners among the Members of this House. They are spread around all three parties. I venture to say that apart from occasional mild doubts expressed by the noble Lords, Lord Tugendhat and Lord Dahrendorf, I can recall very few occasions when the other retired Commissioners have paused in their Euro-eulogies to put a warning shot across the bows of the Brussels juggernaut—for example, over the abuse of health and safety regulations, the contempt for subsidiarity, the missionary partisanship of the European Court of Justice or the recent devious bending of the rules to permit Gordon Brown to repay his voters by knocking tuppence halfpenny off the VAT on fuel.

On EMU, instead of persevering with the hard ecu as a parallel currency accepted throughout Europe as legal tender and competing with national moneys to win acceptance, we have had this grandiose, artificial, political counterfeiting of a single Euro-currency. Since it is now collapsing of its own accord—or even of its own discord—I turn to warn the Prime Minister against another danger.

I perfectly understand and am being very patient when I see Mr. Blair feeling obliged to go to Europe to sign the social chapter as a political sop to the Cinderellas of the TUC, but I noticed that at the same time he called urgently for labour market flexibility and warned Commissioner Flynn not to take the social chapter too seriously. He wanted no avalanche of regulations under its cover. Unfortunately, it is the same egregious Mr. Flynn who dreams of a level European playing field in sexual harassment and may yet get round to imposing a common European bedtime. Furthermore, he is an Irishman—I mean no disrespect—but he will not be as easily silenced as Mr. Blair's docile Back-Benchers. So, as a well-wisher, I urge Mr. Blair to beware. According to an MEP, Graham Mather, there could be up to 87 further social measures in that particular pipeline.

Just as the Bundesbank has at last spoken out against EMU, the German President, Roman Herzog, recently returned from Asia to warn his countrymen of what he called "the German sickness". He referred to 4.3 million unemployed. In describing the state of his countrymen he used the words "despondency", "angst", "ossification", "paralysis" and "a mountain of regulations". I must send to the noble Lord, Lord Taverne, a clipping of this particular speech. Uncharacteristically, the German President even made a quip. He said that if Bill Gates had tried to start up in Germany, his garage workshop would have been closed down by the health and safety inspectors". Even the pioneers of the market economy have discovered the old Austrian principle that in the end politics must yield to economics. I urgently warn Mr. Blair that if he amiably allows himself to be ambushed in Amsterdam he will relearn that timeless bitter lesson from early experience.

4.20 p.m.

Lord Lloyd-Webber

My Lords, the day of my introduction to this House was one of the most memorable in my life. It is an immense honour for me to take my place among so many noble and learned Lords who have made notable contributions to our society. I hope that in some small measure I too can make a contribution on issues of which I have some experience and a few others about which I care passionately.

Today it is my privilege to address your Lordships in my maiden speech. I hope that the traditional courtesies that the House extends to new boys will also be extended to me. My confidence in this regard is based on the many kindnesses already shown to me by the Officers of the House and by many noble Lords who have expressed their condolences at the near-impossible task of having to refer to myself as Lord Lloyd-Webber, particularly after six o'clock.

The debate about Britain's future in Europe has centred on the single currency, the exchange rate mechanism, Britain's sovereignty, fishing disputes and common foreign policy—in other words, where we stand in the European Union. However, one matter that I have not heard discussed to any great extent is tourism. Tourism is worth some £40 billion a year to our economy, which amounts to 5 per cent. of GDP. I am happy to say that theatre and related leisure activities contribute hugely to that figure. However, the Government's commitment to signing up to the social chapter of the Maastricht Treaty may well change that. Recently, I read a report that a restaurant in Paris was considering closing down and moving to London. I discovered that the social and employment costs demanded by the French Government's interpretation of the social chapter added nearly 50 per cent. to the staff costs of that particular restaurant. If that were not enough, a restaurant in France must pay tax for putting tables on the pavement, gas and electrical fittings and for training staff. In the United Kingdom at the moment employers are liable only for national insurance contributions of between 7 and 10 per cent.

The new French Government propose to reduce unemployment by cutting the working week from 39 to 35 hours. No wonder there is already talk of certain businesses not opening on Friday at all; no wonder that Paris is losing its role as world leader in food to London. This concern extends to a business about which I know something. The imposition of the social chapter as interpreted by the German Government more than doubles the cost of theatre tickets. The London production of "Cats" charges £32.50 for a top price ticket, whereas in Hamburg the identical show charges the equivalent of £66.50. The top price ticket for "Phantom of the Opera" in Hamburg is £75.50, whereas in London it is still £32.50.

German work practices insist on a maximum 48-hour week as well as full sick pay for six weeks. My German colleagues tell me that that is often used as an excuse for extra holiday. With 28 days paid holiday and public holidays that adds up to 12 weeks paid holiday. I would have thought that even fat cats would be impressed by that. One can translate all of that into the production of "Cats". In London there are eight performances a week, as there are in Hamburg. However, the London production, which at present is free from the rigours of the social chapter, employs 25 actors in the cast. In Hamburg the identical show must employ 45 for the same effect. In London there are 36 backstage staff; in Hamburg 105 must be employed. This extra staffing is the only reason why the London production of "Cats" has a top price ticket of £32.50 while in Hamburg it is £66.50. The top price ticket for "Phantom of the Opera" is an absurd £75.50, as discussed earlier. I must tell your Lordships that the figures for the "Phantom" are worse.

I am encouraged by the Prime Minister's stated commitment to develop and promote the arts—we all are—but I am worried that the signing of the social chapter and the consequences of introducing the working practices currently in place in both France and Germany will stifle the arts to such a degree that only publicly subsidised theatres will be able to mount large or adventurous productions. There is a near certainty that extra costs cannot be passed on to the public and thus that shows and the thrillingly newly-burgeoning restaurant business may be in danger of closing. That will have an immediate effect on the contribution of tourism to Britain's balance of payments as well as the money available to encourage and feed the next generation of artists who can continue to build the reputation that this country has earned for its art, restaurants, fashion and theatre.

I have every sympathy, in theory, and respect for the European social model. It is based on a real desire to create jobs and protect employment. It has deep and honourable origins, not least in the social teachings of the Church. However, the problem is that in its present form it simply does not protect employment; it undermines it and makes it more difficult to employ people. I speak only from my own experience, but I trust that your Lordships understand that I do not make a personal plea. I am well aware that I must steer clear of controversy in my maiden address to your Lordships' House. I merely state the facts in the hope that the Government's commitment to signing the social chapter will not jeopardise the pre-eminent position that this country enjoys in the arts. I urge your Lordships to consider carefully the experience of fellow member states and to support an environment that continues to allow Britain to be a world leader in the theatre and the arts in general.

4.26 p.m.

Lord Kennet

My Lords, it falls to me to congratulate the noble Lord, Lord Lloyd-Webber, on behalf of the whole House for his maiden speech which, while steering clear of controversy, did not steer clear of trenchancy and was all the better for that. I welcome the noble Lord here particularly for one achievement in his achievement-studded career. I refer to his ability to add music to the already very well known words of T.S. Eliot and carry them into even more households and into the minds of even more children than was already the case. That is an extraordinary achievement and one for which he will be remembered, even if he is not remembered for all the others as well.

I should like to make only one minor point this afternoon. It concerns research. At the moment there is a complete blackout on anything military in the activities of the European Commission. The European Union is perhaps the most puritanically civilian and absolutely non-military organisation that the world has ever seen. It blushes if it beholds a rifle. In most fields that is an intended effect. It was set up as a non-military outfit and it has remained so. However, in the field of scientific and technological research it has an effect that reduces the benefit that it is able to confer on Europe. I discovered this on a recent visit to the International Technology Foresight Institute in Seville, which is the joint research centre of the European Commission. It receives a very large amount of research money.

The many research stations all over Europe, which are 100 per cent. Commission funded, are not allowed to back any research that has any military bearing, however remote. As one gets larger and larger industrial agglomerations in multi-purpose firms, of which the aircraft industry is a prime example—half of what they do is for military purposes and the other half is for civilian purposes—there is the lowering of a green baize curtain through the middle of the whole entity of international research in Europe, which is to the detriment of Europe. This is referred to in the original Treaty of Rome, and it is maintained in the Maastricht Treaty. It does not appear to be questioned in the draft Amsterdam treaty. I ask my noble friends on the Front Bench whether it would be possible to see if there could be some small derogation from the ban on all things military to permit a freer flow of interest, money and the employment of scientists on the research front?

4.30 p.m.

Lord Marlesford

My Lords, as the first speaker from these Benches perhaps I may be allowed to add my words of congratulation to my noble friend Lord Lloyd-Webber. One of the great contributions that he has been able to make, not just to our life but worldwide, is to put, with immense clarity, points which are of great importance. That applies to many of his great musical productions. They may have reminded us of happy poems that we have loved; they may have portrayed some fundamental things to do with the Bible: they may have been about major political events throughout the world. When we discuss Europe, one feels that the public as a whole, not just here but elsewhere, is immensely confused. As I heard the noble Lord, I felt that if he could somehow produce in such an entertaining, agreeable and clear way a musical to explain some of the crucial issues facing us on Europe, that would be a tremendous service.

I say that because I believe that the EU is now facing one of its periodic crises. There is a danger—it is a real danger; I hope a remote one, but still a real one—that we might lose the EU as a result of two forces of opposite extremes, as is so often the cause of bad events. On the one extreme are those who are wholly opposed to Europe and all its works, and on the other are those who are unashamed federalists.

Let us think of the great achievements of the EU. The first 10 years (1957 to 1966) were successful. We established a free trade area and a common external tariff. We then had a period during which a battle was fought by President de Gaulle. It is a battle which would have had to have been fought by my noble friend Lady Thatcher if he had not fought it. It was to sustain—something under real threat at that time—a Europe des patries. That of course resulted in the famous Luxembourg compromise of 1966. It was a crucial development. Although it led to some extent to what is commonly called Eurosclerosis for a while, it was a battle that needed to be fought. Europe des patries survived.

