§ Mr. Frank Cook (in the Chair)
Perhaps I should point out that this is a 30-minute Adjournment debate and that interventions are not normally permitted. However, I have been approached about one, with the agreement of the hon. Member for Rhondda (Mr. Bryant) and the Minister.
§ Mr. Chris Bryant (Rhondda)
I am delighted to have an opportunity—even though it is for only half an hour—to speak about one of the most significant issues that will face the United Kingdom in the next five to 10 years. We have had remarkably few debates about it in the House, and I can find no record of one in Westminster Hall since debates started taking place here, so this is a first.
The debate is about Government policy on the euro which, as I understand it, although the Minister may correct me later, is that it is right in principle for the UK to join the euro, but in practice certain economic tests—the famous five—must be met, because it would not be a good idea for Britain to choose to join the euro if it could be proved that it would not be in our economic interest. A decision on those economic tests will be made by the end of June, within the first half of this Parliament, as promised in the Labour manifesto. Thereafter, depending on the result of the evaluation, there should be a referendum.
I believe passionately and wholeheartedly that a referendum should be held soon, primarily because the UK economy is suffering from two problems. The first, and more obvious, is our economic isolation. Over the past few weeks, we have heard from nearly every senior figure in the tourism industry about the effect that Britain's isolation from the euro is already having. We are losing between 2 per cent. and 5 per cent. of international travel: American travellers have decided not to come to the UK as well as to avoid the eurozone, many British travellers choose to go abroad and many eurozone travellers decide not to come to the UK because of the high cost of the pound and the uncertain cost of their visit.
Some may sneer at the importance of the tourism industry, but it is the fourth largest employer in the United Kingdom. In certain regions, in particular in Wales, it is the third largest. It is the fifth largest industry in terms of gross domestic product. If we consider the manufacturing industry—I represent a constituency in which the main source of manufacturing is long gone, because the last mine closed in 1990—we find that yesterday's figures from the GM B make it clear that we are still haemorrhaging jobs.
Many of the businesses that move their operations out of this country and into places that are about to be part of the eurozone, in particular to the candidate countries of the European Union, cite at the top of their list of reasons for moving the fact that Britain has as yet no commitment to joining the euro. That leaves them with great uncertainty as to the value of their product and their labour costs so, for their own economic reasons, they go elsewhere. The isolation of the UK from the euro is, therefore, already a significant problem for jobs.
301WH That isolation is also significant for trade. The UK is, by its nature, a trading nation. We rely more heavily on trade than nearly any other member of the EU. However, we are now posting our worst trade deficit since records began in 1697, while the eurozone countries ran a current account surplus of €5.2 billion in the second quarter of 2002. In case anyone is wondering why 1697 is important, it was the year in which Daniel Defoe wrote "An Essay upon Projects". That is when income tax was first mooted to the United Kingdom and it was the first time that there was a Whig Administration. That Administration laid down that the poor must wear badges to identify them. We have significant trade problems if we are posting our worst deficit since 1697.
That is the isolation problem. However, there is another problem—uncertainty. That goes to the heart of why we need to have a referendum at an early date with a positive vote for joining the euro. We have already seen that inward investment is falling, whereas it is rising in the eurozone countries. I also worry about the game of catch-up that we shall have to play. There will be 10 new members of the EU in 2004, many of which have already declared their heartfelt desire to join the euro as well as the EU.
There is a problem with Britain delaying even longer its decision to join the euro. If Poland, Hungary and the Czech Republic join the euro over the next three to five years, Britain will end up having to negotiate its entry rate—which is key to the economic benefits or disadvantages of joining—with the Prime Ministers of Poland and the Czech Republic.
We should not be playing catch-up but learning the lessons of the past and ensuring that we are wholeheartedly at the centre of European policy. Incidentally, it is important to note that the stability pact will be renegotiated and tidied up over the next year or two, perhaps in line with the suggestions that the Chancellor has already made. If that is the case, it is essential for the UK to be part of those negotiations, not excluded from them.
§ Mr. Frank Cook (in the Chair)
Order. I made it clear at the start that this is a 30-minute debate. The interventions must be agreed beforehand. That intervention was not agreed.
§ Mr. Bryant
I apologise. I had not understood that rule of the Chamber. I thought that it applied only to speeches, and that interventions could be taken at any point in a half-hour debate.
§ Llew Smith (Blaenau Gwent)
On a point of order, Mr. Cook. I have a limited command of the English language, but this is meant to be a debate. I understand that only three people will be allowed to participate in the debate, but they are all singing from the same hymn sheet.
