Tourism and the Euro

HL Deb 02 May 2000 vol 612 cc986-1010

6.35 p.m.

Lord Harrison

rose to ask Her Majesty's Government whether the introduction of the euro will be good for the British tourism industry, regardless of whether the United Kingdom adopts the euro.

The noble Lord said: My Lords, over the weekend, my family and I, as tourists, visited the Royal Crown Derby visitors' centre. My wife bought a vase there and I am elated to say that its sale price was expressed in euros as well as pounds on the receipt. That 250 year-old firm is looking to the future while celebrating the past; so must we, as a country.

Tourism is the vanguard industry of the euro and tourists its stormtroopers. It is the industry which best illustrates the advantages of Britain adopting the euro, not only for Britain's tourism businesses but also for the man and woman in the street. After all, why is it that every year, each and every one of us who travels to an EU holiday destination chooses to give away a proportion of our holiday spending money before we have set foot on foreign shores? In swapping pounds for pesetas at the local Thomas Cook's, we offload cash that might otherwise purchase us better accommodation, tastier meals out or more exotic presents to bring home to loved ones? The commission charged and the hedging against the exchange rate fluctuation costs holiday spending money.

Let me put it another way. Would you not be breathing fire out of your nostrils if, in electing to holiday in Wales, you were obliged to exchange pounds sterling for Welsh dragon notes and coins? But that, in effect, is the burden placed on British holidaymakers now travelling to the Continent. In contrast, domestic tourists within Euroland now enjoy the fruits of eliminating currency fluctuations and reduced or banished commission rates.

And, of course, what is good for the tourist in Euroland is also of immense benefit to businesses in the tourism industry, which no longer see their profits eaten away by the necessity of changing currencies. Small firms in particular, which compose the vast majority of businesses populating the tourism industry, gravitate to that slashing of red tape.

Secondly, the euro introduces transparency of prices and costs. That will make holiday shopping an even more stimulating experience for the tourist. No longer will there be a need for the callisthenics of mental arithmetic in converting lira to pounds. The true comparison between a pair of shoes espied in modish Milan and nice boots in no-nonsense Northampton will be a cinch for the euro window-shopper.

In addition, the euro will shoehorn in a new era of competition within the single market to the benefit of the customer. And what is true for him or her is even more relevant to tourist businesses. In an already internationalised industry, the euro will facilitate cost-based comparisons, thereby driving down prices to the consumers' benefit. None should fear such increased competition except the entrepreneur who fails to travel with the times.

I offer noble Lords an example of how that will work. Recently the Observer revealed how booking the same package holiday to Majorca through a travel agent in Dublin, rather than one in Britain, could cut the price of the holiday by 67 per cent. Imagine, now, the situation in which Britain enjoyed the single currency. Such a comparison would be made even plainer, no longer subject to the prism of converting the Irish punt to pounds.

Thirdly, the tourist and the tourism industry will stand to benefit from the stable economic climate which is achieved and likely to be the enduring characteristic of Euroland. Since its inception, commentators have concentrated on the descent of the euro against the pound and the dollar, forgetting the remarkable internal stability which Euroland is experiencing. Low interest rates, a function of low inflation, mean that the cost of money is cheaper. In turn, that provides the stable and predictable economic climate in which business can plan and invest long-term. Of course, such business stability works its way through to the consumer in the form of cheaper holidays.

The elimination of exchange rate fluctuation benefits consumers in other ways. The current strong pound may have benefited Britons on the Continent over the Easter break, but there has been an offsetting and an upsetting pressure on our domestic tourism industry. We find ourselves uncompetitive at the whim of an over-priced pound. How much better the secure climate of Euroland would be, where the British traveller going abroad can plan an annual holiday sensibly rather than confront the carousel of a rising and dipping pound. Moreover, fluctuating currencies distort consumer choice of holiday destinations when selected according to favourable exchange rates, rather than by the intrinsic worth of holidays offered by the industry. Inevitably, such havoc in the market translates further down the line into costlier holidays for the consumer.

Fourthly, the euro is spreading as a currency of exchange beyond Euroland. That benefits the tourism industry in particular. Because of its international character, the industry is already finding all kinds of savings in cross-border transactions, whether buying forward purchases or eliminating needless hedging to reduce exposure from such purchases. Savings in seigniorage will accrue and, as the euro becomes a rival currency of exchange to the dollar, such rivalry will, of itself, promote beneficial currency competition.

In turn, third countries will elect to deal in the euro, as they now barter in the dollar, to the distinct advantage of the tourist industry with its global character. Indeed, we should remind ourselves that tourism is the world's largest industry and it is set to double in size over the next decade. In my view, that makes it all the more reprehensible that we should shy away from the concept of being proud of the euro as Europe's common currency, and still manifest obeisance to a foreign currency, the American dollar.

Last week, on Radio 4, there was a report on the Japanese tourism industry, concerning the deadly delicacy of poisonous fish eaten in tourist restaurants. For the life of me, I cannot see the attraction of eating fish that, if wrongly prepared by the chef, may be one's last supper. However, I regret that the BBC reporter told us the price of the delicacy in dollars. Why give the price in dollars in a report to a British audience? I yen for the day of the euro, unpoisoned by our negative media. As a patriot I am proud of the pound, but I shall be proud of the euro when Britain adopts it as its domestic currency.

Fifthly, and perhaps most importantly, the euro will reinforce the drive to complete the single market. Some commentators opine that a single market does not require a single currency. That is true, but it is pretty daft not to have one. The single market and its wise tourist guide, the single currency, will provide tourism with its biggest kick and fillip. My philippic to your Lordships this evening is that completing the single market is ours and Europe's quickest route to jobs and prosperity.

So far I have set out the economic reasons that benefit tourists and the tourism industry in Euroland. Let me add one other argument that confers a compelling social advantage. I refer to the blind and visually-handicapped, of which there are some 7 million citizens in the European Union. They, too, want to travel and enjoy themselves as tourists, but they fear being cheated through unfamiliarity with foreign currencies. For them, the euro is a godsend; it is their passport around Europe.

The new euro notes and coins are designed to be user-friendly to the blind and the visually-handicapped by the nature of their shape, size and sharp colours as well as by the distinctive embossments currently featured on many continental currencies. Such aids to the blind are absent from the pound sterling and the US dollar. Indeed, the greenback is the worst conceivable design of a currency note for the blind, lacking as it does embossed markings and possessing a uniform size, shape and colour. In contrast, the euro will offer a competitive advantage to the dollar and, for that matter, to the poorly designed sterling notes. The euro notes and coins will help the blind to see their way around Europe as well as offering the industry a new untapped source of custom. Remember, once learnt in your home country, the euro is portable throughout Euroland. For the blind, the old and the young, familiarity with the new currency will breed "content".

Principally, I have set out to explain the advantages of the euro to tourists, the industry and all those within Euroland. Let me now dwell on the consequences of Britain staying too long outside the euro. I believe that the strong pound, plus exclusion from Euroland, will begin to affect Britain's tourist industry. I shall give just one example. The existence of Euroland will indisputably encourage tourists from the rich nations of the world, such as the USA, Japan and Korea, to come to Europe. The red tape of 14 currencies, currently slowing down Europe, will be slashed and burnt by the onset of the euro.