My noble friend Lady Thatcher then made a tremendous contribution when she fought the battle of the budget, because the EEC had descended into total economic and financial unreality. Again, that is relevant to what we face today.

We then had another great success—I believe that it is a success—to which we should hold firmly; that is, the Single European Act of 1986. M. Delors then came on to the scene. In an infamous speech on 6th July 1988 to the European Parliament he declared his ambition that 80 per cent. of all legislation (domestic, social, financial and economic) would, within 10 years—we are just coming to the end of the period—originate from the European Commission.

A perhaps even more important occasion—certainly for the old Labour Party—was M. Delors' descent on the TUC conference at Bournemouth on 8th September 1988 when he revealed his vision of a socialist Europe. The consequent TUC strategy envisaged Europe-wide bargaining. It may be difficult for workers in Greece to know that they are being paid different rates for the same job from people in Finland and Austria when the currencies are different. It would be a great deal easier for them to know that the rates were different were there to be a single currency. But can anyone imagine anything more economically unsustainable than that people in wholly disparate countries be paid the same wage for doing the same job with different levels of productivity?

The noble Lord, Lord Barnett, was right to focus on the crucial role of the relationship of France and Germany. There are three things that we must bear in mind. First, the French have a great desire for, based on an assumption of a right to, hegemony in Europe. That is of course coupled with the centuries-old conflict with England. I say "England" advisedly, because of course at many stages the French were united with Scotland against England. Let us remember that the real fault line in the political geology of Europe is not between Britain and Germany or France and Germany; it is between France and Britain.

The relationship between France and Germany has always struck me as paradoxical, and yet it is crucial to understanding what is happening now. Germany, which beat France in three wars, has, since the Second World War, been constantly seeking the approval of France. It may all be mixed up with the fact that France had a Roman civilisation while Germany wishes to live down the reputation of the Germanic tribes of Goths and Vandals who 1,500 years ago did so much to challenge that civilisation, and, let us be fair, it may be due to the undoubted cultural supremacy of France in the 18th century.

The problem with the French—we have seen it with this week's election, which is of great importance—is that there is a certain flabbiness: an unwillingness to face up to the real challenges which affect their nation. All too seldom do they seem to have rulers who can lead them to greatness. Of course they had them in Louis XIV, Napoleon and de Gaulle. That flabbiness descends all too often into an effeteness and even into a corrupt and unattractive society. I cannot help but remember the difference between the administration of President Mitterrand in his sleaze and President de Gaulle who, when he dined alone with his family in the Elysée Palace, insisted that the cost of the dinner be deducted from his presidential salary.

That flabbiness is, in a sense, a product of, and yet contrasts strangely with, the arrogance of a ruling élite who lead the people of France to believe that the state is indeed all-powerful. There is nothing new in that. It dates back to Louis XIV; it survived the revolution. France, after the revolution, was run by very much the same type of people who had been running it before the revolution. It applies now to the products of that magnificent higher education system, to which I pay great tribute, which produces the polytechniciens of the Grande Ecole and the enarques who run the grands corps of the French civil service. Parliament has of course a very modest role in France.

The present structural problems of Europe, about which my noble friend Lord Cranborne was right to speak, have been referred to by others. They include taxation and the added cost of labour, and how dramatically that was illustrated by my noble friend Lord Lloyd-Webber although I am not sure whether the examples he gave were wholly a result of the social chapter. The added costs of employment are indeed a fundamental structural problem in many European countries. It is not levels of employment as such that matter; it is real jobs that matter. Without real jobs—that is, with huge amounts of under employment—economies quickly descend into a Soviet type of system where everyone is working and yet no one is well off. I emphasise that to the noble Lord, Lord Taverne, who was trying to make a case for there being very little difference in employment levels.

Finally, on the question of European monetary union, of course there is a value from the discipline of fixed exchange rates. We have been through that for years, ever since Bretton Woods. However, it has a very high political cost because all too often, if a discipline is imposed by exchange rates, whether it be a Bretton Woods type system or something like the ERM, a country is forced to run its economy in a way which is not in the interests of the people of that country. As we saw when the ERM collapsed, that is very dangerous and can be extremely costly.

It is a great deal better to have self-discipline and to achieve necessary structural changes on one's own. That is a real problem that we have. I agree with the noble Lord, Lord Harris, that it is now most unlikely that we shall have EMU but if we were to have it. we should lose that crucial function of exchange rates which adjust to strains. There are three other ways in which those strains can be adjusted if exchange rates are not available: first, deflation, which means unemployment; secondly, inflation, which leads to unemployment; or thirdly, there can be, and must be, on a massive scale, regional or sectoral subsidies. That implies that a federal budget must be available and therefore axiomatically it transfers from rich to poor countries. We have had something of that in embryo in the common agricultural policy. Indeed, although the CAP applies fairly evenly, there was an attempt at the time of the MacSharry CAP reforms to introduce a differential policy. I am glad to say that that was seen off by Mr. John Gummer when he was Minister of Agriculture.

I believe that EMU is almost certainly doomed as a result of what happened last weekend when France turned its back on the need to restructure its economy. I am fearful of the consequences of the kind of measures which may as a result be adopted at Amsterdam. I hope very much that the new Prime Minister with the policies of new Labour—and it seems to me that new Labour has disposed of all the clothes, and perhaps even the underwear of old Labour—will use his undoubted position of tremendous power and his formidable reputation as a politician, which he has justly earned, to begin, perhaps at Amsterdam, to acquire the reputation of a statesman.

4.42 p.m.

Baroness Ramsay of Cartvale

My Lords, we should all be grateful to the noble Viscount, Lord Cranborne, who unfortunately is not in his place at the moment, for giving us the opportunity to express our views on such an interesting and wide-reaching topic as we have before us today.

It is no matter that those views vary widely, and that has been evident from the not so many interventions that we have had in the debate. The noble Viscount will not be surprised to hear that my gratitude does not extend to all the views that he has expressed to us and he will not be surprised either to hear that I do not agree with many of those views. But this topic is particularly timely since the IGC, which began in Turin in March 1996, is due to be completed at the Special European Council on 16th and 17th June in Amsterdam.

The aim of providing a basis for increasing employment and prosperity throughout the world is one which I should certainly hope commands universal support and is, of course, dear to the hearts of the Labour Party as well as to that of the noble Viscount, Lord Cranborne, as he indicated. The Labour Government have made clear already that among their priorities in the European Union is action against unemployment and for flexible labour markets.

The IGC is very much about, among other issues, completion of the single market and paving the way for enlargement. Enlargement negotiations will start within six months of the end of the IGC and Poland, Hungary and the Czech Republic are at the head of the queue. As well as strengthening countries which are neighbours to the EU, both in terms of their economy and stability, enlargement will open up new markets and opportunities for the UK and other member states.

The IGC is also about bringing the European Union more into touch with its citizens. The need for that was demonstrated only too clearly by the problems encountered in various member countries when ratifying the Maastricht Treaty.

The Commission's action plan for the single market will be considered in Amsterdam. In brief, that has broadly four main strategic targets. The first is to make the rules more effective. That includes simplifying the rules at Community and national level whenever possible in order to reduce the administrative burden on businesses and to create more jobs. It includes also proper enforcement of existing single market legislation which, to be effective, must be adopted and enforced in member states.

The second deals with key market distortions. That includes tackling anti-competitive behaviour. The third is removing sectoral obstacles to market integration. The fourth is to deliver a single market for the benefit of all citizens. That must include measures to ensure that people are made aware of their rights and opportunities in a single market.

The European single market is the world's largest domestic market. While it has already achieved much, its potential is still to be realised. Europe needs a better single market for more growth, innovation and jobs. It must be a market which works for the benefit of all—for large companies and small businesses as well as for consumers and citizens. It must be a dynamic market as well as socially responsible and sensitive to the concerns of all who are affected by it.

The single market is not simply an economic structure. It is 370 million people who want better employment opportunities, better living and working conditions and better choice of products and services. That is what the single market must deliver and what we must be working towards achieving.

There is no contradiction between competitiveness for a company and a well-educated, involved and satisfied workforce. It is quite the reverse. They are inextricably linked. The Motion refers to worldwide competitiveness. Of course that is exactly the context in which the European single market must function and be judged. Everything that makes for a productive and effective single market aids that competitiveness.

As my noble friend Lord Barnett said, one important factor in all that, which is not part of the IGC, is EMU. In this particular debate, I do not wish to enter the many-faceted and complex discussions on the future of EMU but I say only that a single market would, in my opinion, undoubtedly work better if there were a single currency.

I make no apology for repeating a point that I have made before in your Lordships' House. Europe creates one-third of the world's wealth and the USA creates one-fifth. But global invoicing is carried out in dollars. In other words, the dollar is used as a settlement currency in 40 per cent. of international transactions. That brings significant advantage to American business. A single currency could offer the same kind of advantage to European business which no single European national currency could do.

I am not in any way underestimating the enormous hurdles on the course to EMU for everyone, including not least for Britain. I speak in the full knowledge that the British Cabinet, Parliament and people would have to agree before the United Kingdom could join. I also strongly believe that sustainable convergence among the economies which take part is essential for a successful EMU. However, I also strongly believe that it is a subject deserving of more informed, detailed, rational and national debate than it has had in the past in the UK, especially under the previous government. I conclude by quoting one sentence from the excellent report from the Select Committee on European Communities, entitled An EMU of 'ins' and 'Outs', where it is said: The current debates should be conducted in the language of progress. not the rhetoric of the battlefield". That was true when the report was written about a year ago and I believe that it is equally true now.

4.50 p.m.

Lord Reay

My Lords, as a preliminary, perhaps I may say how pleased I was earlier to see the noble Lord, Lord Simon, in his place—although he is not now in the Chamber—on the Government Front Bench. His appointment and job title, Minister of State for Trade and Competitiveness in Europe, embody the promising aspect of the Government's approach to Europe, the one which is only too likely to run into conflict with their approach to the social chapter, as my noble friend Lord Cranborne pointed out earlier. As someone who has sat on the Government Front Bench in your Lordships' House, I regard with awe someone who has given up an annual income of the better part of £1 million to be able to do so. I look forward to the times when he is able to contribute to such debates in this House.