§ Mr. Frank Cook (in the Chair)
Order. I must point out to everyone in the Chamber that the time already 302WH taken is time out of a 30-minute Adjournment debate. The agreement was made beforehand, and my ruling stands.
§ Mr. Bryant
Before I was not interrupted, I was referring to the uncertainty and instability that the UK faces because it is outside the euro. Those are powerful reasons why it is in the UK's interests to join, and to join soon and resolutely. One need only think philosophically about certain issues facing UK businesses such as Burberrys, which happens to be based in the Rhondda. When Burberrys manufactures a cashmere jumper or scarf and chooses the price at which it wishes to sell it in the eurozone, it must make complicated decisions about what its profit margin will be.
There are the costs of exchanging between one currency and another, which most businesses estimate at about 5 per cent., as well as the uncertainty about what price one may eventually get because of variations in the exchange rate. The exchange rate between sterling and the euro has fluctuated more than it did before the euro came fully into being a year ago. In the future, such currency fluctuation may be more, rather than less, dangerous and troublesome for the pound. That cost erodes British businesses and potential profit, and makes it more troublesome for UK businesses to trade in the eurozone. It also makes many businesses, especially the smaller ones, which are the lifeblood of the UK economy, decide to go into the wider market and trade. As I said, 5 per cent. of businesses' profits are lost to the cost of exchange. There is also the possibility of their entire profit being wiped out because of currency fluctuation.
In addition, European businesses must make a decision about whether they will invest in the UK.
§ 4.9 pm
§ Sitting suspended for a Division in the House.4.21 pm
§ On resuming—
§ Mr. Bryant
We have had no interventions, but one interruption, and we may yet have another.
I talked at some length of the instability and uncertainty besetting the UK economy which is linked to our staying outside the euro. However, there are many nay-sayers in the country, and some are gathered in the Chamber today. The nay-sayers mainly tell us to look at what is happening to Germany's economy. They say that the fact that Germany's unemployment is growing and that it has economic problems is self-evident proof that the euro is not working, and it would therefore be bad for the United Kingdom.
The nay-sayers are sometimes rather selective in their quoting of economic statistics. If the euro were the primary cause of Germany's economic problems, all the other countries in the eurozone would be suffering exactly the same problems, and the trends in the countries outside the eurozone would be exactly the opposite of those inside. However, it is predicted that Sweden and Denmark—both outside the eurozone—will have lower growth than the UK this year, so being 303WH outside the euro does not necessarily lead to higher growth. Some of the other economic statistics for Germany show that its situation is not quite as the nay-sayers portray it. Wages and productivity are considerably higher in Germany than they are in the United Kingdom.
If one looks at unemployment figures across the eurozone, one finds that there has been a fall in all those countries since 1998 which is rather similar to the fall in unemployment in the United Kingdom. In the eurozone as a whole, the figure has fallen from 10.2 per cent. to 8 per cent. In France it has fallen from 11.4 per cent. to 8.6 per cent., and in Germany from 9.1 per cent. to 7.8 per cent. It is difficult to attribute precisely the rights and wrongs of the economic situation in Germany to the euro.
The nay-sayers also frequently say that the very process of joining the euro inexorably leads to inflation. Many people in Greece and in Spain believe that, and there has been significant inflation in those countries in the past year. However, inflation in eurozone countries has not done what many people predicted. Inflation last year was 1.8 per cent. in France, 1.3 per cent. in Germany and 1.1 per cent. in Belgium. In several eurozone countries, inflation is lower than it is in the United Kingdom, so there is not necessarily a link between inflation and joining the euro. When Britain joins the euro—a significant majority in the UK believe that we will eventually do so—it will be important to ensure that anti-inflationary measures such as maintaining dual billing in pounds and euros are in hand in the two years or so before and after joining. That is an important part of preventing inflation.
The third thing that the nay-sayers state frequently is that a single interest rate for the whole of Europe, including Britain, would be inimical to its future economic development and stability. However, the United States of America has a single interest rate and so, for that matter, does the United Kingdom, different unemployment rates in London, Glasgow, Newcastle, Manchester and Cardiff and the fact that few people move from area to area to seek employment. Not many of the nay-sayers suggest that Wales or Scotland should have a separate interest rate.
The economic tests that are central to the Government's policy on the euro are vital. Of course, we should never recommend joining the euro unless it is in Britain's economic interests, unless there is significant convergence and unless it is in the interests of UK jobs and inward investment. There should be sufficient flexibility in the UK economy and in the euro system to allow for significant growth. However, we should not assume that a negative assessment of the tests in June would be risk free; it would do significant harm to the UK just by itself, politically and economically. It would signal a lack of confidence about the UK's economic future and signify to inward investors and to trading partners that Britain had economic problems.