As many inbound tourists buy multi-destination packages, increasingly tour operators will plan packages exclusive to Euroland. To a degree, Britain will be shunned. Indeed, the European Tour Operators Association has suggested that some 3 per cent of inbound American tourists may avoid London as a result of Britain being isolated from the euro. If one has to use a second-hand currency instead of euros in a second-hand bookshop in Notting Hill, even a Julia Roberts may be tempted to take her custom straight to the Continent, handsome Hugh Grants notwithstanding.

Will not the euro enter Britain in 2002 in note and coin form in a whole variety of informal ways? First, British tourists will return from continental and global holidays clutching superfluous euro coins and notes. In turn, they will resent being landed with excess currency and look for outlets to unload them. Inevitably, certain commercial outlets will attempt to steal a competitive advantage on their rivals by offering such facilities for spending euros.

Already Marks & Spencer has scheduled new tills capable of expediting euros and is training its staff to handle that new custom. Its competitors will have to follow suit. New outlets will appear to receive payments in euros. A London taxi driver, with an even larger brain than some of his colleagues, gave me the knowledge. He told me that he would happily charge in euros for foreign travellers passing through London, but I do not know how impressed our putative Julia Roberts will be when charged a large commission in her euro fare to Notting Hill. That will not reflect well on London or on Britain's readiness to accept overseas tourists.

Nor should we consider this to be merely a metropolitan problem. Tourist towns, like my own Chester, and countryside attractions will perforce have to deal with euros if the punters bring them into hinterland Britain. Will Britain's post offices be ready for that kind of change? They should be if we are serious about tourism and diversification in Britain's rural areas.

One other special case is Northern Ireland. For years tourism has been underachieving in Northern Ireland because of the Troubles. Despite it being a wonderful tourist destination, Northern Ireland's tourist take is well below that of its southern neighbour, the Republic. Imagine our peripatetic Julia Roberts as an American tourist researching her Irish roots on the island of Ireland. How much easier that research would be if the euro operated on both sides of the border. After all, 12 American presidents can trace their ancestry back to Northern Ireland itself and not just to the Republic. What a market for the euro to tap—the greenback returning home!

The Northern Ireland Tourist Board and the other national tourist boards join with the British Tourist Authority in believing that the euro will be good for the British tourism industry if we enter, at the correct level and in the near future". In their recent briefing on the subject they highlight the particular and unique opportunity offered to Britain's small businesses were we members of Euroland.

I have tried dispassionately to offer the economic reasons why Britain should join the euro for the wellbeing of its domestic tourism industry and also for the benefit of all of us who holiday outside the United Kingdom. I shall not attempt to rebut some of the non-economic arguments that no doubt will be forwarded in this debate and which may be characterised under the general heading of fear of the loss of sovereignty and the particular gripe of losing the Queen's head from our currency. It is therefore a compelling paradox to note that, with the acceptance of the euro, the Queen's head will be more widely broadcast throughout Britain than is currently the case. How can this be so? Noble Lords will be aware that at the moment the Queen's head appears on only two of the nation's banknotes circulating in the United Kingdom. When Britain joins, euro coins bearing the Queen's image will achieve blanket coverage of our own country, something that has never occurred before in our history and for which we shall be beholden to the European Union. The EU is the true and only begetter of European peace and prosperity. Touristically speaking, are we ready to coin it?

6.51 p.m.

Lord Lea of Crondall

My Lords, I congratulate my noble friend Lord Harrison on introducing such a topical debate. Only last week the director-general of the CBI described the euro/sterling exchange rate as, a major threat to the UK's position in the world tourism league". Until recently the UK has maintained a broad balance between the growth of inward tourism and the growth of outward tourism, whether in numbers or in value. Not surprisingly, that growth has been above the growth of real GDP—roughly double—at 6 to 7 per cent per annum, as compared with a GDP growth of, let us say, 2½ or 3 per cent. However, over the past two or three years, there has been a disturbing change in the balance of the "in" and the "out".

Value and volume figures are quite tricky in this field, but the broad position over the past two years has been that inward growth has moved down to around 3 per cent whereas outward growth has surged ahead to the order of 10 or 12 per cent. The absolute figures therefore show a gap. We are spending over £25 billion a year abroad while visitors spend around £15 billion here.

I can remember the time, along with many other noble Lords, when £10 billion here or there on the balance of payments was not peanuts. Indeed, one can recall the issue of one jumbo jet entering the trade figures, causing major political havoc during the 1970 general election.

Evidence is growing to show that a serious problem is developing. A number of tourist bodies are now putting together that evidence. Perhaps I may quote parts of it. Some tour operators say that the strong pound/weak euro relationship is most likely to affect certain groups of visitors, such as young travellers whose budgets are limited to start with, or day trippers coming over for shopping. As one would expect, there is a direct correlation between currency fluctuations and our visitors' average daily spend. In contrast, business tourism is very resilient, as is the sector for people coming here to visit family and friends.

Evidence can be seen in the estimated figures for the first three-quarters of 1999 when the number of business visitors increased by over 6 per cent while holiday visitors decreased by around 5 per cent. Fortunately, in recent years the advent and growth of low-cost airlines in Europe, along with competitive air fares and increased capacity on transatlantic routes, have substantially reduced the cost of reaching Britain and, to some extent, have offset the effect of the higher value of sterling.

However, if one looks at Britain's performance as a tourism destination against other European destinations, there is evidence to suggest that we are losing out. Had tourism to Britain continued to grow at the same rate as tourism to the rest of Europe in recent years, this would have generated an additional £2 billion in revenue, which in turn could have supported the equivalent of 70,000 jobs.

Perhaps I may cite some views from Ireland which, as my noble friend Lord Harrison pointed out, is an interesting and special case. The relationship of the punt to the pound and to the euro will be watched with particularly close interest. One Irish tour operator stated: Britain is far too expensive because of sterling. Tour numbers are slightly down, although prospects for 2001 are better. Seven nights in Ireland for eight people in a group costs the same as four nights in Britain". Another operator from Ireland stated: Over the last 12–18 months, Paris, which has historically been second to London by a substantially less number of bookings, has gained market share and is now almost on a par with London. The value of sterling is the only reason for this and until the rate of sterling improves, Britain is likely to lose further bookings to other destinations". A third operator said: The first quarter of 2000 has shown a reduction in bookings to London of around 10 per cent and a reduction to other parts of Britain of around 20 per cent. This is purely the result of the increase in the value of sterling against the punt. Paris, Amsterdam and Budapest are fast gaining market share on city breaks in Britain. I predict this slump is likely to continue until the price of sterling is reduced". I turn now to some views from the United States. Britain is losing market share of European travel, in particular to Italy and France due to the euro's value to the dollar, which has made both destinations 15 to 20 per cent cheaper in dollar terms than last year, and in comparison to Britain. The relatively high value of the pound has meant that London has been widely reported in the media as one of the world's most expensive cities.

A view expressed from Sweden states that the recent decrease in numbers is due to the strength of the pound. Over the past five years it has grown 40 per cent more expensive against the Swedish krona. The Swedes are still visiting Britain because of budget airlines and the surge in Nordic stock markets, creating wealth and disposable income.

