HC Deb 08 July 1968 vol 768 cc48-54
The Chancellor of the Exchequer (Mr. Roy Jenkins)

With permission, Mr. Speaker, I would like to make a statement.

The House will be aware that discussions have been taking place this weekend at the Bank for International Settlements, in Basle, amongst the representatives of the central banks of certain countries about a new facility for sterling.

The proposals which were considered were to provide new means for offsetting fluctuations in the sterling balances of sterling area countries. I should make it clear that the facility under discussion is not one which would provide finance to meet any deficit in the balance of payments of the United Kingdom. It is not a loan. It is not an arrangement which could or will lead to any increase in our total of overseas indebtedness. The object would be to strengthen the position of sterling and thus of the international monetary system as a whole.

I am glad to be able to tell the House that considerable progress has been made in these discussions. As a result, the Bank for International Settlements and 12 central banks, speaking where appropriate with the authority of their Governments, have given firm assurances of willingness to participate in the arrangements which are to be completed as soon as satisfactory consultations have taken place with sterling area countries.

These proposals are of great importance to all sterling area countries, and it is, therefore, right that consultations should take place with them all. These will be pursued urgently, but until they have been completed it would be wrong for me to make any further public statement.

I should like to express my warm appreciation of the constructive attitude of the countries with which these discussions in Basle have been conducted. I believe that the arrangements now contemplated, and the firm assurances we have had from these countries, offer the prospect of greater stability in the functioning of the international monetary system. While they in no way lessen the need to bring our own policies for restoring the balance of payments of the United Kingdom to a successful conclusion, they make it possible to pursue these policies without being adversely affected by fluctuations in the sterling balances. They are a major step forward in dealing with this longstanding problem.

Mr. Iain Macleod

As there are many negotiations still ahead, I would not wish to press the right hon. Gentleman today in detail on this matter? Is he aware that the announcement by the Bank and his own statement are disappointingly vague? May I ask three short questions, to see if he can give further information to the House?

The right hon. Gentleman referred to a new facility for sterling and told us three times what it is not. Can he tell us what it is? Is it best described as a medium-term standby? Is it about £800 million to £1,000 million? What sort of time-scale has he in mind? Are the talks geared to the I.M.F. meetings and later meetings of the Commonwealth Finance and Prime Ministers?

Mr. Jenkins

I am grateful to the right hon. Gentleman for saying that he will not press me unduly, because these negotiations and talks have to be carried out. He asked what was the nature of the arrangement. He himself gave the term, a medium-term standby. I would not wish to quarrel with that. Nor would I wish to quarrel with the sum he mentioned, which has been mentioned elsewhere, as approximately that envisaged. So far as the time-scale is concerned, my intention is that consultations should start in a matter of days. I hope that they will be completed within a few weeks afterwards. I shall report back to the House as soon as I have anything to report.

Mr. Barnett

Is my right hon. Friend aware that many hon. Members, other than those who wish to make party political gain out of this, wish to congratulate him on his attempts to achieve stability in balance of payments? Will he assure the House that, regardless of the June trade figures, and in view of the already high level of unemployment, he will give no promise of any further deflationary measures?

Mr. Jenkins

No question of that has arisen.

Sir H. d'Avigdor-Goldsmid

Is the Chancellor aware that, despite the comment of his hon. Friend the Member for Heywood and Royton (Mr. Barnett) we all, on both sides of the House, wish him well in these difficult negotiations? Having said that, is the right hon. Gentleman aware that the successful outcome of these negotiations will only have the effect that the sterling balances will pass from creditors over whom we have some measure of control, into the hands of creditors over whom we shall have no control whatsoever? Therefore, this is a logical consequence of the policies that have been pursued by the right hon. Gentleman and his predecessor over the last four years.

Mr. Jenkins

Despite the encouraging and placatory introduction, I do not fully agree with the hon. Baronet. In the first place, he should wait and see exactly what the scheme is. In the second place, what we are here dealing with is a problem with which this country has been confronted for two decades or more. These are debts which were accumulated mostly over 20 years ago. They have been a source of instability in the international capital system and a source of difficulty to countries generally. If we can solve them on a sensible basis it will be a great advance for the world as a whole.

Mr. Dickens

Will my right hon. Friend undertake to present to the House a White Paper in due course setting out the full terms and conditions of this agreement particularly as it will affect the level of unemployment, the rate of economic growth and the amount of public expenditure in the years ahead? Secondly, is he aware that the T.U.C. and the large number of his hon. Friends would much have preferred it if the Government had chosen instead to mobilise our immense assets in North America and use them for buying out the volatile sterling balances rather than incur further obligations to foreign bankers?

