HC Deb 20 December 1971 vol 828 cc1115-26
Mr. Roy Jenkins (by Private Notice)

asked the Chancellor of the Exchequer whether he will make a statement on the meeting in Washington of the Finance Ministers of the Group of Ten.

The Chief Secretary to the Treasury (Mr. Maurice Macmillan)

I have been asked to reply.

Dame Irene Ward

No. I have asked dozens of Questions.

Mr. Grant

In that case, if my hon. Friend would care to table another Question I will do my utmost to give her a satisfactory answer.

Mr. Bagier

If the figures show a reduction, particularly with regard to the granting of industrial development certificates, does the Under-Secretary agree that one of the starting points for the swift decrease in the number being made available was when this Government changed their policy from investment grants to investment allowances?

Mr. Grant

I do not believe that that is so. I believe, on the contrary, as I said earlier, that the decline started in mid-1969 under the previous Government.

Mr. Urwin

On a point of order. In view of what I believe will be the wholly unsatisfactory nature of the Minister's reply, I beg to give notice of my intention to raise this matter on the Adjournment.

Following is the information:

I welcome the opportunity of making this statement on behalf of my right hon. Friend the Chancellor of the Exchequer, who is in Bermuda attending the meeting between the Prime Minister and President Nixon.

The Ministers and Central Bank Governors of the Group of Ten met in Washington on 17th/18th December. I will circulate in the OFFICIAL REPORT the text of the Communiqué issued at the end of the meeting. The main points were as follows.

The Ministers and Governors agreed on an inter-related set of measures designed to restore stability to international monetary arrangements and to provide for expanding international trade. They reached agreement on a pattern of exchange rate relationships among their currencies. It was agreed that most of the countries would close their exchange markets today and that individual Governments would announce their decisions as to their own currencies. Pending agreement on longer-term monetary reforms, provision should be made for 2¼ per cent. margins of exchange rate fluctuation above or below the new exchange rates.

Negotiations are under way between the United States and the Commission of the European Economic Community, Japan and Canada to resolve short-term issues about trade arrangements. The United States will also have talks with the European Economic Community to establish an appropriate agenda for considering more basic issues. The United States have agreed to propose to Congress a suitable means for devaluing the dollar in terms of gold to $38.00 per ounce as soon as the related set of short-term measures is available for Congressional scrutiny. In consideration of the agreed realignment of exchange rates, the United States will immediately suppress the 10 per cent. import surcharge and the related provisions of the job development tax credit. It was agreed that discussion should be promptly undertaken, particularly in the framework of the International Monetary Fund, to consider reform of the international monetary system over the longer term. My right hon. Friend the Chancellor of the Exchequer has announced the following decisions concerning the United Kingdom.

The parity of the pound sterling in terms of gold remains unchanged. Pending completion of the United States devaluation Her Majesty's Government are declaring a middle rate for the United States dollar in terms of sterling of £ 1= U.S. $2.6057. Britain will make use of the wider margins of 2¼ per cent. The Bank of England will announce its new dealing limits for the United States dollar in terms of sterling before business opens tomorrow. The London foreign exchange market has been closed today.

The special measures introduced by the United Kingdom since 15th August to deter inflows of foreign exchange have been removed with effect from midnight last night, 19th December. Her Majesty's Government regard the settlement as both equitable and realistic. The overriding objective of my right hon. Friend throughout the months of negotiation concerning exchange rates has been to maintain our competitiveness. The effect on Britain of the devaluation of the dollar will be roughly balanced by that of the revaluations of certain other currencies, so that this settlement will not impair Britain's overall competitive strength in the world.

A matter of the utmost importance in the longer term is that the removal of the American surcharge also removes the threat of increasing impediments to international trade and payments which has caused such concern during the uncertainties of recent months. If the surcharge and related discriminatory credit had continued, the effect on British trade would have been increasingly serious over the coming year.

My right hon. Friend particularly welcomes the recognition by this meeting of the need to move on without delay to a fundamental reform of the international monetary system. Work on this should now be pressed forward in the International Monetary Fund.

Mr. Roy Jenkins

I thank the hon. Gentleman for giving that answer. Although I recognised that there were certain difficulties today, with the Prime Minister and the Chancellor of the Exchequer absent, I none the less thought it highly desirable that the House should have a statement and the opportunity to comment on this matter, which President Nixon, after all, though I think possibly with an element of hyperbole, has described as the most significant monetary agreement in the history of the world.

I none the less say that I welcome this agreement, in broad terms, which has removed an element of uncertainty, although without for the moment, partly because we are not fully informed, pronouncing upon the exact parities for all countries, which will be worked out.