I should like to continue, if I may, with what may appear to be a digression by congratulating the Government on their decision to let the Bank of England in future determine interest rates. Such arrangements are now in force in most other successful modern economies and their record in maintaining monetary stability, except in the most recent years, has, for the most part, been vastly better than ours. I wish the previous Government had taken that decision. My noble friend Lord Lawson proposed independence for the Bank of England in 1988, and even had a chapter in his memoirs headed "Towards an independent Bank of England", in which he concluded: I sense that its time will come—as indeed it should". But somehow we never arrived there. I suspect that the reason why, latterly at least, it did not happen was that it would have been represented as a step towards, and a preparation for, joining a single European currency. In such ways did the government become increasingly paralysed as their majority shrank, and the Eurosceptics and the Europhobes increased their influence and grip on policy.

I welcome therefore the recovery of room for manoeuvre by the Government of this country in their conduct of European policy. They will be able to, and indeed have been able to, adopt a constructive approach, even make concessions, in a way which is essential if full use is to be made of our influence in Europe. The debate will be about what those concessions should be.

I have no difficulty myself with the agreement reported today on a limited extension of the use of qualified majority voting in foreign policy matters.

On the other hand, the Government's rush to join the social chapter, though well advertised in advance, is nonetheless disturbing for those who want to see the economy of this country continue to operate as a job-generating economy. It was encouraging, however, to hear the Prime Minister follow that up by stating his intention to oppose new laws proposed under it that might impede competitiveness. I sincerely hope that he pulls this trick off although, like my noble friend the Leader of the Opposition, I am sceptical. I must say that I am extremely grateful to my noble friend for tabling the Motion today because it has given us the chance to probe the Government further in this vital area. No one did that better than my noble friend Lord Lloyd-Webber in his brilliant and devastating speech on the social chapter which gave the Government many questions to answer.

I should now like to know how the Government intend to react to the Commission's proposal—which, according to press reports, is to be published today—to require all companies with a workforce of more than 50 to establish workers' councils. Business leaders have said that this is a matter which should be left to member states. In his concluding speech, perhaps the noble Lord the Lord Privy Seal can tell us if he agrees with that view.

Large multinational companies may be able to live with Europe's social legislation; indeed, to some extent, they may find it simpler to have the same legislation covering all their European operations. But that is not so with small firms. Additional social legislation can be extremely burdensome to them and could easily stunt their growth. Yet it is small firms that have largely created the additional jobs in this country and that have been encouraged and have proved successful in a way that has not happened on the Continent. Other member states are simply not in a position today to ask us, in this respect, to follow their economic example. It is they, surely, who have lessons to learn from us, as our respective levels of unemployment show and as my noble friend the Leader of the Opposition fully illustrated with the relevant figures in his excellent speech.

The Amsterdam summit has of course been completely overshadowed by the unfolding drama of the single currency. Indeed, I agree with other speakers that the likelihood of a viable single currency coming into being seems to be receding all the time. In Germany, the Bundesbank's reaction against the government's proposed gold reserve revaluation, and the threat that that implied to a strong euro, has alerted the German public to those dangers. I find it almost impossible to believe that the German public will accept the prospect of a weak currency.

Meanwhile, France has been preparing to move in the opposite direction. In the election campaign the Socialist Party, now in government, demanded a relaxation of the Maastricht criteria and insisted on the entry of Italy and Spain as a precondition to joining themselves. The party also promised 350,000 new public sector jobs, which would be unlikely to do much to improve the public finances.

So a rift threatens to open up between France and Germany, the two countries without whom a meaningful monetary union is impossible. On top of that, the French leadership will cease now to speak with one voice. So Chancellor Kohl's policy of economic and monetary union, on time, at whatever the cost, is beset with new difficulties. Despite his passionate reiteration even today in the Bundestag of his commitment to it, there must be grave doubts as to whether it will really come off.

I have no objections on principle to a single currency. I can see that if a single currency was introduced in more appropriate economic circumstances than we have today, with convergent economies and flexible labour markets and with the likelihood of it becoming successfully established, the arguments for us to join, rather than to stay outside, might be very strong.

I believe that the former Prime Minister's policy of refusing to rule out joining a single currency, thereby maintaining the right to continue to be involved in preparations for its adoption, was entirely correct and heroically persisted in. One day in the future, however far off that may be, the country may have cause to be grateful to him for it.

Recent developments in France do not, on the face of it, look very helpful for a policy of seeking to improve Europe's competitiveness if that, as I hope, really does emerge as being the policy that the Government intend to pursue. France has voted to escape austerity. But everything depends on how the new French Government decide to proceed in practice. As a French banker, quoted in today's International Herald Tribune, said: The people around Jospin are not naive about global economic realities, and they are probably in a better position to ease through changes than the right—if they want to". So the British Government may acquire allies over time if, as I hope, they pursue such a policy, or they may have to continue having to endure the silent response that President Chirac told us greeted the Prime Minister's appeal for labour market flexibility at the recent summit in Noordwijk. At least I hope that the British Government develop and stick to the song, of which they have so far only sung snatches, are true to it in practice, and simply forget that they once used to say that, unlike a Conservative government, they would never be isolated in Europe.

I hope I may ask the noble Lord the Lord Privy Seal one specific question relating to quota hopping and the Amsterdam summit. The previous Government intended to withhold agreement at Amsterdam unless the treaty was modified to make quota hopping illegal. As I understand it the present Government have maintained the objective but not the threat. Can the noble Lord the Lord Privy Seal say what the Government hope to achieve at Amsterdam on that issue?

I conclude on a wider note. Whatever our differences in Europe with the other member states, even if on matters of great importance to us we are in an isolated minority, nevertheless I believe that our future lies within the European Community. I see no future for us outside, nor do I interpret the election result as giving any sign that a majority of the public are ever likely to vote in favour of a policy of disengagement from Europe. We must fight our battles from within, making our own contribution to the creation of the sort of Europe we can be happy to live in. Once we used to turn our backs on Europe and then after some years were forced to fight another war for our survival or in the defence of our other interests. Now we must face and argue with Europe continuously. Surely it is much better that way.

5.2 p.m.

Lord Stoddart of Swindon

My Lords, I was intrigued when I saw the Motion on today's Order Paper because it seems to me to be an integrationist Motion, recognising the European Union as a total entity—a sort of federal union—not as an organisation of co-operating and competitive independent nation states, which I understood was the policy of the Conservative Party. I was even more intrigued when I heard the Leader of the Opposition speak against his own Motion, because that was what his speech appeared to me to be. I appreciate that he is in some difficulty at the present time. It may well be that his speech was compiled by a committee of six and had to be hastily revised to reflect the views of a committee of five. Nevertheless his speech seemed to show some confusion.

The Motion seems to indicate that the Conservatives never learn. They have just lost an election by an enormous majority. However, they do not appear to have learnt that the reason they lost that election was their involvement with Europe. There was the ERM which caused the slump that made the Government so unpopular, the signing of the Maastricht Treaty and the forcing of the Maastricht Treaty through Parliament in the House of Commons on a guillotine, and their refusal to rule out a single currency during the lifetime of this Parliament. The Conservatives never seemed to learn that their policy on Europe was deeply unpopular. It will remain unpopular so long as we have such integrationist Motions on our Order Paper.

Lord Marlesford

My Lords, is the noble Lord not prepared to give his own party any credit for winning the election?

Lord Stoddart of Swindon

My Lords, indeed I am. My party, or at least my party leader, learnt that to bruit abroad his British patriotism was the way to win an election. He ruled out the possibility of a federal Europe and said that he was a British patriot. He hung the Union Jack behind him at every press conference and every meeting he attended. He spoke for Britain while the leader of the now Opposition havered about his commitment to Europe and his commitment to this country. If the former Prime Minister had wished to be, and set himself, at the heart of Britain instead of the heart of Europe he might indeed still be sitting on the Government Benches. However, I doubt whether that would be the case as there were other issues involved.

At the present time there are enormous dangers for Europe, and not only for Europe but also for the rest of the world, as we see the problems that this mad gallop towards a country called Europe is causing. It is causing political instability. We have seen the electoral backlash in France and indeed in our own country as they strain to meet the Maastricht criteria for the third stage of EMU. It is creating uncertainty in world markets. Indeed there is a danger of increased currency speculation, greater volatility in stock markets, loss of confidence worldwide and increasing dangers of a serious slump. That is what is happening at the present time and that is what does not seem to be understood.

In spite of that there are Conservatives calling in this Motion before us for European-wide action at the Amsterdam IGC. It seems to me that they still do not understand and they do not realise that it was the measures agreed at Maastricht on EMU that have caused mass unemployment throughout Europe and reduced prosperity in Europe. It seems to me that they now want to compound the disaster of Maastricht by urging more European action. They simply cannot get themselves out of the heart of Europe and put themselves—as I said earlier—at the heart of Britain. If they really believe that the IGC will agree measures to free up markets—as the Leader of the Opposition told us—and get rid of restrictive legislation, they are living in cloud-cuckoo-land. That simply is not on the agenda. The likely outcome of Amsterdam is an employment title leading to more bureaucracy, central control and additional costs loaded on to industry leading to loss of competitiveness and therefore destruction of jobs.

Noble Lords

Hear, hear!

Lord Stoddart of Swindon

My Lords, I am glad that some noble Lords say, "Hear, hear!". But they want more European action and that is the kind of action they will get at Amsterdam. It is about time they started learning. It is about time they started listening to me for a change. Of course the problems will be compounded in manufacturing industry. The only jobs that will be created by this Euro-wide action are more jobs for bureaucrats. If the new Government have any sense—I wish them well—and really mean to be friendly to business (not just big business and the multinationals but also small and medium-sized businesses) they will reject further interference through a new employment title.

