In response to a question from Sir Teddy Taylor during the 3 March meeting of the Treasury Select Committee, I undertook to supply the Committee with more details regarding the option of receiving certain CAP payments in euro. Given the level of interest shown by the Committee and subsequent mis-reporting of our discussions, this letter also includes a clarification of the position regarding the Government's spending on euro preparations.

Agriculture Payments

  The Minister of Agriculture, Fisheries and Food, Nick Brown, announced on 12 November 1998 that the option to receive certain payments in euro would be made available to agri-food traders by autumn 2000. The lead time for delivering this option arises from the need to ensure that computer systems are adapted for the new Agrimonetary arrangements and the Millennium. It is clearly in the taxpayers' interest to safeguard CAP payments for all recipients, the majority of whom will continue to want payments in sterling for the time being.

  In consultation with the Commission, MAFF are working on the detailed practical arrangements for delivering this option to agri-traders. MAFF will be consulting with farmers and traders on the proposals after these initial discussions with the Commission.

  Food companies and agricultural commodity traders made a strong case for CAP payments in euro so that they can compete on an equal basis with agri-food traders in the eurozone. Thus while the UK is outside the eurozone, there is likely to be demand for this facility. Our expectation therefore is that the option would continue in the event that the UK chose to remain outside the single currency in a referendum. Policies are as a matter of course kept under review to ensure that the demand and the benefit justify the administrative cost of providing the facility.

  The level of demand among farmers for CAP direct payments in euro is less clear. Agriculture Ministers are giving further thought to the possibility of extending the option, but will need to be certain that the administrative and technical resources invested in offering such an option would result in real benefit to farmers, without undue risk to sterling payments for the majority who will wish to continue to receive them.

Government Spending on preparations

  It might also be helpful to clarify some points on spending. The Government has spent some £29 million to date on preparations for the euro. The majority of this has been spent by the Bank of England, the Treasury's Euro Preparations Unit and the Revenue Departments on preparing for the introduction of the euro in first wave countries and is unconnected to preparations for possible UK entry.

  As the Prime Minister made clear in his statement to the House on 23 February, there is a need to make preparations this Parliament if we are to be in a position of genuine choice early in the next Parliament. In the case of certain key departments—the DSS, Inland Revenue and Customs and Excise—this may involve spending some tens of million of pounds prior to a referendum. This would largely be spent on the adaptation of IT systems. As a proportion of this spend would fall outside spending guidelines, provisions will be made in the Finance and Social Security Bill so that Parliament has the opportunity to consider this spending.

10 March 1999