Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A key economic adviser urged Prime Minister Tony Blair to join the European single currency by arguing that the benefits within 30 years would be enough to cover the annual cost of the NHS, newly released official papers have shown.
The documents, released by the National Archives, also showed that officials drew up an alternative, more positive statement for then chancellor Gordon Brown to deliver when announcing his assessment of the UK’s progress towards meeting tests of its readiness to join the euro in 2003.
The draft statement would have done far more than the one Brown went on to deliver to hold open the possibility of a short-term effort to join the European currency.
The papers reflect the intensity of internal debate within government during Blair’s second term in Downing Street. The then prime minister was keen for political reasons to embrace the single currency but his chancellor was sceptical that the project could be a success.
There was a key turning point on June 9, 2003, when Brown delivered a Commons statement saying the UK had made progress towards meeting five economic tests he had set to decide on membership but that the economies were still too far apart.
Papers released on Tuesday showed that, despite that setback for the cause of membership, on June 13, Arnab Banerji, senior economics adviser to Blair, was making a powerful economic argument in favour of integration with the single currency.
Banerji wrote in the memo, headed “The Economic Case for the Euro”, that joining the currency would generate a benefit for the UK economy at first of about £3bn a year. He added that the essence of the case was that the benefits would compound over time.
“[The benefit] compounds over 30 years to an annual increase in output equal to between 5 and 9 per cent of GDP,” Banerji wrote, adding that the NHS at the time cost about 7 per cent of GDP.
The choice for the nation was “quite stark”, Banerji added.
“In 30 years’ time, we can enjoy benefits equivalent to a whole second NHS or have poorer services and higher taxes than would otherwise have been the case,” he wrote.
The papers made it clear that many of Blair’s aides accepted Banerji’s argument and were keen to press forward towards euro membership.
They had thought through many aspects of a potential referendum, including who would be allowed to vote and the question, which was to be, “Should the United Kingdom adopt the Euro as its currency?”
Aides had also drawn up a more positive draft of the statement that Brown delivered on June 9, 2003, the papers revealed. That version would have stressed the benefits of joining the currency more powerfully than the one eventually delivered and would have held open the possibility of a referendum on membership in 2004.
However, the papers also illustrated the depth of the division between the prime minister and his chancellor on the issue. The released papers included minutes of meetings intended to ensure they harmonised their messaging on the issue after widespread reporting of their disagreements.
The documents also noted the sometimes apparently petty atmosphere over the issue. One official — the late Jeremy Heywood — ruefully noted that a ministerial group working on potential euro accession would not be described as a “Cabinet committee”, even though it was made up of ministers and met in the Cabinet room. It would be described as an “informal ministerial group” to “meet GB’s concerns”, Heywood wrote.
The tension between the two men over the issue continued for as long as Blair was prime minister. Brown then ruled out euro membership as soon as he became prime minister in 2007.