Britain's economy is strong now thanks to the many tough decisions that the Government have taken since 1997. But its economic future could be stronger, and it will have to be stronger within the euro if it is to withstand the dangers of greater exchange volatility. Let us avoid instability and uncertainty by having a 304WH referendum as soon as possible, and let us avoid economic isolation by securing a yes vote in that referendum.
§ Mr. Kevan Jones (North Durham)
I congratulate my hon. Friend the Member for Rhondda (Mr. Bryant) on securing the debate. I will concentrate on the effect of not adopting the euro on the economy of the north-east, especially the manufacturing industry.
The north-east has a long tradition of manufacturing industry. At one time, it was part of the workshop of the world. Today, the industry is smaller but clearly efficient and high tech. Manufacturing industry in the north-east accounts for 20 per cent. of the region's economy, employing some 175,000 people. Proportionately, the north-east is the largest exporter of manufactured goods in the UK, and that is where the problem lies, because the region is not part of the eurozone. Last year, the north-east lost just under 5,000 jobs in manufacturing, not because the smoke-stack industries were inefficient but because of the strong value of the pound and because it is outside the eurozone. Some people might ask why that should matter, as service sector jobs will fill the gap, but manufacturing jobs are important for skills and employment, not just in the north-east but throughout the country. They are skills that the country cannot afford to lose.
I have already mentioned that the manufacturing industry in the north-east is efficient, and I want to draw on the example of the Nissan motor corporation in Sunderland. Not only is the car plant the most efficient in Europe, it is one of the most efficient at producing motor cars anywhere in the world, outstripping some indigenous plants in Japan. I find it remarkable that the recent decision to build the Micra car in Sunderland was taken at a hair's breadth, despite a large Government grant and a 30 per cent. efficiency lead over any other European car plant. Last week, a story appeared in The Northern Echo that the decision to produce the Almera and Primera models in Sunderland is in doubt because of the strong value of the pound. The plant's competitive advantage, which has been clearly demonstrated, is wiped out at a single stroke by the strong value of the pound and by Britain being outside the eurozone.
What is the problem? What are people afraid of? There is the paranoia about loss of sovereignty, and we have the great and interesting debate about whose head should be on our currency. I agree with Sir Ian Gibson, the chair of Nissan UK, who said:Why can't we just as a nation rise above it all? We're not anchored off the east coast of the US, but off the western coast of Europe…we cannot be anything else but European.The competitive advantage of UK manufacturing is being lost because we are wedded to an outdated notion that this country's destiny lies somewhere other than in Europe. Manufacturing jobs in the north-east and the rest of the UK continue to be in crisis because we remain outside the eurozone. While the values of the euro and the pound remain worlds apart, we will continue to see a loss of manufacturing jobs not only in the north-east, but across the country. The only way to stop that decline is by joining the eurozone at a realistic rate as a matter of urgency. My message is that joining the eurozone will be good news for the manufacturing industry in this country and for the UK and the north-east economies.
§ The Financial Secretary to the Treasury (Ruth Kelly)
May I say, Mr Cook, that it is an additional pleasure being under your chairmanship for the second time today?
I congratulate my hon. Friend the Member for Rhondda (Mr. Bryant) on securing this important debate, and I notice the interest shown by other Members, which indicates a strong and correct concern with the issues. I also congratulate my hon. Friend on his recent election to the chair of Britain in Europe, and I am sure that he will make a valuable contribution to the debate in the coming months.
First, I want to restate the Government's policy on UK membership of the single currency, which remains unchanged. In his June 2002 Mansion House speech, the Chancellor said:In principle British membership of a successful single currency offers us obvious benefits—in terms of trade, transparency, costs and currency stability—and could help us create the conditions for higher and more productive investment and greater trade and business in Europe.More than half our total trade is with the European Union, and about 3 million jobs depend on our economic ties with Europe. The EU is the UK's largest trade and investment partner. The Government are in favour of UK membership of European monetary union in principle, but we will recommend UK membership only if it is in the national economic interest and the economic case for joining is clear and unambiguous. The Government believe that if that is the case, there is no constitutional bar to joining. My hon. Friend the Member for Rhondda summed it up neatly by saying that in principle it is right and in practice the economic conditions must be met.
