International giants ask UK suppliers to bill in euros

Politicians promise a referendum, but has the single currency slipped in by the back door?
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The Independent Online

Don't tell the politicians but the euro is coming. The United Kingdom may not be a member of the single currency club and - if the general public has its way - may not be for years to come, but British businesses are already dealing with it as if it were our national currency.

Don't tell the politicians but the euro is coming. The United Kingdom may not be a member of the single currency club and - if the general public has its way - may not be for years to come, but British businesses are already dealing with it as if it were our national currency.

Two major multi-national companies with operations in the UK have gone on the record as saying they want their British suppliers to invoice them in euros.

Unilever yesterday told The Independent it wanted more of its suppliers to invoice in euros. It said it was easier to compare bids and ensured that Unilever did not have to take the risk of sudden gyrations between the euro and the pound on the currency markets.

Unilever pointed out that a fifth of its British suppliers already invoiced in euros, adding that it would be "more than happy" if others followed suit.

A fortnight ago Toyota, the Japanese car giant, said it was actively encouraging its UK suppliers to bill it in euros. Toyota makes its popular Corolla and Avensis models at Burnaston in Derbyshire but as far as some of its suppliers are concerned it might as well be in continental Europe.

Both companies made it clear that the driving force was the instability of sterling's exchange rate, which has risen by about 20 per cent against the euro since the single currency was launched in January 1999.

They are also the latest examples of what it has been dubbed "euro creep" - the slow adoption of the euro as a trading currency in parallel to the pound. "This is just the tip of the iceberg," according to Kitty Ussher, chief economist at Britain in Europe, the pro-euro lobby group.

Official trade figures show that more than half of British exports - some £90bn a year - go to the group of 11 nations that have signed up to the euro.

She said other UK companies would see the advantages of eliminating exchange rate risks. "We know that companies that export a lot to the eurozone are facing a currency risk. All this shows is that domestic companies also face that risk," she said.

In other words, British multinationals and overseas investors in the UK have taken as much pain as they can from the strength of sterling and the weakness of the euro and are now seeking to lay that risk off on to a sector - UK smaller businesses - which has been isolated in the past.

There are very few figures on the use of the euro within the UK. A survey by the British Chambers of Commerce published in March showed that 3 per cent of its members had been asked to invoice UK companies in euros. This compared with 18 per cent of firms that exported direct to the eurozone.

The Bank of England said the monitoring by its regional agents indicated the proportion was slightly higher, at 5 per cent.

However, a large and increasing proportion of firms expect the euro to displace sterling for invoicing. Firms believe that euro invoicing will make up 14 per cent of all sales and purchases by late 2001, the Bank said.

KPMG, the accountants, which until recently produced a "euro creep" index, estimated that the turnover of goods invoiced in euros within the UK was around £1.1bn.

Meanwhile, the Association of Payment and Clearing Services (Apacs), said an increasing number of businesses had experience of making or receiving euro payments to and from the euro area.

According to its survey, more than 40,000 businesses had opened euro accounts, up by a third on 1999. This represented around 4 per cent of UK business. although the story was very different for small and large firms. Only 1 per cent of small businesses had euro accounts compared with 20 per cent of major businesses.

The Federation of Small Business, which represents 150,000 small firms employing almost a million people, said it was inevitable that more businesses would come into contact with the reality of the euro.

"The drip-drip approach will be the best way because smaller firms - who are sceptical to say the least - will now be compelled to deal with it," David Hands, FSB spokesman, said. He said small firms would have to go along with the euro or risk losing contracts.

James Heath, a spokesman at the British Chambers of Commerce, said this could have important political ramifications in garnering support for the euro among a traditionally hostile sector.

"Small firms for the first time are seeing first hand the impact that exchange rate volatility can have," he said. "It would be interesting to see if it had any knock-on effect on the business attitudes of traditionally sceptical people who have been isolated from trade in the euro."

Opponents of the UK's membership of the euro believe the stories about Unilever and Toyota do not alter the debate, and criticise pro-euro groups for attempting to gain political mileage.

Nick Herbert, chief executive of Business for Sterling, said it was "absurd" to say that the UK should ditch the pound because more businesses were also using euros. "There is extensive use of the dollar in the UK but there's no suggestion we should join the dollar. The euro lobby are plainly clutching at straws."

He said Toyota and Unilever were simply two companies with strong pro-euro leanings who had suffered from the weakness of the single currency since its launch.

"The issue for the British public is not one of currencies but of giving up economic control over interest rates and ultimately tax rates," Mr Herbert said. "That decision will not be made by the board of Unilever."

These public statements nevertheless increase pressure on the Government to consider its position on the euro.

Labour has pledged to hold a public referendum once it has decided that the five tests have been met. Euro-enthusiasts are hoping that big business will do some of the Government's hard work for it, and soften up the public to the idea of using the euro.