Finally, a view from France states that the problems are undoubtedly the pound versus the franc, the feeling that Britain is an expensive destination and that London is losing some of its initial "in vogue" feeling. Overall, unless sterling begins to depreciate again and the group market returns in force, growth cannot be predicted, but rather a small reduction in numbers in the short term. Much of this is down to the exchange rate. Clearly, we now find ourselves in the position of having an unsustainable rate. Whether the extent of this against the rest of the euro-zone is 10 per cent or 15 per cent is a matter for debate.

What is now needed on that front—my submission is the same as that advocated by Sir Samuel Brittan in the Financial Times and repeatedly urged by others, including the TUC—is for the Chancellor to make an opening bid for the range of conversion rates at which he would like sterling to enter the euro, obviously on present evidence and if the other conditions are met. Otherwise, we shall all have to go on repeating the mantra about the conditions with no idea of how they are being addressed or how the exchange rate relates to them. The drift of confidence for exposed sectors will continue.

The Americans are often portrayed as implicit euro-sceptics. But one point is often not noticed about the value of the euro. It is nearly the same as the value of the dollar. The Americans will be very comfortable seeing prices set out in euros. Indeed, recently I was speaking to someone in the retail business who said that in their stores in Antwerp and Amsterdam, it is already clear that it is the Americans who are taking to the euro like a duck to water. This will be true not only of tourism. As a consequence, the euro will become the dominant cultural and industrial reality across the board.

An example of the dramatic impact of the euro and of UK non-membership is perhaps worth describing. Let us take the example of a conference organiser in one euro-zone country. He will be able to secure comparative quotes for a range of hotels in a range of euro-zone countries and easily compare them to see which one is offering the best value. However, that will not be so with Britain. In fact this illustrates three points.

First, even to be in the competition one has to be in the frame. The prima facie answer is that we may not be in the frame at all. It will be in the euro-zone—Euroland, as described by my noble friend, and indeed as the press now call it—where those kinds of comparisons will be made. Such brochures will circulate on a euro basis.

Secondly, even if the hypothetical organiser takes the trouble to bring a foreign currency—for example, the pound—into this world of continental comparisons, he will find that UK prices are well out of line with euro prices, given the exchange rate changes I described earlier. Thirdly—this flows directly from the second point—he will not know, he will not be able to say, what the exchange rate will be when the conference takes place and will find that not many UK hotels are ready to give a fixed price in euros.

It is only that last point which is under the control of the UK bidder, if he gets that far in the tendering process. But it emphasises the importance of at least considering how to make it more attractive to quote in euros from the end of next year, and that means starting the planning now. Others on the Continent are already getting on with the training and so forth.

I shall return briefly to that theme at the end of my remarks; but that may be where we should conclude this debate. There is a difficulty for the individual hotelier in doing the market research and getting feedback on the question of quoting prices in euros. I have been away from London over recent days and found it noticeable how the prices in brochures for France and Italy and so forth were all in euros, as my noble friend said.

I appreciate that some people may use a totally different line of objection to everything that I and my noble friend have said. It may be said that it has nothing to do with the Government; that they should keep their nose out of it; that business is business and business knows best what is in its own interest. That may sound a bit like a caricature, but not overly so. The theme, "What is good for General Motors is good for America" comes too near the truth for comfort as describing one approach to the public debate on this matter in Britain. But it is uniquely wrong. It is a precise example of an issue where public policy has to give a lead; where people look to the Government. In my saloon bar, it is said, "It is up to the Government to suggest what we ought to do. The Bank of England or someone higher up the hierarchy of policy-making than us should give a lead and make the position clear." Can we imagine the French 'authorities standing around and saying, "We will wait and see how it plays in Antibes or La Rochelle"? Of course not.

What is our national stance in face of the overwhelming evidence now before us? Of course, we could adopt the pre-set of the person who wrote, in a letter to the Daily Telegraph: "We do not need any more tourists. We have enough already". That is one point of view. But taking that view seriously for a moment, we had better be clear that, on that argument, we in this country ought to stop going abroad as well. That is what the issue amounts to. There is a massive world growth in tourism and we had better be part of it. If we are not, how long can we continue being at a unique disadvantage in the big tourism league, whether euro-tourism or other sorts of tourism?

We have done surprisingly well in some aspects of tourism. And it cannot be the weather! The facts are that over 50 per cent of Brits (that now seems to be the term) have now been to France at least ono.! and only 15 per cent of the French have been here. Twelve million Brits last year went to France while 3 million French came here. And last year we received approximately 26 million tourists from abroad, yet 53 million of us—that is double and pretty much all of us—went abroad. Even if we ignore the double counting, that is a lot.

There is nothing wrong with making hay while the sun shines. But the trend of an ever-widening gap cannot go on for ever, especially if other parts of the balance of payments are going the same way. There are those at the present time who, in the famous words of Lord Whitelaw, seem to go about stirring up apathy. One variation of that is to say that plastic money is what everybody uses these days, so what is all the fuss about? But that is only true up to a point. We must be careful to identify what is fallacious about that argument.

It is true that approximately 50 per cent of tourist payments are in scriptural (that is, non-cash) form and the other 50 per cent in notes and coin. But whichever bit goes in which price index at the end of the day the whole lot is affected by the most fundamental change of 2002, the end of next year in case anyone had not noticed. That is when our credit cards and so forth will have to go from Britain through a foreign exchange charge on top of a handling charge. And it does not matter whether we are talking cash or non-cash. But others on the Continent will not have to do that and are getting on with matters very thoroughly.

So we must look to our laurels. If I were running the British tourist industry, I should be saying, like the old town crier, "Oyez! oyez! Start quoting your prices in euros". Two million jobs are involved and they are not there because they have a God-given right to be there. In conclusion, therefore, will my noble friend take delivery of a suggestion that a specific remit be taken on board by the Treasury to consult with the tourism industry and other relevant sectors to draw up recommendations as to measures that could facilitate pricing in euros? That should be as a trial run in the year 2001 and be fully up and running when the euro comes into full effect in 2002.

7.6 p.m.

Lord Gordon of Strathblane

My Lords, I thank the noble Lord, Lord Harrison, for introducing the debate. Although all our newspapers have been full of the plight of the Rover car plant—there is understandable concern in that regard and in the Financial Times on Saturday there was a leading article on the role of the high price of sterling in the fate of Rover—nonetheless, we should remember that tourism employs five times as many people as the entire car industry in this country. It is right therefore that we should look at the effect on tourism of our absence from the euro.

Can we look at the facts? It is undoubtedly true that it is harder to win business from Europe than ever before. The British Tourist Authority—of which I am a member, and I should therefore declare that as an interest, though as I do not entirely agree with the BTA line on the euro there is no danger of me trying to brainwash your Lordships—points out that it reduced its estimates of the growth in tourism expenditure vis-à-vis numbers this year, principally from euro-zone countries.

We are not just talking of euro-zone countries. In France, day trippers were down 9 per cent last year on the previous year. That is a factor of the exchange rate; there is no point in denying that. The point has also been made that mainland Europe is a more attractive destination for the American market than the UK in price terms. The problem is what we can do about that. It should console some noble Lords that the American travelling to Europe might be reassured to find the euro worth roughly the same as the pound; but he will not be reassured that his hotel in Paris costs him 1.8 times the cost of an hotel in New York.