May I ask the hon. Gentleman three questions? First, sterling is up against the dollar by 8½ per cent. It is the case—the hon. Gentleman reiterated it this afternoon—that the Chancellor has stressed that he was anxious in these three months of negotiations to preserve our competitive position. Has it ever been suggested in the negotiations that sterling should be up against the dollar by more than 8½ per cent.?

Second, we are all glad to note that the import surcharge and the investment tax credit in its discriminatory aspects is to go. Can the hon. Gentleman assure us that this does not in any way depend upon Congressional legislation associated with or alongside a change in the price of gold?

Third, will the Chief Secretary confirm what to some extent he has already said—that it is the firm intention of Her Majesty's Government to press on with long-term measures for the reform of the system, since what has been involved in the problems of the last four months has not merely been the desire of the dollar to escape from the wrong parity but the need for the world to move forward from the Bretton Woods system, which has worked well for 27 years but which is now somewhat out of date, to a more fundamental reform of these matters?

Mr. Macmillan

I will take the right hon. Gentleman's third point first. I should like to emphasise that my right hon. Friend attaches great importance to the continuation of this work without delay to a fundamental reform of the whole of the international monetary system.

I welcome the tone and way in which the right hon. Gentleman accepted this agreement, and I thank him for his appreciation that I am not in a position to answer every matter in exact detail.

On the nature of the agreement, although it may not quite merit President Nixon's hyperbole, which the right hon. Gentleman implied, it is the first of its kind to be made since Bretton Woods and it is the first major attempt at a general international settlement of this kind which has reached such a successful conclusion.

On the right hon. Gentleman's first point—was it ever suggested that sterling should be put up more? I do not know the answer, because I do not know the exact details of what went on during the negotiations. But what does matter a great deal more than the relationship between sterling and the dollar, or, indeed, any other single currency, is the position of sterling in relation to the weighted averages of the currencies of our trading partners. It is this which gives us the chance, which my right hon. Friend made plain in his original statement, to maintain our competitive position.

The removal of the import surcharge is an undertaking which was made by President Nixon and is not related to Congressional approval.

Mr. Roy Jenkins

Does that apply to the investment tax credit as well?

Mr. Macmillan

As far as I am aware, that is so.

Mr. Boyd-Carpenter

Will the 2¼ per cent. limit of fluctuation on the new parities be a matter for further consideration in the long-term consideration to which my hon. Friend has referred? Also, under the present arrangements, will the Canadian dollar continue to float?

Mr. Macmillan

I cannot answer my right hon. Friend's second point. On the first point, it has been made quite clear that provision has been made for a 2¼ per cent. margin on exchange rate fluctuation, pending agreement on longer-term monetary reforms.

Mr. Sheldon

What understanding was reached on the long-term position of Britain's exchange rate in view of the need to take full advantage of our competitive position? The present bands may be satisfactory for an immediate settlement, but less satisfactory for a long-term settlement. Will the hon. Gentleman tell us what indications have so far been received as to whether the Commonwealth will follow the dollar or the pound?

Mr. Macmillan

Naturally, the sterling area Governments were informed about our position about sterling. They must make their own decisions about their own currencies. I have no information as to what those are likely to be.

Sir H. d'Avigdor-Goldsmid

Is my hon. Friend aware that this news has been received with a great sigh of relief and that this is about the first international meeting of the Ten Powers from which sterling and the British nation's interest have emerged unscathed? Will he convey to his right hon. Friend the thanks of all who are interested in international trade for the vital part which he and the Governor of the Bank of England have played in acting as honest brokers in what have been extremely difficult, complicated and perilous negotiations?

Mr. Macmillan

I thank my hon. Friend for his remarks. This is an extremely important agreement. I think that the whole House would wish to congratulate both the Chancellor of the Exchequer and the Governor of the Bank of England on the part which they have played in reaching it. It is a short-term agreement and, as my right hon. Friend has emphasised, work can now proceed and should be pressed forward in the context of the International Monetary Fund on the more fundamental reform of the international monetary system.

Mr. John Mendelson

Is the Chief Secretary aware that some senior spokesmen of employers' federations, in giving a welcome to this agreement, have also pointed out that they do not expect any real improvement in the unemployment situation until the end of 1972? In the light of this view, does he accept that it is high time that the Government very quickly introduced new measures to create employment to get away from this period of stagnation? We now have the opinion of leaders of industry that there is no hope of improvement until the end of next year unless the Government take urgent measures now.