Britain's long-term economic prosperity will be assured not through more integration but less. There is positive action the Government can take at Amsterdam to help to tackle unemployment. Here I find myself in agreement for a change with my noble friend Lord Barnett. He spoke about creative accounting, and said that he knew nothing about it. But I remember the time when he sold off 49 per cent. of BP—the first privatisation. That was a bit of creative accounting. However, I agree with him that we need to call for delay in agreeing to Britain going into a single currency. I should like the Government to rule it out for all time, but at this stage they could rule it out for the lifetime of this Parliament. That would have a great benefit: it would create a certain amount of stability in what has become a very unstable situation.

If we wish to gain real employment in industry, the Government should refuse at Amsterdam to agree to any amendment to the treaty until all countries agree to a root and branch reform of the common agricultural policy. Let us stop up the £30 billion black hole of waste and over-production, reduce the environmental damage of extensive farming, open up world markets in food, and lower costs of food to consumers, thus reducing pressure on wages, reducing unit costs and making us more competitive in the world. Does anyone disagree with that? No, of course not, my Lords. That is one of the policies which I urge on my noble friends when they go to Amsterdam.

Furthermore, I believe that they should make good progress on fishing. They should again go for a root and branch amendment of the common fisheries policy to ensure that it is amended to give Britain back control over its fishing waters with a resultant boost to fishing jobs and economic gain to the economy generally.

I believe that the Government should also urge and support measures to cut the European Commission down to size. Indeed, they should prevent it from acting as though it were the government of Europe. I am sure that no one agrees that it should be the government of Europe. If anyone does, let him stand up and say so. But the Commission is acting more and more as though it were, and it should be put in its place.

The Government should not agree to any extension of the European Parliament's powers. It is about time they reined in the arrogant ambitions of the European Parliament to have a say not only in economic decisions but also in defence and foreign policy decisions.

That is my advice to my noble friends. I hope that they will listen to it rather more than the previous Government did. The Government know my views on Europe. Nevertheless, there is much that the Government can do in Europe by ensuring that British interests are put first, second and third, and are always paramount. I believe that if they do that they will have the continued support of the British people over a long period of time; and I wish them well at Amsterdam.

5.14 p.m.

Lord Beloff

My Lords, I hope that the House will forgive me if I am serious. This afternoon started with a Business Motion from the noble Lord the Lord Privy Seal that this debate should be limited to five hours. The number of speakers, and the admirable brevity of some speeches, mean that we have a good deal of time at our disposal and I am sorely tempted to revert to my normal habit of a 50-minute lecture. The noble Lord, Lord Wallace of Saltaire, will take this for granted if I hold him up a little while in pursuit of that.

I have sat through the whole of the debate, as the last Back-Bencher to speak, with increasing puzzlement. I was puzzled by the terms of the Motion; I am puzzled by the debate. What is to happen at Amsterdam on the 16th and 17th of this month is the consideration of a draft treaty—a treaty to be known, if it is agreed, as the Treaty of Amsterdam—which is to take the form of a revision of the Treaty of Maastricht, the Treaty of Rome and the other documents which make up the corpus of the organisation of the European Union.

That draft treaty. we understand, has now been circulated and I have a feeling that the noble Lord the Lord Privy Seal has seen a copy. He cannot be behind a number of journalists who certainly have done so. But we have not had a text that we could debate, upon which to discuss how the Government might proceed in negotiation. We have had a number of leaks dealing with different topics in the vast array of issues which fall to be discussed.

It was because of that that early in our debate the noble Lord, Lord Barnett, said—and I see his point—that that issue pales before the problem of EMU; that all the other changes which might or might not be agreed to would be less important than whether or not we have a single currency. Therefore he devoted his speech to indicating what was happening about the single currency. But it is conceivable, since the single currency is part of the agreement reached at Maastricht, that the Treaty of Amsterdam might include a revision of those clauses. It would not be beyond the bounds of legality. But that is unlikely to be achieved in two days in Amsterdam.

The Motion suggests taking note of the desirability of certain approaches to the other economic aspects of these arrangements. The problem is who is to take note of them. We always "take note" in our Motions in this House. We sometimes mean that we should all take note, and sometimes that the Government should take note. But it is not much use our taking note of the desirability of measures for competition, or however one defines it, or of the Government embracing such ideas, unless there is a reasonable prospect of the countries with which we shall be negotiating being, if I may so put it, on the same wavelength—if there are still wavelengths in the digital world. I find it difficult to believe on recent evidence that that is so.

I am sorry that the noble Lord, Lord Taverne, is not in his place. I wished to refer in some detail to what he said. Basically he called our attention to the extreme differentiation between what we call continental Europe, the different countries within it—Rhineland Europe, however one defines it—and the different parts of those countries. When one talks of Germany, there is no lack of prosperity in Bavaria, but there are whole areas in northern Germany where the textile industry once provided employment and no longer does so since, as the noble Lord, Lord Taverne, pointed out, it has been cheaper to have those items manufactured in countries with lower labour costs.

Therefore it is extremely difficult to think of a set of policies that would have equal appeal throughout this number of countries and within many of these countries. Italy is perhaps an even better example than Germany. It has always been a problem of the European Community, now the European Union, that as soon as any attempt is made to devise common policies on a variety of issues we come up against the fundamental differences between their components. As was alluded to by the noble Lord, Lord Taverne, the United States' advantage is that in many respects it has a single national identity, and a greater readiness therefore in relation to labour or capital mobility than is easy to find in Europe or will remain easy to find in Europe whatever changes we make.

The other objective referred to of the revising conference in Amsterdam is to provide a means of expansion, of bringing other members into the Union. and to make the necessary administrative, political and financial arrangements that such expansion will demand. Again, I believe there may be under-estimation of the even greater difficulty in creating common policies which will confront an enlarged Union. I believe it was the noble Lord, Lord Barnett, who referred to the impact on Germany of the unification, of the financial problems created by having to sustain a very different level of productivity and a very different standard of living in a country suddenly under single government and inevitably adopting a single currency.

These are serious issues. It is not sufficient for the Government to enter negotiation with quite the optimism which Members of the Government sometimes show. I have no precise quotation with me; however, noble Lords will recognise the general thrust. One hears, for instance, the Foreign Secretary saying that we have a vision of a Europe of co-operating nation states and that we must be the leaders in Europe in order to have that vision adopted. I take that also to be in some respects the position of the Prime Minister.

But that assumes that people are capable of being persuaded. Evidence that that is the kind of Europe they want is, to say the least, somewhat sparse. For instance, it is generally recognised—various speakers referred to this point, including the noble Lord, Lord Barnett—that recent events in France and Germany, ending with last weekend's elections, make the 1999 date for the start of a single currency highly improbable. Yet when I listened to the French election results coming in and to various members of the French establishment giving their reactions, as people in this country do on the "Today" programme, there was not the slightest indication that they had taken this lesson to heart. One would have thought from hearing M. Jacques Attali and M. François Poncet (with whom the noble Lord, Lord Barnett will be familiar) that a single currency is totally unaffected by the result of the elections and by the change of government. The German élite is beginning to be a little more appreciative of realities, but there could be similar quotations from Germany. When we think of the huge gap between the reality of the economic situation and the objectives—perhaps in the long run the noble Lord, Lord Harris of High Cross, is right—of economic growth which will in the end determine what happens, there is bound to be a very considerable difficulty facing those who represent Her Majesty's Government at the Amsterdam conference.

I hope that the noble Lord the Lord Privy Seal, who must have seen the draft treaty, will tell us how our representatives are likely to approach, not the whole range of policies set out in what I understand is a thick document, but at least those of primary importance and those that relate specifically to the economy. Maintaining the relatively high level of the European standard of living at a time of global changes in the economy is bound to be extremely difficult. It is more difficult than the competitive position of individual countries within a relatively similar economic framework. It probably means a vast and continuing transfer from one branch of manufacturing or services to other branches, with enormous consequences for education and training.

If there was common agreement that that was what was necessary, the result of the French elections would have been different. The result suggests that at present the majority of the French population—and an election in Germany would not produce a very different result—still believe that by protection, by holding onto the—I shall not say acquis communautaire—acquis français, they can continue to enjoy a standard of living well above that of much of the developing world and equivalent even to that of North America.

So long as that is the case, how do we negotiate? Is there anything we can do? I agree that we should not be triumphalist and wave a banner in relation to our own achievements since they themselves may come under pressure. But how can we persuade people whose view of the world is wholly different that our view is the one that is more likely to be correct? The Prime Minister was probably aware of that difficulty when he modestly demanded a tutorial from the noble Baroness, Lady Thatcher. I am sure that he profited by it. Let us hope that is true. I am sorry that the noble Baroness is not in her place to tell us what marks she awarded him on that encounter. I hope that he will not go to the conference with hopes which might be disappointed. So long as there is a fundamental difference of approach as between participation in the world economy and withdrawing on Europe, there are very difficult times ahead.

5.29 p.m.

Lord Desai

My Lords, with permission I wish to speak in the gap. I apologise for not putting my name down; I had a previous engagement and had thought I would not be present for the summing up at the end of the debate. However, since the debate has not been long I wish to speak briefly.

As I read the Motion, it is surprising that all one can say is that not much will be discussed at Amsterdam concerning jobs and prosperity throughout Europe. The only point at issue is the employment initiative. Even that initiative will be disagreed to not only by Her Majesty's Government but also Germany. So as regards the substantive Motion, we have nothing to discuss. Therefore, we have been discussing everything else: the single currency, which is not an issue. I should like to speak on it but in my four minutes I cannot do so and I am sure we shall have another debate. The single market is an important issue, as my noble friend Lady Ramsay pointed out. It is important to note that if we want a single market and labour mobility across Europe, as many of us do, we must have a common framework of some kind. We must have basic rules so that someone trained in Spain can practise in Germany, Greece or Sweden. If you say that you want a single market but do not want a framework, you are contradicting yourself. What we must do is to calm down about how good we are and how bad they are. We all agree on that. If we wish to create a single market we must ask what are the issues which affect the framework to be constructed for mobility of capital, labour, commodities and so on. Unfortunately, that vital issue has not so far been discussed and it is important. It leads to a certain set of rules which we must discuss.