We must also bear in mind that the exchange rate is low compared with 20 or 25 years ago. We have a "strong" pound only compared with the disaster after our withdrawal from the ERM. The other factor that needs to be borne in mind—this is not just semantics—is that it is not so much a strong pound as a weak euro. In fact, the pound has marginally depreciated against the dollar in recent months. What happened? We must bear in mind in this regard that the conference organiser who booked his conference in Europe when the euro was launched, would now find that he could have bought 15 per cent more euros today if he had waited until now to pay. Regrettably—and I say this in no sort of euro-sceptic mood of jubilation—the euro is in freefall. Rightly or wrongly, world markets do not want to buy the euro; they want to buy the pound and there may be reasons for this.

For what it is worth, I believe that the world markets, rather like the stock market in this country, always overvalue success and downsize failure slightly too much. The pendulum may swing back. After all, the actual performance of countries in the euro-zone in terms of growth in GDP is better than it is here. Inflation is pretty low, though not as low as here, and interest rates stand at about half the level of those in this country. There are many good signs. But one way or another, try as the European Central Bank may, people do not want to invest in the euro. It has fallen by 15 per cent since it was launched on 1st January 1999.

Therefore, when we ask whether the euro is good for British business, it really is quite difficult to work out whether the exchange rates would have been as bad as they are had we not had the euro. I would find it impossible to prove that one way or the other. My guess—and this is only a guess—is that the countries in the euro-zone have depreciated against the pound rather more because they are in the euro than they would have done if they were still independent economies. That is only a guess and an unprovable one, but world markets tend to look on the euro with disfavour. In many cases, they do so wrongly. However, it is a fact and that is what determines exchange rates.

I ask noble Lords to recall the last time that this country tried to fix its exchange rate; namely, when we went into the ERM. The rest of the world thought that we had got it wrong. We had a panic and spent £6 billion of our reserves trying to prop up sterling—then, after a day, we gave up and instead of the pound standing at 2.85 to 2.95, it dropped to about 2.30 within months. World markets determine the value of sterling and the value of the euro. We need to consider exactly what the present Government can do to reduce the value of sterling. Are we saying that the Bank of England has been wrong in all the decisions it has taken about interest rates? There is an argument in that respect; but if these independent economists shorn of political bias from the Government decided that interest rates at those levels were necessary to curb inflation, were they so totally wrong? I rather doubt it.

The benefits of a fixed rate were admirably stated by noble friend Lord Harrison. Of course, I concede that tourism is almost tailor-made for the euro. Tour operators, book 18 months ahead. The stability of exchange rates is a great idea for tourism. The fact that you cut out this business of the banks taking about 10 per cent of your cash every time that you change money is a wonderful idea for the tourist. It will undoubtedly increase travel and reduce operating costs. That is good for tourism. However, the problem is at what level you go in. That is something with which both this and the previous government have wrestled. I wish that the debate on the euro in this country would move a little above the black and white sloganising that tends to characterise such debates. We need to recognise that we are talking about different shades of grey and that it genuinely is a very difficult decision to make. There is no one right, easy solution.

In my television days I was once asked to present a programme entitled "What is a Budget?" for schools. It was by far the most difficult television programme that I ever had to present. If it involves politicians, it is easy: you just talk about inflation, the touch of the accelerator, the brake, and so on. No one knows what he is talking about but it is part of the great conspiracy of politicians and commentators that we talk about these things as though they are economic certainties. In fact they are not; otherwise, we would have been able to cure inflation a long time ago.

I often wonder what I would do if someone asked me to present a programme on the euro—that is unlikely, thank goodness—and whether we should join. I believe that my first response would be to plead a previous engagement. However, I think that I might start with the question: what is there against having a stable currency exchange rate for every country in the world? Of course, there is a good deal against it. But by asking the question we would at least indicate what the conditions are for having a fixed exchange rate between countries in a group. Clearly it would be unfair to some of the developing countries if the exchange rate were fixed at their current level of development, because they will improve quite markedly and, indeed, faster than some developed countries. So the maturity of the economy is one factor to be considered. The development of raw materials in a country can also have a dramatic effect in this respect. For example, the whole of the Middle East was transformed in terms of economic prosperity because of oil.

So what are the conditions? We need to ensure that the countries in question are broadly at the same level of economic maturity and are moving pretty well in step with one another. That is the great problem. Is it a case of one size fits all in Europe, even for Europe as it is, let alone with Britain? I suspect that we may get some interesting evidence on this point during the next week or so and from not very far away. I say that because, rather like Britain, Ireland is booming, while a lot of the rest of Europe is stagnating. Ireland is at a stage where the head of the European Central Bank has said that its economy is overheating and something must be done about it. But what can Ireland do about it? It cannot change its interest rate, which might have the normal effect of dampening down demand, because that is decided in Frankfurt. Moreover, Frankfurt will be rather more concerned at present with a stagnating German economy and with trying to get it booming again than it is with Ireland.

As my noble friend Lord Mackay will know, similar complaints are often made in the UK that interest rates are set at a level—here I am parroting the nationalist line— that suites the south-east of England and ignores parts of rural Scotland, while forgetting that parts of Scotland, like Aberdeen, are much more akin to the south-east of England in terms of economic prosperity than they are to other parts of Scotland. But the areas over which you try to impose a fixed interest rate must be ones that are liable to move in step with one another. I do not believe that to be true at present, although I rather wish it were. I am a great believer in the concept of Europe, but I should like to see that happen.

The answer lies not in doing something about the pound; it lies in the European governments doing something about the euro. I strongly suspect that one of the reasons for the euro's unpopularity is that successive governments in this country have at least tried to start grappling with the problem of providing for pensions. Some European countries simply have not done so. Therefore, their currencies in the world market are being badly devalued.

The Irish situation is interesting for other reasons: they are out of step with Europe and require a form of action that the rest of Europe does not need. In the absence of the power to do anything about their exchange rate, what will the Irish do? During a debate on Northern Ireland, I heard the noble Viscount, Lord Brookeborough, talking about the effect of petrol prices in the Republic on petrol stations and shopping in his part of the world. As I see the noble Viscount in his place, I shall leave it to him to develop that point; indeed, he will do it so much better. If you lose control over your exchange rate, you have a situation where you have lost a safety valve. That may be a price worth paying. I happen to think that it is in terms of Scotland and the Union. However, I am not yet convinced, although I hope to be in time, that it is a price worth paying in terms of the euro.

I have a few further points to make. I concede that the pound is overvalued. The Economist recently produced an economic index based on the value of a McDonald's big burger. On that basis, we are overvalued against the dollar by about 20 per cent. It sounds a very rough-and-ready method of doing economics, but the economics editor of the Economist said that the burger chart—the purchasing power/ parity chart—has a remarkable success rate in determining exchange rates over the longer term.

