HM Treasury: National Changeover Plan – Executive summary

HM Treasury: National Changeover Plan - Executive summary:
HM Treasury: National Changeover Plan:

On 23 February 1999 UK Prime Minister, Tony Blair, launched the 'National Changeover Plan' setting out the practical measures needed for a British transition to the euro. The full text of the National Changeover Plan is available on the HM Treasury Euro site at http://www.euro.gov.uk/changeover.asp . Below is a reprinting of the executive summary of the National Changeover Plan. The text of the section relating to the need for an information strategy is reprinted on p24 of this issue of European Access.

Executive Summary

Government policy on membership of the single currency was set out by the Chancellor of the Exchequer in a statement to the House of Commons in October 1997. The determining factor underpinning any Government decision on membership of the single currency is whether the economic case for the UK joining is clear and unambiguous.

The October 1997 statement acknowledged that to share a common monetary policy with other states does represent a major pooling of economic sovereignty. It also stated that if the economic benefits are clear and unambiguous, there is no constitutional bar to British membership of EMU. Because of the magnitude of the decision, Government believes - as a matter of principle - that whenever the decision to enter is taken by Government, it should be put to a referendum of the British people. Government, Parliament and the people must all agree.

The Government has set out five economic tests which will have to be met before any decision to join can be taken. These are:

- whether the UK economy has ACHIEVED SUSTAINABLE CONVERGENCE WITH THE ECONOMIES OF THE SINGLE CURRENCY

- whether there is sufficient flexibility in the UK economy to adapt to change and other unexpected economic events

- whether joining the single currency would create better conditions for business to make long-term decisions to invest in the UK

- the impact membership would have on the UK financial services industry

- ULTIMATELY WHETHER JOINING THE SINGLE CURRENCY WOULD BE GOOD FOR EMPLOYMENT.

These tests are challenging. Barring some fundamental and unforeseen change in economic circumstances, making a decision, during this Parliament, to join is not realistic. But preparations should be made in this Parliament so that, should the economic tests be met, a decision to join a successful single currency can be made early in the next Parliament. Without preparation, it is not a practical option. The British people should be in a position to exercise genuine choice.

Preparations are already underway

Over the past 18 months the Government has worked intensively with the business community and wider public sector both to ensure the necessary preparations were in place to deal with the euro from 1 January 1999, and to take forward detailed planning work for possible UK entry if that is what Parliament and the people decide. This plan deals primarily with the practical aspects of UK entry, the work done so far, and the work planned for the future.

A timetable for changeover

The key stages in the changeover will be:

- a Government decision to join the single currency

- a referendum

- joining (when sterling would be irrevocably fixed against the euro)

- the introduction of euro notes and coins

- the end of the changeover when sterling would be withdrawn.

A key aim of the work on the changeover has been to develop a critical path. At this stage it is not possible to indicate exact timings but it is possible to give a broad indication of the time needed between key stages of the changeover. The UK can learn from the experiences of the participating Member States and the timetable they have adopted. The Government believes the UK could move considerably faster because the euro already exists, business and the public sector is already adapting to the euro, and the UK can learn from the experiences of its EU partners.

The Government believes that the entire changeover, from a Government decision to join right up to the withdrawal of sterling, could be achieved in forty months or less.

A period of four months from a decision to a referendum would depend on how quickly the practical arrangements for a referendum could be put in place.

Before the UK could join, the European Commission and the European Central Bank would need to report to the Council on whether the UK economy had achieved a high degree of sustainable convergence with the euro area. These reports would form the basis of a Council decision on whether or not the UK met the necessary conditions to join. The Council would also need to take other decisions necessary to enable the UK to join the single currency.

The Plan does not give a timescale for the period from a positive referendum result to joining. This is because the speed with which the UK could move would be influenced by a number of factors, including the state of preparedness of key sectors of the economy which may need to cope with a peak in demand for euro services - principally the banks and the revenue departments. Further work is being taken forward here.

For most sectors of the economy the key period is from a referendum to the introduction of notes and coins. The sectors that would dictate the overall timescales would be the retailers and utilities, key parts of the public sector and those involved in producing and distributing euro notes and coins. Providing detailed planning is taken forward now, this period could be completed in twenty four to thirty months.

The final period, from the introduction of notes and coins to the withdrawal of sterling has been set at six months in line with initial advice from the Business Advisory Group. Most countries now believe a shorter period is achievable - perhaps two months.

A further phase of work is required to produce a more complete timetable. Key areas are:

- further work with the banks and revenue departments to assess the likely level of demand for euro services

- the role of the public sector in influencing euro demand, and in giving a lead to the private sector on investment decisions

- detailed work with retailers, suppliers and consumers on how best to manage business relationships and protect consumer interests during the changeover.

How businesses would make the changeover

All businesses would need to adapt their systems to the euro. The difficulty of converting systems would vary greatly depending on their size and complexity. Many smaller businesses use 'off the shelf' systems or have service providers and would therefore have ready access to support. Businesses with larger, bespoke systems would face more intricate challenges.

As well as adapting systems, businesses would need to consider the impact of the euro on their business strategy. This plan outlines the challenges and opportunities for business in general and also looks at key sectors in more detail. It includes special sections on the retail banks and the City of London, as well as retailers.

Public authorities

The public sector would have a key role during the changeover. It spends about 40% of the UK's income and covers a wide range of activities and services both for business and the wider community. The approach taken by the public sector would be a key factor in determining the approach taken by the rest of the economy.

The larger departments - the Department of Social Security, Inland Revenue and Customs & Excise would be particularly important in meeting the critical path timetable. The public sector will take a lead in planning so that the UK could make a quick and smooth changeover.

Other key areas

Essential planning work is also taking place on the production and distribution of notes and coins, legislation, and the major public information exercise that would be needed to ensure that businesses, public authorities and consumers would all be ready to deal with the introduction of euro notes and coins.

Looking forward

This plan reports on progress and sets out the next steps for preparations. The Government invites comments and informed debate on the many practical issues raised in this plan. The Government will work with business to further develop detailed plans and will report again in about a year's time.

Further information on Britain and the euro can be found on HM Treasury's euro web site at http://www.euro.gov.uk/index.html.