I do not believe that the social chapter is part of that. The noble Lord, Lord Lloyd-Webber, in a brilliant maiden speech, gave us a nice account of what he knows best: the theatre industry in different countries. But with respect, the figures for employment and unemployment that he gave have little to do with the social chapter. However, they indicate that labour legislation in each country is different. The labour legislation in Germany requires different things from the labour legislation in France, Italy or the UK. They show that there is no uniformity of labour legislation across Europe, we do not have a single social chapter. What we have is different chapters.

My last point on the Motion before I sit down is that the European Union does not compete: different companies in countries of the European Union compete. If we want companies to compete, we must ask what is the minimum the European Union can do not to obstruct competitiveness but to enhance it as best it can. That may require us to agree to have labour market flexibility, differentially in different countries perhaps, but we must also agree that the safety net which we would all like to have may have to be different in different countries. The European Union is not yet ready to have a single uniform safety net across Europe because we do not yet have a single European economy. We have a cluster of economies. Therefore, the best thing to do is to choose the best, with as much subsidiarity as possible, and have the degree of uniformity that is essential for the single market.

5.34 p.m.

Lord Wallace of Saltaire

My Lords, this has been a puzzling debate because it has not been clear what was its purpose. I must admit that I am even more puzzled because I thought I had read the draft treaty. I went into our Library yesterday and asked for a copy of the draft treaty. They produced a December 1996 draft, a March 1997 draft and a document marked UKREP, United Kingdom Representation to Brussels, 16th May 1997. That seemed to me to be up to date with the latest Dutch presidency draft. I read through it as fast as I could, looking hard for all the social dimensions. As the noble Lord, Lord Desai, said, I found remarkably little.

There is a suggestion that we should add to the preamble that the promotion of employment is a good thing. I am sure that the noble Viscount, Lord Cranborne, would agree with that; indeed it is what his speech was about. But there is very little else about employment or the social chapter in the draft. There is a lot on Title VI, the third pillar, which worries me stiff. I hope that the Government are looking through it carefully and that they have read the Schengen acquisin detail, because I know that a number of senior officials in the British Government had not read the whole Schengen acquis in detail until recently.

In this debate we could perhaps have been discussing the unresolved issues in the IGC. It would have been a worthwhile exercise. Perhaps as a contribution to open government, our new Government should have put that down as a Motion for debate because there are some important unresolved issues which we have not reached.

One of the things I found most frustrating about the last government was their deliberate avoidance of open debate in Britain. The last Foreign Secretary went round giving speeches about the important issues at stake in European integration, all of which he delivered in other countries. He did his best not to talk about them here. The misrepresentation of what is at stake in the treaty of Amsterdam, the current IGC, reached what was to me its height or depth in the article by John Redwood in The Times the other day. It suggested that this would be the end of Britain. Having read the draft treaty, I have to say there is not much in it. The representation by the last Government of it as a small adjustment, a 5,000-mile service, suggests that that is where we are heading.

Alternatively, the debate could have been about chasing the chimera of the social chapter which the Conservatives have been hunting ever since the last intergovernmental conference. I remember the stories of John Major as Prime Minister phoning Michael Howard as Secretary of State for Social Security several times during the last negotiations, the end game of the Maastricht discussions, just to make sure that the form of words for our opt out was acceptable to the hard-line Eurosceptics in the Government. They made as much as they could of the social chapter because it covered their retreat on a number of other issues: on the inclusion of defence in the Maastricht Treaty, on greater powers for the European Parliament which the noble Lord, Lord Stoddart, loves to hate and so on.

Alternatively, we could continue the ideological argument of Anglo-Saxons versus Rhinelanders or the pursuit of a completely deregulated world economy, which the noble Lord, Lord Harris of High Cross, was pursuing. One thing that I thought we had discovered in the past 15 years is that when you deregulate you have to impose new regulations. The question is: what new regulations do you impose and at which level of government—national, European, or global—do you impose them? The idea of a totally deregulated national or global economy is also a chimera.

However, we understand that the Anglo-Saxons are not themselves Anglo-Saxons, they are descended from Austrians; or perhaps they are descended from Austrians for whom the British economy in the 1920s (or was it the 1930s?) was the golden age from which we declined from 1945 onwards.

I have been puzzled over the past 15 years or more by the repeated need for free traders, the new Conservatives in this country, to denigrate the German economy. We are now witnessing the third attempt since 1979 to tell us all that the German economy is finished. I can remember in the early 1980s and the late 1980s long articles, even in the Financial Times, on why the German economy no longer worked. Spending time in Germany over the past few years, I have noticed on several occasions that, according to the laws of Anglo-Saxon economics, the German economy should not work. It is a standing insult to Anglo-Saxon economics, as taught in my institution and other British universities, that the German economy works at all. However, surprisingly it seems to. Worse than that, it carries on producing an export surplus, whereas the Anglo-Saxon economies work well for consumers but tend to run export deficits.

What is wrong with the German economy at present is that it has two major failures. The first is the impact of unification which for Chancellor Kohl was a great tactical success but an enormous strategic error. The second is the weakness of the German Government now in following through from where it started some years ago in the economic and industrial transition. It was clearly a mistake to fix the deutschmark to the ostmark at one to one and that had disastrous effects on the East German economy. It was clearly a mistake, though electorally very convenient for Chancellor Kohl, to promise that it would not cost any extra money and there was no need for higher taxes. We are aware, particularly in my party, that other parties are sometimes tempted to win elections by promising that no higher taxes need be levied and one can nevertheless find ways of spending extra money. So our own Government—the last Government or the present Government—are not in a very strong position to criticise.

We know that the German economy now needs to go through a number of genuine reforms. We also know that there are many people in Germany who argue that case. Those of your Lordships who were at the last Königswintel Conference will remember Herr Biedenkopf giving an extremely bitter speech about the CDU in the West, which spends money subsidising miners in west Germany but is prepared to go on leaving people out of work so long as they are in east Germany. There are many critics within Germany whom we need to support.

We have also heard a certain amount about the French economy, which is also clearly in crisis, having failed to push through the logic of economic adjustment, privatisation and deregulation. It is a painful adjustment. I fear that with the new socialist government which has now arrived in France we are about to witness a repetition of what happened between 1981 and 1983. It took some time for a socialist government, once it had taken office, to recognise that there were no alternatives but to pursue a policy of economic adjustment and allow some of the old comfortable public service attitudes of the French elite to give way.

The third example quoted by the noble Viscount, Lord Cranborne, was Italy, where there has been a deep political block on economic change which, it seems to me, is now at last beginning to unblock. The Prodi Government is the most useful and progressive government in economic terms that there has been in Italy for the past 50 years. One could have added Belgium and Austria as corporatist states favouring a more protectionist Europe—five out of 15.

On the other side, one could have remarked on, as did my noble friend Lord Taverne, the Dutch example of an economy which has gone through a most remarkable

transformation within the terms of the social chapter and the regulation of the European Community. One could also have noted that Ireland, Finland, Denmark and Sweden—a further four countries—are natural allies of the British Government in pushing for the kind of open completed single market, open to economic adjustment, that we need if we are willing to play constructive coalition politics in Europe and are confident therefore that we can find reliable allies.

Let me, like the noble Baroness, Lady Ramsay, come to some of the issues which are relevant to the Intergovernmental Conference and which, in the terms of this Motion, will help: to enhance the ability of the European Union to compete economically worldwide and thereby lay the foundation for jobs and prosperity throughout Europe". There seem to me to be four such issues.

The first is the issue of Community competence in international economic relations—the revision of Article 113. The last Government resisted the extension of Community competence on grounds of sovereignty. It seems to us within the Liberal Democrat Party that there are very strong arguments for widening Community competence in international economic negotiations to include all those issues covered by the World Trade Organisation, including services and intellectual property. Here again, I question one of the underlying assumptions in the opening speech of the noble Viscount, Lord Cranborne; namely, the assumption that somehow the Anglo-Saxons and everyone else are in favour of free trade and it is the Continentals who are protectionist. In fact, the United States and Japan—and, heaven knows, that large, new and emerging economy, China—have their own balance between wanting to have free markets and wanting to have protection. The reality is that we need to bargain hard with all those other major international economic players and that we will do better to use the European Union to bargain hard in favour of open markets and stronger rules for world trade than try to go it on our own.

For the past three or four years I have acted as an adviser to the Transatlantic Policy Network and been involved in the Transatlantic Business Dialogue with the Americans on how we design the rules for transatlantic free trade and, indeed, cope with creating new regulations to cover new areas of trade, such as biotechnology. A few weeks ago in Washington, I sat in on a discussion with a number of US Congressmen, most of them Republican. I distinctly remember one of them saying, "You have to understand that the American people are in favour of free trade provided they do not have to accept imports".

We must recognise that we have our free traders and our protectionists; they have their free traders and certainly have their protectionists. It helps occasionally on airlines, with telecommunications and with intellectual property to have the weight of the European Union behind us in bargaining with the United States in order to promote open markets, rather than to play old sovereignty against the European Community. I should very much like the noble Lord, Lord Richard, in his reply to answer that point.

Secondly, there are the competition rules. I am sure noble Lords will have noted the story in the Financial Times about the German and the French Governments now asking for their own opt-outs from the competition laws in order to protect the public Landesbank in Germany and, in the French case, those public utilities of gas and electricity which are still under public control in France, which are now partly French-owned within Britain. There must be a majority to block those. There is a great deal of opposition in Germany and even some unhappiness in France. I hope that the British Government have that well in hand.

The third issue is the incorporation of Schengen. There is a whole range of complex issues which have not been resolved by the British Government managing to negotiate an opt-out. Schengen necessarily covers the movement of goods as well as people because people tend to move goods. We need some efficient and rapid border controls for those who have legal standing, not oppressive border controls of any sort; and we need to make sure that the weight of the Schengen acquis and the various contradictions between the Schengen acquis and the treaty are resolved in an efficient way. Incidentally, I have my own severe doubts about the accountability side of Schengen and the civil liberties issues involved with the whole third pillar, with which I am glad to see Sub-Committee F of this House will deal.