The question is: what do you do? In my view, regrettably, you interfere with the market at your peril. The last time we did it, George Soros could see off the British Government; and so we have to be careful. There have been suggestions that instead of using the windfall from the sell-off of the third generation of mobile phones we should be investing in the euro, trying to prop it up and then pick up the capital gain and so on. Equally, I have seen other suggestions that we should do a gilts issue, raise £20 million and again invest in the euro; then pick up the capital gain and the euro would improve. If the world market does not want to do it we could be throwing our money away. Therefore I strongly suspect that we are going to be a prisoner of a weak euro until Europe starts putting its own house in order, as I very much hope it will.

In the meantime there are some things that the Government can do. I think we could ameliorate the effects of an adverse exchange rate by doing something about our taxation of tourism industries in the United Kingdom. It is not often realised that most European countries charge differentially lower rates of VAT on hotel accommodation than we do. In Paris, for example, it is 5.5 per cent and in Rome it is 6 per cent. The Government need to take another look at that. We are being priced out of the market. But for low cost air traffic, we would have been priced out of the market even more demonstrably. I think we need to look at that. We also need to look at—I am glad to note that the Chancellor did this—keeping high taxation on petrol. We are becoming markedly uncompetitive. Parts of the world, like mine, are out of the reach of people who have to pay current petrol prices.

I was also glad to note that the Chancellor took a very sympathetic view of the air passenger duty issue. I think he deserves applause for that. It is dawning on the Treasury that tourism is a very important issue and should not be adversely affected if we can possibly avoid it.

I end on an optimistic note. If people's main holiday abroad is costing them less—which it is—then they will have more left of their disposable income to take a second holiday in the United Kingdom. We must place at least some of our faith in that for the future.

7.22 p.m.

Viscount Brookeborough

My Lords, first, I must declare an interest in that I am involved in tourism in Northern Ireland. After being stifled by terrorism, Northern Ireland should see the dawn of a dramatic expansion of tourism. However, we have exchange rate problems like everyone else. The value of our currency, as the BTA say, may be only part of the story in the decision-making process of potential tourists. However, the BTA's publication to the trade, Market Issues, only gives statistics up to 1998, and a great deal has happened since then with the introduction of the euro and its decreasing value.

I would like to give the Government and the BTA an alarm call—a wake-up call perhaps—to take a look at our experience. We in Northern Ireland are at the coalface with the euro: the only land-based border with the euro-based currency of the punt. During the past 30 years the number of mainland European visitors has remained robust, even with our well publicised troubles. However, in the last two years a dramatic change has been showing. Due to the peace dividend, inquiries are up but bookings from continental Europe are down by some 40 per cent in crucial areas such as hire cruisers, bed and breakfast accommodation and hotels. The disparity between the currencies is fluctuating between 20 and 30 per cent and euro-zone visitors are increasingly going south of the border.

Even touring by car is more expensive because our fuel prices are 30 per cent higher in real terms, not just punt per pound. Although I accept that the Government cannot do a great deal very quickly about exchange rates, I think that they could give us a more level playing field. They could reduce the disparity in our tax regime compared with mainland Europe. For example, as we have heard, we have fuel tax and airport tax and we have also heard another example on VAT. This tax, especially in service areas such as hire cruisers, is very harmful. In the Republic it is 5 per cent, as opposed to our 17.5 per cent: that is an extra 12.5 per cent on top of our currency disparity. I appeal to the Government to become more pro-active than reactive and to tackle a worsening situation in Great Britain before the mainland European traveller flies to alternative destinations.

7.24 p.m.

Lord Wallace of Saltaire

My Lords, there have been occasions during this debate when I have wondered whether I was actually taking part in the wrong debate. I had understood the Motion to be asking whether the introduction of the euro would be good for the British tourism industry, regardless of whether the United Kingdom adopts the euro. My own conclusion on that was that the introduction of the euro will impose costs on the British tourist industry, and indeed the British Tourist Authority has already made it clear that those costs are already being incurred by the British tourist industry. If we nevertheless stay out of the euro, those costs will be incurred by the tourist industry, which will not reap any of the offsetting benefits. That seems to me to be an appropriate conclusion to the Motion, as raised.

We have heard, as I hope the noble Lord, Lord Mackay, will duly note, some very strongly Europhile speeches—the sort of speeches he loves to attack—and I hope he will on this occasion give credit to the fact that the Europhilia has flowed more strongly from the Labour Benches than from the Liberal Democrat Benches which he also so loves to attack. I regret in some ways that we have missed the usual suspects who wish to attack the abomination of European cooperation. Indeed, the noble Lord, Lord Pearson of Rannoch, left us halfway through the debate. I hope that the noble Lord, Lord Mackay of Ardbrecknish, will therefore do his best, although I have been sitting here worrying about his many Italian relations, of which he has often told us so much. They will not only incur additional exchange costs on their visits to Britain, but they will also find it more expensive to visit Britain while the pound is so much higher against the euro. However, it does of course help the noble Lord, Lord Mackay, to go to Italy more cheaply than he used to be able to.

There are many nonsenses in this whole debate about Britain and the euro. The noble Lord, Lord Harrison, touched on the question of the Queen's head on the coin. My German friends often remark that it is a wonderful symbol of English nationalism that the preservation of the current head of House of Saxe-Coburg-Gotha is regarded as essential to Englishness in its own way.

The noble Lord, Lord Gordon of Strathblane, said that the rest of Europe is stagnating. I saw an OECD report the other week which suggested that the prospects for Euroland in 2001 are estimated to be a rate of growth between 3 per cent and 3.5 per cent. That does not seem to me exactly like stagnation. We all accept the importance of tourism in the United Kingdom. We are the fifth largest tourist recipient in the world. It is a major part of the British economy, and it is not just a case of including London, Oxford and Cambridge but increasingly also the regions.

I remember well 20 years ago when Bradford started promoting Bradford as a tourist region and various newspapers ran jokey pieces about it. I also remember walking up from Howarth to the farm on the top of the Pennine Way some years ago in February, in fog. The farm there was the origin of Wuthering Heights. I noticed that the path is signposted all the way in two languages: English and Japanese. One in four of those walking on a very cold and foggy February day was indeed Japanese, appropriately clad for the occasion. I note that Barnsley is now doing its best to follow the Bradford region. If I may make a small plug for Saltaire, I am extremely happy that Saltaire is part of this trend, much helped by David Hockney's efforts in promoting the village, and that last year Saltaire was accepted as a candidate for world heritage status. It makes it harder for those of us who like to spend weekends there to walk down the main street in dirty jeans and dirty trainers, as we used to, but at least it does a lot for the local economy.

However, I know there is tough global competition. David Quarmby, a good Yorkshireman who is head of the British Tourist Authority, said only last month that the tourist environment is tough for Britain at the moment and that we are going to have to work very hard to maintain our current position. I also note what was said at the tourism summit in March—and I quote: the UK will only keep its position of fifth in the world in terms of tourism receipts, let alone improve that position, with effort". Europeans account for two-thirds of visitors and half of the inbound spend in tourism. However, it was also stated that, tourism is very price elastic". That sets the context in which one has to discuss whether or not the introduction of the euro provides costs and benefits and how we balance those for Britain.

The margins of cost on currency exchange are a relevant cost which tourists will take into account. If tourism is price elastic, that is one of the issues which we have to bear in mind. As I said at the outset, we all know from the briefings we have received that the British Tourist Authority is actively engaged in encouraging the tourist industry to adapt to the euro, whether or not Britain takes a later decision to join the euro. Therefore the costs are already being incurred.