As the Chancellor said in his October 1997 statement to the House, the five economic tests will define whether a clear and unambiguous case can be made. In that same statement, the Chancellor set out the five tests, which are: whether there can be sustainable convergence between Britain and the economies of a single currency; whether there is sufficient flexibility to cope with economic change; whether there is an impact on investment, which my hon. Friend highlighted; whether there is an impact on the financial services industry; and whether joining is good for employment.
I note with interest the comments made by my hon. Friend the Member for North Durham (Mr. Jones), and I know the interest that he takes in the manufacturing industry in his constituency and across the north-east. However, the five tests provide a framework for robustly analysing the decision on economic and monetary union. As the Chancellor said in his Mansion House speech:To join without a proper, full assessment of the five tests could…prejudice our stability, risk repeating past failures of exchange rate management, and could return us to the days of stop-go at the expense of our ambitions for high investment, full employment and high and sustained levels of growth.I was heartened to hear my hon. Friend the Member for Rhondda put such emphasis on the economic factors. There is a serious economic debate to be had. The Government have consistently made it clear that the Treasury will complete an assessment of the five tests within two years of the start of this Parliament. We 306WH remain fully committed to doing so. On the basis of their assessment, the Government will decide whether the five tests have been met. If the Government decide to recommend joining, that decision will be put to a vote in Parliament and then to a referendum of the British people.
I turn now to the preliminary and technical work that will inform the assessment of the five economic tests. As the Chancellor noted in his November pre-Budget report:The preliminary analysis supporting the five tests assessment—technical work needed to enable the assessment to be completed within two years of the start of the Parliament—is well underway.Hon. Members will be aware of the detailed paper on the preliminary and technical work that was produced by the Treasury for the Treasury Committee in September. A copy may be found in the Library. That paper built on the Chancellor's June 2002 Mansion House speech, and stated that a number of supporting studies would be published alongside the assessment, encompassing the preliminary and technical work. The supporting studies will cover key issues that relate to particular tests or that apply to more than one test. The paper for the Treasury Committee makes it clear that, when the assessment is complete, the detailed supporting studies will be published alongside it, and that everything will be subject to intensive public scrutiny and debate. I am sure that there will be much material in that preliminary and technical work when the assessment is published. It will take pundits and academics a long time to digest that material, which will provide much food for debate and comment in the months following publication.
On practical preparations, since 1999 the Government's strategy has been to prepare and then to decide. That work has included the publication of two outline national changeover plans and regular updates on the detail of changeover planning. Most recently, the sixth report on euro preparations was published in July last year. The Government are maintaining their commitment to prepare and decide. By planning now, the United Kingdom could make a smooth and cost-effective changeover should the Government, Parliament and the people, in a referendum, decide to join the single currency.
The introduction of euro cash in the euro area took place on 1 January 2002. The Government are pleased that the euro area countries experienced a broadly smooth changeover. The UK has taken the opportunity to monitor and learn from the experience in the euro area during the changeover. The findings have been published in the sixth report on euro preparations, and have now been reflected in the UK's own preparatory work.
For example, following the euro area's experience of a two-month dual currency period, we should, in the event of the UK joining the single currency, be able to adopt a dual currency period of no more than two months. That is less than our original estimate of six months for dual circulation.
We also work closely with consumer representatives in the voluntary sector to develop a communications strategy in case we decide in a referendum to join a single currency—to establish some of the issues about which 307WH my hon. Friend talked, such as scale of value, to establish ways to protect consumers, and to think about communications strategies for vulnerable groups that would have more difficulty coming to terms with a change of currency than other citizens.
The Government are committed to working with UK businesses to secure the right level of preparation that would enable them to work with the euro now. It is obvious that in many respects the euro is already operating in the eurozone and businesses in Britain have to come to terms with that, whatever their views on the merits of the UK joining the euro. The existence of the euro in the eurozone has implications for those businesses, and that should be reflected in their strategies.
The Treasury euro website has had more than a million visitors since its relaunch in March 2001. The Government have distributed more than 400,000 308WH factsheet packs and they have sent information to around 1.5 million small and medium-sized enterprises, first in autumn 2001 and then in autumn 2002. The Government have produced, and recently updated, a wide portfolio of simple, practical business case studies, and they operate a national telephone helpline for those without access to the website, which provides businesses and travellers with practical information about the euro. Although such information has helped many businesses to address issues posed by the euro, our surveys suggest that many more could be affected.
We continue to work closely with the business community to provide it with the practical advice and assistance that it needs. Hon. Members are able to see that we take seriously the assessment of the five economic tests and, were we to make a positive assessment and were there to be a positive referendum result, we must be in a position to join—
§ It being nineteen minutes to Five o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.