I touch very briefly on the fourth issue, which the noble Baroness, Lady Ramsay, has already mentioned and which is the question of enlargement. If we are talking about the promotion of prosperity and competition, pushing ahead with enlargement is by far the best way to promote greater growth and more rapid prosperity within the European economy. The most rapidly growing economy in Europe at present is the Polish. If we are able to incorporate those countries more rapidly and give them assistance, they will create new markets for us and we shall gain as they grow. Last week, I found it extremely distressing that the first time this year that any political leader gave us any sense of vision about how we could create a new European economy and new European order was when President Clinton told us what we should do. If our new Government is to provide some leadership in Europe, I hope that we shall shortly hear British Ministers themselves talking on that scale of language and having that scale of ideas.

There are other issues which are clearly still unresolved in the Intergovernmental Conference but I do not have time to touch on them at present. There is the whole question of accountability to national parliaments and to the European Parliament; the whole question of transparency, on which there has been some rather vague language in the draft treaty which I saw; the whole question of the reform of Community institutions; and—not really touched on—the reform of the Commission, which had we been a little less negative, we might ourselves have usefully been able to raise.

Perhaps I may just reply to the noble Lord. Lord Harris of High Cross, who followed the customary habit of criticising those Members of the House who used to be commissioners. The first usefully critical speech on the Commission that I ever heard was given in 1971 by the then commissioner Ralph Dahrendorf, who has remained one of its most trenchant critics ever since.

I do not recognise the image of a protectionist European Union and free trade Anglo-Saxons or proto-Austrians standing up together against it. We have a much more complex image which we must negotiate through the Intergovernmental Conference. I recognise the importance of the European Union as a vehicle for promoting global prosperity and open trade. I see the United Kingdom as playing an important, active and positive role in building coalitions rather than sulking in corners. My party will give this Government its critical, but not unquestioning support in so far as they assume a more active and positive role.

5.50 p.m.

Lord Moynihan

My Lords, I begin by congratulating my noble friend Lord Lloyd-Webber on a brilliant maiden speech in this House. His insight into the social chapter implications on pricing, taxes, employee legislation, even ticket pricing and labour, came from a great deal of personal experience. But content is one thing; delivery is another. Noble Lords who witnessed his eloquence this afternoon will remember for a long time an outstanding maiden speech.

I am tempted immediately to change places with my noble friend. This is my second speech in your Lordships' House and I can neither match the quality of delivery nor the content. Perhaps, therefore, I should quickly disappear to the Back Benches. At least this evening I shall attempt to raise some of the important issues that have been admirably debated in this House. I intend to concentrate on areas of the IGC which have the most economic impact and which therefore have the most effect on jobs and prosperity.

I start from the premise that, other than the issues of the extension of QMV and the powers of the European government machinery, much consensus exists on both sides of this House on key controversial issues—for example, the opposition to quota hopping and the retention of Britain's frontier controls. But one of the serious issues is the question of rhetoric versus substance. Earlier this afternoon in response to a Question in your Lordships' House on the legal personality for the Union, the Minister gave an interesting response which said, first, that the Government opposed it; he went on to state that the Government strongly opposed it but quickly added that of course everything was open to negotiation.

We need to see how tough the Government will be. It is important that we have the opportunity to consider in substantive discussion many of the issues that have been raised—thus the welcome afforded to my noble friend for raising this subject in your Lordships' House today. It is deeply sad that your Lordships' House, and indeed another place, has had no Statement on Noordwijk or debate on the implications of those discussions. That is unprecedented. I hope that we can conclude—perhaps we will learn from the Minister this evening—that the revised treaty agreed at Amsterdam should be less ambitious than the Europe federalists had hoped.

It was a privilege to hear the contribution of the noble Lord, Lord Barnett, to this debate. His brilliance, acerbic wit and incisive analysis were well-known to many of us in another place. However, it was interesting that he raised a subject which will be of key importance in Amsterdam. I say that because, though the EMU is not on the agenda, I predict that it will be impossible for politicians to resist raising it on that occasion in the light of recent developments.

When the matter is raised, I hope that Ministers and Prime Ministers will recognise that the words of the noble Lord, Lord Barnett, were exceptionally important and accurate in the context of the necessity of the delay which he proposed. We understand that emanating from No. 10 is an edict that discourages new or brilliant ideas coming from the Front Bench. I only hope that this is a way of the Government signalling—perhaps we shall hear in a moment—that they propose to take the lead on a proposed delay. If so, they will have support from many sides of this House, especially in the context of the noble Lord's comments that people would be stupid not to recognise that to push ahead at the wrong time, without sustainable economic convergence and without a key recognition that a "blind dash" to meet the Maastricht criteria would be unwise, would help to destroy the European Union". This debate is about competition. There is growing worldwide consensus that Britain leads Europe in terms of economic competitiveness, job creation and prosperity—an issue with which the noble Lord, Lord Desai, was in agreement. The CBI believes that the UK was the first to recognise the competitiveness and employment challenge in Europe, and should be in a good position to influence the future shape and scope of a more competitive European Union". That is where our role at the heart of Europe should lie. We all understand that competitiveness and job creation are two sides of the same coin. Job creation follows from competitiveness. Competitiveness is nurtured by creating the right climate for growth; encouraging enterprise; scrapping unnecessary regulation; keeping business costs low; and tackling fraud and waste. Our deregulated enterprise policies, combined with low taxation and low state spending, have transformed economic prospects in Britain. We now have one of the strongest economies in Europe as a result.

Compassion is shared throughout your Lordships' House for the merciless distress caused by unemployment. But the solution is in the model of the dynamic market, not in the French socialist model of public sector programmes and state intervention. I hope we have agreement that a prosperous and competitive Europe will be a flexible Europe which is outward looking, free trading and democratic. It will need to be fully accountable to accommodate the sheer diversity of all its member states. I hope it will be a Europe where any new European proposals will have to be open to all and agreed by all; a Europe which accepts that competition flourishes best in an atmosphere of European peace and intergovernmental co-operation; a Europe where supranational institutions act only when they can achieve more than member states acting individually and where the nation state is accepted as the bedrock of the European market. A rigid Europe where decision-making is centralised will severely hamper our global economic competitiveness. The ability of the European Union to compete economically is vital to Britain's interests as the economic benefits of Europe cannot be overstated.

Britain leads by attracting one third of all inward investment into the European Union and 40 per cent. of all investment from Japan and the United States. The positive effect of that can be seen in the increasing number of foreign companies which have relocated in Britain. For example, the favourable climate for inward investment enabled BMW to make a major £500 million commitment here. The praise of the noble Lord, Lord Taverne, for German exports was well placed; they have an excellent record. But no doubt the noble Lord, Lord Taverne, knows that Britain is the number one destination for German overseas investment.

If we are shy of boasting about our record, our partners in Europe will do it for us. Jacques Delors described this country as "an investor's paradise", while Hans-Olaf Henkel, President of the Federation of German Industries, blamed "excessively high" German labour costs for unemployment and praised Britain's policies for attracting investment. He said that, Great Britain has become the most attractive location for investment in Europe. Although the German market is twice as large as the British, since 1985 foreigners have invested twice as much in Britain as Germany". The reason for setting this backcloth is that I hope that the Government will lead on job creation. No one disputes the fact that one of Europe's greatest challenges is to cut unemployment and make its businesses competitive. The priority of the European Union must be to create the right conditions for employment and prosperity by completing the single market and working for further global trade liberalisation; not a fortress Europe, falsely protected by increased bureaucracy and state intervention. There is consensus, and rightly so, that unemployment has continued to remain high on the Continent because Europe does not have our flexible labour market, again a point well put by the noble Lord, Lord Lloyd-Webber. There is logic in this. If it costs more to employ and hiring and firing is made difficult, then employment will be damaged.

Britain has an outstanding record in Europe on creating jobs and our example could successfully be transferred to Europe. Since 1979, the UK economy has created as many jobs in the private sector as the whole of the rest of the European Union. We must continue to move forward with policies that enhance the competitiveness which creates jobs. This is no accident because the policies have been based on free trade and competition, reform of inflexible labour market regulations, the reduction of non-wage costs, investment in skills and sound macro-economics.

Therefore, I believe that the role of the Government in any European negotiations is to protect and advance from this position. When Britain's interests are at stake, isolation in place of popularity is not a dirty word. It is artificial to draw a fault line between co-operation and integration on the one hand and isolationism and protectionism on the other. Indeed, the Government's right to opt in to the Schengen agreement demonstrates what is common sense—that sometimes Britain's geography, culture and traditions mean that our national interests differ from those of our European partners. But I hope that this common sense can be applied across the board. I urge the Government not to compromise British interests in their haste to sign up to the social chapter and support the proposed new employment chapter.

What worries me in those two contexts is the subtle salami-slicing of our current competitive position. Signing up to the social chapter jeopardises not only our economic success but the chance for our partners in Europe to compete competitively following our example. Some directives in the social chapter are covered by QMV (qualified majority voting) making it difficult to avoid legislation which could impose the high costs of the European social model on British businesses, because Britain would have no veto. Why open up the route to potentially damaging regulation on social security and social protection? Why rekindle employers' fears by putting an end to the flexible decentralised arrangements that have made the United Kingdom so attractive to international investors? Why, when unemployment is 7 per cent. and falling in Britain, but 10 per cent. and rising in many countries of Europe, threaten the very competitiveness and job prospects we have worked so hard to put in place?

In recent days, the Prime Minister has emphasised his admirable aspirations for European job creation and unburdened, deregulated labour markets which assist in the reduction of unemployment. He has downplayed the possibility that other countries may now try to use the social chapter to end so-called "social dumping" by countries which have lower non-wage costs, on the grounds that there is no appetite in Europe for "great rafts of additional legislation". But is it worth even taking the risk? The CBI issued a warning against the spectre of damaging labour practices. We would all suffer if damaging practices took on an unfortunate double meaning.