Different categories of tourists raise different issues. Tourists from within Europe, who form the predominant number of tourists to Britain, now treat Britain as part of their domestic market. I have some association with Westminster Abbey as a former chorister there. One of the reasons that Westminster Abbey introduced charges some two years ago is that staff there had begun to notice that 20 minutes after each Eurostar arrived at Waterloo there was a noticeable surge in people with backpacks or whatever entering the abbey through the west door. That is one way in which the Channel Tunnel and the ease of cross-Channel travel have transformed the relationship between Britain and the Continent, many of us think for the better but a few perhaps think for the worse.

Over 10 years ago I chaired a meeting on European police co-operation in which a number of chief constables took part. The chief constable of Kent asked how he would fund training in the French language which an increasing number of members of his police force needed. The chief constable of Dyfed said that he needed a certain number of Dutch-speaking, members of his police force to cope with the number of Dutch tourists who visited north Wales each summer. I also have a wonderful memory of walking Hadrian's Wall with my children three or four years ago when I discovered that a high proportion of the tourists visiting Hadrian's Wall were Italians. They had chosen a different destination because of the war in Yugoslavia. Some of them even had cars with Rome number plates.

That is the context in which we now operate. Intra-European tourism is fundamentally different from what it was 20 or 30 years ago. The world has not stood still over the past generation. Dutch people have second homes in southern England and English people, including Eurosceptics, have second homes in France and Spain. The case for having a single currency within that market is therefore extremely strong. It matters to Britain, to British tourism companies, to British airlines and to British airports that Britain should remain the first stopping point for those who come from the United States and Japan to "do" Europe. If we stay out of the euro, London Airport, British Airways, Virgin and others risk being adversely affected by people choosing a different first stopping point.

We also need to distinguish between the high value of sterling at the moment and the overseas costs of staying out of the euro. The pound is strong at the present moment. If the dollar goes down and the European economy begins to expand further, we may switch from a strong to a weak pound, and the Italian relations of the noble Lord, Lord Mackay of Ardbrecknish, may once again find that visiting this country is cheap. However, the exchange rate costs will remain.

There is not just a European but a global trend towards more common currencies. Some weeks ago I was fascinated to discover that there is a debate within North America about whether or not NAFTA needs to move towards a single currency. My Conservative noble friends will recall that many people within the Conservative Party would prefer Britain to leave the European Union and join NAFTA. Indeed Conrad Black and others have actively promoted that. A delegation from the United States came over here only the other week.

I was also fascinated to discover that there is within Canada a debate about whether or not Canada and Mexico would benefit from a common currency with the United States. Indeed I read about that in Canada in some Hollinger-owned newspapers of Mr Conrad Black's consortium. Therefore the question of national sovereignty being maintained with one's own national currency is all part of the mythology which still reverberates around Britain and with which one defends national sovereignty. However, one also thinks of how many Conservative former Ministers have found jobs in international companies or in many cases have even managed to assist in selling British companies into foreign ownership, whether that be German, American, Swedish or whatever. The mythology of the British national currency has somehow become one of these great totem poles for resisting globalisation.

However, the world does not stand still. Tourism in Britain has become an increasingly important industry, not just for Britain but for many areas in the north of England which used to be the old industrial heartland. Tourism is a tough market. We have many international competitors. It is a vital employer in the regions and in rural areas. The British tourist industry, like the rest of British industry, will prosper best within a fully integrated European market. I suggest that full integration includes a single currency.

7.36 p.m.

Lord Mackay of Ardbrecknish

My Lords, noble Lords may wonder why I am taking part in this debate. The reason is terribly simple; namely, I have decided that the noble Lord, Lord McIntosh, needs some competition as regards the number of departments he covers. I am not sure whether I shall win that competition. However, I stop short of taking over the Deputy Chief Whip's job, not only debating and arguing but then going into the Lobby to count the names to see whether I have won the argument! I shall not go that far, but I do not mind making an effort to compete with the vast number of departments that the noble Lord manages to cover.

I am grateful to the noble Lord, Lord Harrison, for making his speech. But, frankly, it must win the competition for the speech that contains the greatest number of dreadful puns I have heard since I was a schoolboy. Perhaps the noble Lord intended that. If he did, he certainly succeeded. However, he clearly came across as an absolute fanatic for the single currency. His noble friend Lord Lea was not far behind. Indeed I thought at one stage that they put the poor noble Lord, Lord Wallace of Saltaire, almost in the wet and wimpish category!

There was no qualification in the speech of the noble Lord, Lord Harrison. I suggest to the noble Lord that he advises his right honourable friend the Prime Minister to enter the euro immediately. Having heard the noble Lord's speech, I assumed that if we did not enter the euro now everything would end in disaster. According to the noble Lord everything about the euro—including, I presume, its current rate—is just heavenly. It is amazing that anyone is in the least bit sceptical or even a little frightened of joining the euro with the pound at its current rate against the euro.

It is worth reminding ourselves—as I did by reading today's newspaper–just exactly what the pound's value is vis-á-vis European currencies. It is valued at 11 French francs and 3.25 deutschmarks. That is an enormously strong rate of exchange against the deutschmark. It is valued at 276 pesetas. As the noble Lord, Lord Wallace of Saltaire, mentioned my Italian relations, the pound is valued at 3,200 lira. I can indeed afford to buy a better bottle of Italian wine than I would normally buy without spending any more money. I think that is marvellous, and so does my daughter, provided that I am still paying for it!

I have never really thought of myself—I am sure that most tourists have not thought of themselves in this way—as a stormtrooper, as the noble Lord, Lord Harrison, put it. The only stormtroopers that I should have thought we have in the tourist industry are those ghastly thuggish football hooligans who so besmirch the name of—dare I say quietly?—English football when they travel abroad. The idea of tourists being stormtroopers is a little misplaced. As for the idea that somehow or other people will want to traipse round the world with a fistful of euros in order to have a comfortable life, I have news for the noble Lord. People prefer to traipse round the world and visit various countries outside the euro-zone with a fistful of those dreadful American "greenbacks". If the noble Lord saw—

Lord Harrison

My Lords, would the noble Lord care to take a bet on that—perhaps in euros?

Lord Mackay of Ardbrecknish

My Lords, the noble Lord should check the number of countries where the dollar is considered to be equal to the local currency. Frankly, I suspect that the American tourist in Europe will often be told the price of things in dollars. The reality is that the dollar is the major world currency, and will remain so. It is a very poor argument in favour of the euro to suggest that it may replace the dollar. There are many other arguments for the euro, but that one is a total non-runner.

I shall not get into the territory of suggesting that the noble Lord was offering the euro as a quick solution to the Northern Ireland problem, but his speech began to get a bit like that and I wrote down a note to say so.