Mr. Jenkins

I shall consider how best to inform the House, whether by means of a White Paper or a statement or otherwise of what has emerged from the consultations. I assure my hon. Friend that there will be nothing touching any of the points he mentioned.

On the second point, I have discussed in the House the proposition about liquidating part of our overseas portfolio which he has put to me in the past and I have indicated that I think there would be disadvantages and disruption associated with this method. I think that we have achieved the benefits without the disruption.

Mr. Thorpe

Is the Chancellor aware that any guarantee arrangements which improve the position of sterling and thus our trading position will be warmly welcome, but is he also aware that the House as a whole will look with great interest to see what, if any, strings are attached, particularly with regard to the movement of capital between individual members of the sterling area or of converting it into other currencies?

Is the Chancellor not convinced that the support for sterling that is needed from foreign bankers is proof positive of the impossibility of this country forever maintaining sterling as a reserve currency? We must use the breathing-space in setting up a new international reserve currency.

Mr. Jenkins

I am grateful that at least one Leader of an Opposition party very much welcomes anything which strengthens sterling. I think, however, that the right hon. Gentleman is being a little over-sensitive and worried about strings. This does not arise.

As far as the right hon. Gentlemen's second and broader question is concerned, I have expressed my views. We have to be very careful about disrupting the position of the reserve currencies and about responsibility to sterling area countries and we have to have regard to the changed nature of sterling in the modern world.

Mr. Sheldon

While congratulating my right hon. Friend on the nature of the negotiations and the way in which they are being carried out, may I ask how the proposals at present being discussed are likely to affect the whole of the sterling balances and what thought he has given to the problem of distinguishing between capital outflow for investment and fluctuation of sterling balances themselves?

Mr. Jenkins

I think that my hon. Friend, and indeed the House, will not think me unforthcoming if I say that I think it right to discuss these problems with the holders of sterling balances before discussing them with anyone else.

Mr. Maudling

As there have been references both to balance of payments and trading arrangements of this country, will the right hon. Gentleman make clear that these arrangements cannot have any net influence on current account or the basic balances?

Mr. Jenkins

Yes, I thought that I made that clear in my statement. They in no way obviate the need to get the balance of payments surplus at the earliest possible time we can. They cannot fail to be helpful both for us and for sterling area countries.

Mr. Cronin

While congratulating my right hon. Friend on the admirable progress he has made in these negotiations, may I ask whether, if these negotiations proceed successfully, he will give more consideration—without committing himself now—to turning his back gradually on the deflationary policies which have had such a limited effect on our economic position up to now?

Mr. Jenkins

As I said to my hon. Friend the Member for Lewisham, West (Mr. Dickens), questions of that sort do not arise under this arrangement.

Mr. Birch

Referring back to the question asked by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), is not the basis of this agreement that we are turning obligations expressed in sterling into obligations expressed in gold?

Mr. Jenkins

No, and I think that the right hon. Gentleman, also, should wait to see the agreement.

Mr. Rankin

Can the Chancellor say whether his next statement will be made before the House rises for the Summer Recess?

Mr. Jenkins

No I cannot give a definite undertaking on that, but I did indicate the time scale. There are over 30 sterling area countries to be consulted. We propose to do this as urgently as possible. I assure my hon. Friend and the House that I shall be only too ready to report to the House at the earliest possible moment.

Mr. Hordern

The Chancellor said that there will be no increase in overseas indebtedness. Does he mean that to the extent to which sterling balances are run down they will not be replaced by loans which will be repayable?

Mr. Jenkins

I meant that there would be no increase in overseas indebtedness.

Mr. Orme

Can we take it from my right hon. Friend's statement that no letter of intent is involved and no guarantees are given to the international bankers on this occasion?

Mr. Jenkins

That can indeed be taken. When a letter of intent was involved, I, with the full concurrence—indeed, at the suggestion—of my right hon. Friend the Home Secretary, published it within 24 hours.

Mr. Bruce-Gardyne

Will the Chancellor of the Exchequer bear in mind in his discussions with other sterling area countries that, despite the views of the United States, the possibility of a change in the price of gold in the fairly near future cannot be ruled out? Will he ensure that no undertakings are entered into which would make this more onerous for this country?

Mr. Jenkins

I know the hon. Gentleman's views about this: he has reiterated them on many occasions. However, I do not think that this arises directly and I have no comments to make on this subject today.

Several Hon. Members rose—

Mr. Speaker

Order.