The second issue is the working time directive. The new treaty will not now recognise that our hard-won opt-out from the social chapter enabled us to be exempt from the working time directive. The working time directive will burden employers and cost jobs. It will not necessarily limit the working week to 48 hours. I genuinely fear that it will limit the working week to no hours for many people because there will be fewer jobs.

The Government support the proposed new employment chapter. But what benefit can Britain's signature on such a chapter bring to the people of Britain? I hope that we will not forget that although such treaties can create the right conditions for businesses to create jobs, treaties themselves only create jobs for treaty drafters. High or even full employment levels are the goal of every government. Physical enshrinement of this goal in treaty form has no positive effect, but it does have a negative effect of raising expectations without delivering a job. If raised expectations do not ring sufficient warning bells for a new government, the risk of the imposition of continental employment policies less successful than our own should do so, otherwise the brightly-feted new employment chapter could fast become the reviled unemployment chapter.

In conclusion, I want to concentrate on one point—the development of policies and the manner of the development of policies in this sector in recent weeks. The Prime Minister will have a hard enough job in Amsterdam negotiating for Britain on quota hopping and border controls. He talks of tough negotiations but I am worried that the Government may have broken the cardinal rule of negotiating by revealing a hand before the first round of cards has been dealt. For example, the Government have already proposed to extend qualified majority voting to four new important areas of policy—social, industrial, regional and environmental. Only two countries out of 15 put forward such specific proposals on the extension of qualified majority voting. The Prime Minister has talked of a "third way" between the European social democrat model of "worker participation" and the Anglo-Saxon model of free market capitalism. But the haste to support the employment chapter, and the end of the opt-out on the social chapter, belie the Government's words.

The Government say that they want an alliance of independent nations choosing to co-operate to achieve the goals they cannot achieve alone and that they oppose a European federal superstate. How do proposals to increase the powers of the European Parliament so that legislation currently decided by qualified majority voting by the Council of Ministers is subject to a simplified form of co-decision in the European Parliament enhance an alliance of independent nations? Every increase in the powers of the European Parliament by definition must reduce the powers of national parliaments, limiting democratic accountability and centralising more powers.

The Government have said that they want to make the Union more open, democratic and efficient. That is an admirable aim, but not if it is at the expense of democracy, efficiency and competition in our economy. The Government's rhetoric relies on talk of promoting employment and improving competitiveness, yet their actions speak louder than any rhetoric could. To date they have chosen to pursue policies which have distinctly failed to achieve these goals in Europe. It is certainly a fear that in their speed to integrate, the Government will concede in haste and repent at leisure.

As my noble friend Lord Marlesford eruditely said, the European Union should be a partnership of nations, with Britain at the heart of that partnership. The European Union is and has been a success story. The degree of co-operation in Europe today, from the fight against international crime and drugs to higher environmental standards, is extraordinary, unprecedented and praiseworthy in history. It is a partnership that is more than a free trade area, but must be less than a federal state. The European Union should do less as time goes on, but do it better. In this case, less will really mean more, because more trade, more jobs and more prosperity will flow.

I very much hope that the Minister will be able to respond to some of these points. There is no doubt about the depth of feeling and good wishes that go with the Minister and the Government to Amsterdam to obtain the best possible deal for Europe and to build on the unquestioned motivation and drive that the Government have displayed to date. Our top priority should be job creation and prosperity. If the Government want to benefit both the people of Britain and the people of the European Union, at the IGC they will work for a decentralised, deregulated and competitive Europe. I seriously hope that the creation of private sector jobs and prosperity will be the measure of this Government's true leadership in Europe, for which I wish them well.

6.10 p.m.

Lord Richard

My Lords, as is very often the case, your Lordships' debate today has been fascinating. We have heard various contributions from all sides of the House expressing all kinds of views. Before I begin answering the debate, perhaps I may first express my sincere congratulations to the noble Lord, Lord Lloyd-Webber. It is difficult to say "Lord Lloyd-Webber". I have the same trouble with saying "Lord Boyd-Carpenter". I express my sincere congratulations to the noble Lord, Lord Lloyd-Webber, on his speech. On 2nd May I wondered whether we would have the pleasure of listening to the noble Lord, Lord Lloyd-Webber, having regard to the result of the election, but we are delighted that he did not do what the newspapers reported: that he intended to emigrate. Not having emigrated, we were delighted to hear him this afternoon and we look forward very much to hearing him again in the near future. He spoke on a subject which he knew something about. That is one of the qualities of this House which is not always displayed in other debating chambers. On the whole, but not invariably, speakers in this House do have something to say and the noble Lord, Lord Lloyd-Webber, said something this afternoon.

I also congratulate the noble Lord, Lord Moynihan, on what I believe was his maiden speech from the Dispatch Box. I agreed with a large part of it and it seemed to me to be the pattern for the position of the Opposition in this debate. I listened to the noble Lord, Lord Moynihan, and his Leader the noble Viscount, Lord Cranborne, and I am not absolutely certain why we are having this debate at all. I share the puzzlement of the noble Lord, Lord Beloff. I think I can agree with the Motion which is before us. It calls for measures, designed to enhance the ability of the European Union to compete economically worldwide"— there is no problem there— and thereby lay the foundation for jobs and prosperity throughout Europe". I find no difficulty with that. The Motion then states, and to move for Papers". I have no difficulty with that either.

As the debate progressed it became perfectly clear that we were going to have the kind of debate that the Government, as they then were, used to try to have when the Labour Party was in Opposition; that is, what the then Government thought Labour Party policy would be when we had won the election. If it had been a debate with old Conservative versus old Labour attitudes towards the European Community, I could have well understood the speech from the noble Viscount. But looking at what this Government have actually said and done in relation to the Community over the past four weeks, frankly, and with respect to the noble Viscount, I found his speech to be overblown and his concern somewhat synthetic.

Perhaps I may deal with two or three specific questions which I have been asked. My noble friend Lord Barnett asked me about EMU and whether it was going to he discussed at Amsterdam. Like the noble Lord, Lord Moynihan, I find it inconceivable that it will not be mentioned at some stage in the course of the discussions. He wanted to know the Government's position. My right honourable friend the Prime Minister answered a Question at Question Time in the other place. He told the Commons that we would keep our options open on whether the UK should join a single currency. He stressed, We have made it clear … that it is highly unlikely that Britain would want to join the first wave of monetary union. I … also made it clear, as we have always said, that the criteria for monetary union should not be fiddled, fudged or botched in any way. If they are, the answer is not to delay—the answer is not to proceed". That is the Government's position as expressed at 3.30 p.m. this afternoon.

The noble Lord, Lord Reay, asked a few specific questions which I would like to answer specifically right at the outset. He asked about the Government's attitude towards a Commission proposal (which I thought he believed was due to be published today) for obligatory workers' councils for all firms with more than 50 workers. If that is proposed today, the Government will obviously need to consider it very carefully indeed. Under the social chapter there is already provision for workers' councils for large firms with over 2,000 employees. We are doubtful whether it makes sense to legislate on this new measure at EU level. We believe that it should be left to member states to decide and, within that, it should be left to individual employers. It will clearly impose additional cost. That is the provisional view that the Government have on this matter, which I hope may be somewhat comforting to the noble Lord.

The second question the noble Lord asked was about quota-hopping and what we expected from the Amsterdam Summit. Negotiations in the IGC are still going on. The Government attach great importance to achieving progress on quota-hopping before the conclusion of the IGC. Therefore, we are looking actively at all the available options with the European Commission and the presidency. I am sure that the House would not expect me to disclose a greater part of one's negotiating hand. It has been a strange debate. On the one hand I have been told that we should be more open. Indeed, the noble Lord, Lord Moynihan, said that we have been too open and that we have disclosed too much. You are damned if you do and you are damned if you do not. I shall disclose as much as I believe it prudent to do.

Like many other speakers in this debate, I and the Government recognise that our future lies unequivocally in the European Union. That means that we shall play a central part in the Union's affairs. I believe that we have a clear view of Britain's interests in Europe. A month ago the Prime Minister outlined in Manchester the five key priorities for this Government. He also explained them to other European leaders in Noordwijk a little under two weeks ago. Perhaps I may set out those priorities as we see them. First, the position of the single market; secondly, enlargement to the east; thirdly, reform of the common agricultural policy; fourthly, major action against unemployment and for a flexible labour market; and, finally, real foreign policy co-operation.

That agenda is very largely shared by other governments in the Union. If I can use the analogy, the UK is now swimming in the European mainstream. That is a change. As far as we are concerned, the fresh start that we have initiated means no more posturing and confrontation for the sake of the posture; no more alienating partners for the sake of alienation; no harming of British interests for no conceivable, sensible purpose.

We are helping to shape the European agenda. We are going to use our presidency to push the European Union in a more competitive direction; for instance, to take firmer action against state aid which leads, as we know, to substantial competitive distortion. Our recent proposals to the IGC on fraud are setting the agenda now in financial management. The IGC, of course, is only one in a rolling programme of EU negotiations in which the Government will be pursuing those objectives. They also include EMU, future financing and enlargement.

As regards EMU, substantial convergence among the economies which take part is essential for its success. In principle it could have substantial benefits such as lower long-term interest rates, reduced speculation and transaction costs and, perhaps most important, greater stability. A single market may well work better if there were a single currency. The Government are quite determined to be at the centre of the debate ensuring that if EMU goes ahead it does so on a strong and sustainable basis.

We recognise that there are formidable obstacles in the way of Britain being in the first wave of membership if EMU takes place on 1st January 1999. In any case it is quite clear that the Cabinet, Parliament and the people will need to agree before the UK can join. It seems to me that what is missing on this whole issue is a real national debate about the economic effects of EMU, particularly on the prospects for growth and employment, to enable us to judge as objectively as we can whether EMU membership is in the national interests of the United Kingdom or not. On this important subject, we are not going to rule anything in and we are not going to rule anything out until those arguments have been debated and until we have considered them in full detail.