The subject of Ireland brings me to the noble Lord, Lord Lea. He was answered—as I would expect him to be—by the very thoughtful speech of the noble Lord, Lord Gordon of Strathblane. He made a much more balanced speech about the problems of the euro for this country than either of his two noble friends. Ireland may look very good at the moment but, frankly, if it does not do something about its 4.6 per cent inflation, the advantages—if they are there—will rapidly disappear and it will not be able to do anything about it in the traditional way. It has no control over its own bank rate. It will be interesting to watch how the government in Ireland react over the next few months to the problems of a severely over-heating economy and increasing inflation rate when they do not have control over the traditional mechanisms for dealing with them. Inflation at 4.6 per cent will rapidly remove any competitive advantage that the current euro/pound rate gives. We have to be careful when looking at that.

The noble Lord, Lord Lea, suggested that the euro/pound link had something to do with the fact that more people from this country went to France than French people came here. The simple fact is that the French holiday in France, by and large; they are not very good at going to other countries. I cannot say that I blame them for that. They seem to prefer to holiday in France. Most people steer clear of France in August because all the French are holidaying there. They are very nationalistic from that point of view. I know that the noble Lord, Lord Wallace, thinks that is a dreadful thing when it comes to being British; he dismisses everything that is British, as we heard again this evening. The French do not take that view at all; they are very patriotic. Good luck to them and more power to their elbow when it comes to resisting some of the silliness that comes out of Brussels. I see that some of the splendid street markets in France are about to be abolished by rules from Brussels. That will make France a bit less French and it may not do its tourist industry a lot of good.

No one needed to get up early this morning to realise that the value of the pound against the euro—and therefore against the currencies of other euro-zone countries—is at such a high level that it will affect the tourist industry adversely, just as it affects manufacturing business adversely. The noble Lord, Lord Paul, said on television at the weekend how damaging the pound/euro rate was to manufacturing industry. We all know that that is one of the reasons why BMW, with all its skills and resources, has found it impossible to turn Rover round.

Of course the tourist industry is important, as a number of noble Lords have mentioned. It creates perhaps up to 2 million jobs. In many parts of Britain it is the major employer. We do not mention these matters often, but when I was a Member of another place the constituency I represented was heavily dependent on tourism. I suspect that it was perhaps its major industry. It was not big businesses—although there were one or two of them—which made up this very important industry, but, by and large, lots and lots of very small businesses.

I suspect that the corporate sector is pretty robust and will not be much affected by exchange rates. It is used to exchange rates and working within them. If those within it want to go to a grand conference in Britain, they will go to Britain; if they want to go to Barbados, they will certainly go there. Noble Lords will understand the different attractions. So I do not think that the corporate sector will be greatly affected.

However, as regards the domestic sector, where we British go on holiday will be affected by the value of the pound. It is undoubtedly much more attractive to go to Spain or to any of the countries in the euro-zone because of the exchange rate. Many British people go to America—where the currency has not fluctuated much in many years—for the simple reason that they want to go to the United States on holiday. People will certainly find it more attractive to holiday abroad, which will of course have an effect on the domestic market—although, as the noble Lord, Lord Gordon of Strathblane pointed out, if their foreign holiday is a bit cheaper than it might otherwise have been they might have some money left over for a two or three-day break in this country. I have no doubt that the various bodies which advertise holidays in Britain will look at that market and try to target it.

The other side of the issue concerns the overseas tourists who come to Britain. It stands to reason—I think it was Just William who devised that phrase to explain things—that if the value of our currency is high, as it is, people from abroad—the European part of abroad, of course— will find it more expensive to come to this country than to go to other parts of the European Union. But they will also find it quite expensive to go to the United States or to other parts of the world because the euro is very weak against a lot more currencies than the pound only.

It may well be worth asking—but not ton ight— why the euro is so weak. It is a serious problem for the euro that it continues to decline. I did not think it would ever reach the level it has reached now, but who can forecast how much lower it will go? That is quite a serious matter for the currency. I saw last week that some of the economic advisers to the German Government are having second thoughts about the exchange they have made of a strong mark for a weak euro.

There is already evidence of a fall in the number of tourists coming from southern Europe to Britain—one noble Lord mentioned that—and it is beginning to show in those coming from northern Europe. But I do not think anyone has offered any solution—apart from the noble Lord, Lord Harrison, who maybe thinks that we should join the euro immediately. I do not know whether or not that was his solution, but we have been very thin on the ground for solutions to this problem. Perhaps the only one is to tell our European friends that they should start getting their act together and improve the relative position of the euro.

Tourism is an import/export business, so to speak, and when I looked at the statistics for the past few years I noticed that in 1995 the balance of payments was £3.5 billion in deficit—in other words, we spent more abroad than we earned from abroad—and that in 1996 the figure was just under £4 billion; in 1998 it had reached almost £7 billion; in the first eight months of 1999 it stood at £5.6 billion. These figures were given by Janet Anderson in the other place on 25th October; perhaps the Minister will be able to tell the House what were the year-end figures for 1999. On my calculation, they must have been something like £9 billion—I do not know—by the end of the year if they were £5.6 billion for eight months. I accept that the tail-end of the year is not a vigorous time for tourism here, but I suspect it may be a vigorous time for people deserting this country to look for a bit of sun. I suspect that things would have got worse as the year advanced and as the position of sterling improved so far as British tourists going overseas were concerned.

It would be very interesting to know whether one of the effects of a Labour government is that the balance of payments for tourism has gone badly against us and perhaps more than doubled in the past four or five years. I almost promised myself not to make any political points, but I cannot resist that one.

It has been an interesting debate. Just as manufacturing is important, tourism is an important industry. In fact, manufacturing is more important because if we do not have a manufacturing industry—whether it be old-fashioned manufacturing or new manufacturing and computer technology and so on—people will not have the wealth with which to go on holiday. In my view, the manufacturing industry is perhaps more important because without it we will not have the wherewithal to have tourism at all.

In both those industries, the position of the euro against the pound is serious. I have not heard a solution to this problem. Frankly, I do not believe that there is an easy solution, because, as the noble Lord, Lord Gordon of Strathblane, explained, the market determines the rates of currencies, not, I regret to say, Chancellors, not, I regret to say, the Monetary Policy Committee of the Bank of England, and not even the European Central Bank.

7.50 p.m.

Lord McIntosh of Haringey

My Lords, in expressing my gratitude to my noble friend Lord Harrison for introducing the debate, I base my gratitude on the quality of the speeches made in the debate. I am particularly pleased that he flushed out the noble Lord, Lord Mackay of Ardbrecknish, who seems to have set himself a target of following me around. If in the future he intends to make from the Dispatch Box after-dinner speeches like that one, I shall be even more grateful to him. It is the one kind of speech that I am totally terrified of making myself. The noble Lord, Lord Mackay, can make after-dinner speeches at any time of the day or night. I cannot make them after dinner, not even when I have had enough drinks to make it possible. I listened to the noble Lord with great envy and great admiration. I was very glad that he resisted almost to the very end the temptation to allow politics to enter his speech.

The subject of the Question is whether the introduction of the euro will be good for the British tourism industry, regardless of whether the United Kingdom adopts the euro. That is the theme which I propose to take for my speech. In other words, I shall not talk about the strong pound, because that is not an issue in whether or not we adopt the euro. The Chancellor and the Prime Minister have made very clear the economic conditions for our adoption of the euro. I shall not talk about the timing of entry. I shall certainly not follow the noble Lord, Lord Lea, in his suggestion that we should declare an entry rate or a range of entry rates now. As he well knows, that should be the result of whether or not we achieved the economic conditions for entry, not the determinant of them. Perhaps I shall not make a political speech either. I shall certainly not make the wider political speech which some speakers would have wished me to make. But I am going to talk about tourism. I am going to talk about what the Government intend to do, because that is what I was asked to do in the Question.