I turn now to enlargement. We believe that enlargement, as rapidly as is feasible, would strengthen the stability of the Union and prosperity among our neighbours. We believe that it would help to open up new markets and opportunities for British business and British citizens. Enlargement negotiations will start within six months of the end of the IGC. In the context of enlargement, as we said in our manifesto, we shall be pursuing reform of the common agricultural policy as an urgent priority. We have debated this previously and I remember saying then that if ever there was an occasion which would demand reform of the CAP, it would be enlargement of the Union into Eastern Europe and the incorporation into the Union of the agricultural sectors of some of those countries. The CAP could not cope with that and it therefore seems to me that enlargement and the reform of the CAP are, in many ways, linked. In the context of enlargement, we also want to look hard at the structural funds and at the ways in which they may be reformed.

I have said that various negotiations are to take place at the same time as the IGC. However, since the Motion and the debate are supposed to be about the IGC, perhaps I may now turn to it. The first challenge in Europe for the new Government will be to obtain a clear and satisfactory outcome of the IGC at Amsterdam. It is an opportunity to secure two broad goals, as my noble friend Lady Ramsay said: preparing EU institutions for enlargement and making Europe more relevant to ordinary people. That is important so that the vital objectives of securing enlargement and prosperity—increased prosperity, we hope, for this country—and democracy and transparency can be carried through. We have already taken the initiative in the IGC by tabling proposals to strengthen the fight against fraud. This House has urged that upon governments on many occasions. We seek also to increase transparency in the Union. At the same time, we have agreed to a wide range of IGC proposals on strengthening fundamental rights and on the environment.

We have also dropped some non-negotiable UK proposals on, for instance, the reform of the European Court of Justice. We are now back in the European mainstream, unlike the previous government, who, frankly, tied themselves into ideological knots and isolated us in Europe—very frequently to no purpose whatsoever.

As I said last month when I opened the debate on the gracious Speech in your Lordships' House, the UK Government have a positive agenda at the IGC. We do not see it as simply a 5,000 mile service of the treaty on European Union, as did the last government, and as was repeated today by the noble Lord, Lord Moynihan. We hope that we shall be able to complete the IGC at Amsterdam. In doing so, we shall of course pursue and defend our national interests. We shall achieve real benefits for British citizens rather than making us widely disliked for ideological Euro-scepticism that shrieked "No, no, no" rather than considering proposals on their merits. We are not going down that road.

The main point which the noble Viscount made this afternoon related to the social chapter. He seems to believe that there is a contradiction between social protection and the creation of new jobs and rising prosperity. Looked at with any kind of historical perspective, that is, frankly, false. The most advanced countries in the world, including the United Kingdom, have significantly higher overall levels of employment, health and safety, and consumer protection than ever before. The UK now has higher standards than many of its competitors, including Asia and America, yet UK firms continue to win export markets. Higher standards that lead to higher skills and a stable framework can promote, not undermine, growth and competition.

In our view, it is dangerous to take a totally one-sided view of the labour market. We agree that businesses should not be weighed down with unnecessary red tape which can prevent them creating jobs, but it is equally important to empower employees so that they can realise their skills and potentials. That is the other side of the labour market. It involves providing a stable framework of minimum standards and interventions to improve skills. I conclude that we should do more—not less—to enhance the quality of UK products and the skills, training and employability of employees.

The social agreement has been the basis for two modest proposals to date, on parental leave and on works councils. There are no ogres in the pipeline (if I may mix two metaphors), although we will be on our guard to ensure they do not arise. Some of our EU partners may have excessive social costs—but that is a problem of their national arrangements not of Community or European Union agreements. By playing the UK's rightful role at the centre of EU debate, we can push the agenda in social affairs in our direction.

There have been two main attacks this afternoon on the social agreement. One came from the noble Lord, Lord Moynihan, who said, "You are taking a terrible risk and you must not take risks". Elevating stagnation to a test of government competence seems to be going a little far. The other attack came from the noble Lord, Lord Lloyd-Webber. With respect to the noble Lord, perhaps I may repeat what the noble Lord, Lord Wallace, said to him: his argument is not against the social chapter but against the domestic worker protection legislation of Germany, to take the case that he indicated.

The number of issues that it will be competent for the social chapter to deal with at European level is very much more limited than the scope or the number of measures with which a domestic government can deal in this area. Nobody is suggesting that we have opened the door to the mass importation of all the details of so-called "Continental" labour practices and labour laws into this country by signing up to the social chapter. I note that the noble Lord, Lord Moynihan, does not say that. He says that it is a risk; not that we have done it. There is a contradiction between those two arguments. As I have often said in your Lordships' House, the social chapter is actually a pretty mild and pallid document.

I turn now to some of the other issues that will arise at the IGC and in Amsterdam. The problems of employment and labour market flexibility are bound to be addressed, as are the single market, enlargement and the Agenda 2000 reform agenda, which is mainly aiming at improving and modernising the Community's management of its resources. I do not want to weary your Lordships with a detailed account of each of those issues, but should like to say a word or two about at least two of them.

I turn first to the single market. The IGC is, of course, not the only issue which is being debated at the Amsterdam European Council in June. The meeting will also discuss the Commission's action plan for the single market. This proposes ways in which single market legislation can be better enforced and implemented across the European Union. It also proposes further ways in which the single market can be further improved. Completion of the single market is a top EU priority for this Government. It is good for competitiveness, good for business and, most importantly, improves the prospects for jobs and prosperity across the Union. We have set ourselves the target of completing the single market by the end of our Presidency of the European Union—in other words, by July next year.

There is a great deal still to be done. We have identified a number of areas for immediate action. We want to see better enforcement, and enactment into member states' laws, of the single market legislation which already exists. There is no point in agreeing to drop barriers to trade between member states if the legislation which ensures that is not effectively adopted and enforced in all member states. We want to see the existing rules simplified where that can be done without making them less effective. We need the minimum legislation that works—not legislation which ties up our businesses in red tape. Parallel with this, we want action to be taken against the unfair use of state aids that can distort competition. Major aids for rescue and restructuring can be particularly damaging; so can subsidy competition between member states for corporate investments. Finally, we want to see the single market improved in those areas where it has been previously neglected.

This evening we heard a good deal about the importance of competitiveness and that the policy of the Government may endanger competitiveness, or that at least it may not foster it. We support the proposals for a new employment chapter in the treaty. We believe that it responds to citizens' concerns about jobs and sets out a framework for co-ordinating employment policy with other member states where that is of benefit. The United Kingdom supports the German proposals to prevent the employment chapter from being used as a basis for extra EU spending or the movement of competence over employment policy to EU level. We also welcome language on employability and labour market flexibility in the new employment charter. The House will be aware that we support the inclusion of the social agreement in the treaty. That will allow us to play a central role in setting the European agenda for action on social policy as well as providing decent minimum standards across Europe.

We believe that competitiveness should be written into the treaty as one of the objectives of the Union. This will ensure that the various Union institutions—the Commission in framing proposals and making decisions, the Court in its rulings and the Council in its lawmaking and executive decision-making—take into account the impact of their decisions on competitiveness. We also believe that there should be a reform of infrastructure financing to allow a wider variety of public/private partnerships. The Government are committed to public/ private partnerships as key elements in implementing large-scale infrastructure projects both in the UK and throughout the rest of the European Union. For example, in the Intergovernmental Conference we are pressing for an amendment to Article 129C of the treaty, to make it clear that financial assistance from the Union's budget can be offered to trans-European networks.

As part of our drive to complete the single market we will work to try to eliminate unfair state aids. I make one point on state aids that perhaps I should have made earlier. They are particularly unfair to poorer member states which are unable to match the sums that are paid out by their richer neighbours. In line with this policy, in the IGC we will strongly oppose proposals to legitimate state aids in some areas where that may be a retrograde step. For example, in our view the proposal at the IGC to give blanket exemptions to services of public interest, or suggestions that state-owned bodies should be exempt from the requirements on state aid, risk undermining our reform agenda. We intend to resist them.

This is an answer to the question raised by the noble Lord, Lord Wallace. We support the extension of competence under external economic relations to intellectual property rights and services where this helps in the liberalisation of world trade. We believe that more liberal world trade will bring economic gains in the form of more competition and so lower prices for purchasers. It should bring more export markets to UK businesses. Therefore, we find it an attractive proposition. However, we will negotiate the extension of competence so that it is strictly defined to make sure that it does not spill over into taxation, prudential regulation or other international fora such as the IMF and the World Bank. The current presidency proposal broadly reflects that view, although we will be pushing to tighten up some of the wording. I hope that I have given at least the spirit of the Government's answer to the spirit of the noble Lord's question.

I hope that this has been a serious reply to what I thought would be a serious debate. I thought that it was worthwhile putting before the House in some detail the Government's approach to the IGC in a number of different areas. I resist the temptation to go down the well-worn political paths that have been followed in this House on Europe and debates certainly since I have been here over the past seven years. Having listened for many years to the noble Lord, Lord Beloff, my noble friend Lord Stoddart and various Euro-sceptics who are not here in person tonight but who are certainly here in spirit, I still do not understand why 14 of the 15 countries in the European Union are able to co-operate on what they perceive to be their common interests but the United Kingdom cannot. Ever since I became interested in a more united Europe that has always seemed to me to be a mystery. I can only say that this debate has done nothing to dispel that mystery.

6.35 p.m.

Viscount Cranborne

My Lords, I am extremely grateful to all those who have taken part in this debate. One of the agreeable aspects of your Lordships' House is that if your Lordships are disposed to go in for an early bath nothing will stop them from doing so. It is an agreeable change in your Lordships' House in debates of this kind that we do not find ourselves being delayed way beyond your Lordships' accustomed dinner hour.

If this debate has been brief I am grateful that it has not lacked quality, particularly as regards the maiden speech of my noble friend Lord Lloyd-Webber.

I bite back my instant rejoinder. Perhaps the noble Lord the Leader of the House tempted me to make it when he said that he sat down still mystified by some of the opinions of your Lordships. I have always found that some of my thoughts have been clarified by listening to your Lordships in debate. I am sorry that the Leader of the House has not followed my example, but no doubt with practice he will do so. With the leave of the House, and with gratitude to those who have taken part in the proceedings this afternoon, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

House adjourned at twenty-three minutes before seven o'clock.