I want to confirm what all speakers have said, that tourism is an important industry for the United Kingdom. It employs 1.8 million people, which represents 7 per cent of all employment in this country. Perhaps I may say to the noble Lord, Lord Gordon, who made similar comparisons, that it is larger than construction or transport. Although the final figures are not in—I cannot give the noble Lord, Lord Mackay, the final figures on the balance of payments in tourism for the end of last year—we estimate that more than 25.5 million overseas visitors spent over £12.6 billion in the UK last year. Total tourism expenditure in the United Kingdom in 1999 is thought to be in excess of £63 billion. As the noble Lord, Lord Wallace, said, the UK currently ranks fifth in the world in terms of earnings from visitors. The good news is that the provisional figures for the two months of 2,000 already show increases in both overseas visitor numbers and in the amount of money that they are spending. I hope that that will encourage the noble Lord, Lord Lea, who feared that the strong pound had already resulted in a reduction of visitor numbers, although he took some comfort from the existence of and the increase in the numbers of low fares.

Visitors from European countries which make up the euro-zone are important customers of our tourism industry. The British Tourist Authority reports that in 1998, which is the last year for which figures are available, we received 14 million visitors from the euro-zone and they spent £4.3 billion. As the noble Lord, Lord Wallace, said, that represents two-thirds of the visitors and roughly half of the expenditure. But we do not need only facts and figures to tell us that tourism is important. In this part of London, except yesterday, one has only to listen to the languages spoken outside the House to recognise the importance of tourism to this country.

However, we cannot rest on our laurels. Tourism is an intensely competitive industry. All of our tourist establishments, whether guest houses, hotels, museums or visitor attractions, are bound to be in competition with those in Germany, France or other countries. I am not sure that I understand what the noble Lord, Lord Wallace, was saying about tourism being price elastic. It is not easy to make direct comparisons of price between this country and other countries when standards are so difficult to achieve.

Lord Wallace of Saltaire

My Lords, I was quoting from the minutes of the tourism summit of 1st March 2000 which the Library kindly provided for me. One of the points made is that for every 1 per cent increase in prices the level of tourism is thought to go down by 1.5 per cent. As a very limited economist, that seems to me to be a good definition of price elasticity.

Lord McIntosh of Haringey

My Lords, I am grateful for that definition and I am grateful for the source of the definition, which I should have read and had not noticed. What that means—I acknowledge the truth of what the noble Lord, Lord Wallace, says—is that at that level of price elasticity we have to be particularly cautious about additional unnecessary costs which, as the noble Lord, Lord Harrison, said, could be imposed on us by any failure to adapt to the existence of the euro, whether or not we adopt it.

I have never thought that the transaction costs are a prime reason for British entry into the euro-zone. The issue of competition and many other issues are more important than transaction costs, but there is no doubt that they are particularly important in the tourism industry. I rather doubt whether preparations in the 11 euro-zone countries are advancing as fast as the governments of those countries would wish. I have been in France, Spain and Portugal in the past three months. Other than the fact that by law price tickets must be declared in euros, I have never heard anyone mention a euro at any time. Although I am pleased to have a euro chequebook, I use it only to pay my bills rather than to pay for things on a day-to-day basis. I think that there will he quite a considerable shock in the euro-zone, let alone in this country, when we come to the very last days of December 2001. If we overestimate the speed at which they will adapt, we may cause ourselves too great concern about the extent to which the euro will be demanded in this country before that time.

However, UK tourism businesses need to ask themselves whether that means that their customers may find travel in the euro-zone more attractive. That will happen even without the adoption of the euro. It will happen simply because of the fixed rates of exchange. Some parts of our tourism industry may say that there will be little or no impact. That is fine. But they will need to develop the ability to deal in euros, just as many of them have already developed the ability to deal in dollars in order to maintain and expand their markets. The point for the tourism industry is that if a tourism business is to succeed, it has, just as with any other business, constantly to meet and exceed its customers' needs and expectations. If its customers want to pay in euros, it risks losing them if it cannot accept those euros.

Let us briefly consider the practicalities. Credit cards can be used anywhere, in any currency, and the entry simply appears on a bank statement on one's return. But if people coming to this country want certainty, I can see the difficulty about declaring in a tourist brochure in advance what the equivalent in euros to pounds may be. But surely we could very soon be in the position to say, when someone arrives at a hotel, that the price for a night's stay will be £60 or 95 euros; it will appear on a display board in the hotel and will be the basis on which, in 2002, the tourist can pay in his own home currency, in cash if he wants to do so. The same will be true of shops and restaurants. There is no reason why we should not adapt in that way. Even though I do not think that anything very much has happened on the ground, and no one is thinking very much in terms of euros. Next year French civil servants, for example, will start to be paid in euros and will want to start to use the currency.

Like all business changes, the introduction of the euro presents threats and opportunities. For businesses that are customer-focused there will be opportunities; those that fail to take the consequences will lose out. We have been active in making sure that businesses understand what the introduction of the euro means. We have produced and distributed factsheets on a range of strategic and technical issues. The forums we have set up in each English region and in Wales, Scotland and Northern Ireland bring together all those organisations that are interested in business support. Advisers from the euro preparations unit in the Treasury are frequent speakers at conference events. We have produced a series of case studies setting out how real businesses are meeting the challenges presented by the introduction of the euro, on the basis that I find to be sound: that people a re much more likely to believe what other businesses say than they are to believe government lecturing on the subject. We shall soon be publishing case study material on the tourism industry—small firms that a re typical of the sector: a small hotel chain, a bed-and-breakfast in Wales, a shop selling tourist souvenirs.

To answer my noble friend Lord Lea directly, we have set up the Euro Preparatory Working Group, co-ordinated by the Department for Culture, Media and Sport, working closely with the industry, seeking to raise awareness of the impact of the euro on tourism businesses and to disseminate information to the industry. The British Tourist Authority is working closely with that group and the national tourist boards produced a guide to assist small tourism-related businesses to prepare for the introduction of the euro last year.

A number of noble Lords, notably the noble Lord, Lord Gordon, and the noble Viscount, Lord Brookeborough, talked about the need to tackle the taxation of hotels. We have debated the matter at length in this House in recent months. I have pointed out that the balance of taxation benefiting tourism in this country is very much greater than would appear from the fact that we have taxation on hotels. The fact that we do not have VAT on public transport, food and children's clothing very much outweighs the cost of taxation on hotels. I gave the figures and am happy to send a copy of Hansard to anyone who doubts them.

We have run out of time. If I have missed any points to which I ought to have responded, I shall gladly write to noble Lords. I hope that I have convinced those who have taken part in this valuable debate that the Government do not in any way under-value the importance of the tourist industry or the importance to the industry of adapting to the existence of the euro, whether or not the United Kingdom adopts the euro.

House adjourned at four minutes past eight o'clock.