Mr. Macmillan

The hon. Gentleman has at least admitted that leaders of industry have welcomed this agreement, but, in assuring the House of this welcome, he has chosen to hang on it a totally different question which I do not propose to answer.

Mr. Powell

For how long does my hon. Friend expect that the market value of the pound sterling will remain within the 2¼ per cent. one way or the other of the new parity at which it has been fixed?

Mr. Macmillan

I have no doubt that the competitiveness of British industry and the success of the Government's policies will enable the parity of the pound and our present balance of payments position to be maintained.

Mr. Roy Jenkins

The hon. Gentleman did not answer the first, in my view very important, question put by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). Will he assure the House that, while this may be an acceptable interim parity for the pound—without further study I do not express an opinion upon that—we will not get boxed in with this parity with possibly deleterious consequences in future?

Will the hon. Gentleman also assure us—I do not agree that it was an entirely separate question which was put by my hon. Friend the Member for Penistone (Mr. John Mendelson)—that, these international considerations having been cleared out of the way, the Government will now take urgent steps to deal with the unemployment position at home?

Mr. Macmillan

The House well knows that my right hon. Friend regards the unemployment position at home as extremely serious. This Government have done more to reflate the economy, to create extra demand and to reverse the trend set by the right hon. Gentleman than any other Government.

Regarding the parity of sterling being permanent or temporary, I have said, and I do not propose to go any further, that this agreement now enables work to proceed in the context of the International Monetary Fund on the reform of the whole international monetary system.

Mr. Hordern

Does my hon. Friend accept that the wider margins within which exchange rates will now be able to move will be regarded as a useful step to the freely floating currency rates which many of us would like to see? Will he also do his best to see that the many existing constraints on British investment overseas are removed as soon as possible?

Mr. Macmillan

On the matter of floating exchange rates, my right hon. Friend has made clear his position in this House, in the International Monetary Fund, and in other statements. I have nothing to add. I cannot anticipate any measures which my right hon. Friend may see fit to take as a result of this agreement.

Mr. Milne

Is the hon. Gentleman aware that the exchange rate at $2.60 may not give the Chancellor the flexibility needed for the optimistic statements which he has been making at the Dispatch Box today? Is it not a tragedy that, at a time when the world is moving towards freer trade, we are preparing to entrench ourselves behind European tariff walls?

Mr. Macmillan

I do not think that I have been making optimistic statements at the Dispatch Box; I have been making statements of fact. This is an agreement which should be welcomed by the whole House as moving towards freer trade. One of the great disadvantages was the impediment to international trade and payments which the recent uncertainty caused. This agreement has removed that uncertainty and given us a position from which to work for something of great importance—a further reform of the international monetary system. I hope that it has also given a greater degree of certainty to industry which will enable it to reinvest and build up the investment which we need so much for both domestic and overseas policies.

Mr. Warren

Does my hon. Friend realise that boxing in the exchange rate is no bad thing for many sectors of industry, because in the engineering industry, in particular, it is essential for us to know how far forward we are committed on a particular exchange rate, and a floating exchange rate is of no help to exports in this sector?

Mr. Macmillan

I have noted what my hon. Friend has said.

Mr. Cronin

Is it not the case that, apart from some more realistic realignment of currencies, this agreement has done no more than restore the situation to what it was before the United States Government took their rather selfish, unreasonable measures? Can the hon. Gentleman assure us that some steps will be taken to induce the United States Government to adopt a more co-operative attitude in future, and will he take steps to persevere in obtaining more world liquidity?

Mr. Macmillan

I have already said that my right hon. Friend regards these measures and the activities leading to a more fundamental reform of the international monetary system as being extremely important and of the highest priority. I do not think it can be said that an agreement of this nature, which has removed what was admitted, on all sides, to be a great impediment to British investment and trade, is of minor importance. I accept that the hon. Gentleman is concerned about the future, but my right hon. Friend has made it clear, and so have all those who are party to this agreement, that work on international monetary reform must and will proceed.

Mr. Biffen

Is my hon. Friend aware that anxiety lest sterling be boxed in at a rate which loses touch with market realities is widespread indeed? Could he therefore confirm that it is the policy of the Government that the 2¼ per cent. margin of fluctuation round the parity, which is apparently permitted at the moment, will be exercised by the Government no less in respect of the currencies of the European Economic Community than the currencies of countries outside the Community?

Mr. Macmillan

I have already said that the Government will use the new 2¼ per cent. margin.

Mr. Pardoe

Is the hon. Gentleman aware that his announcement is a good deal more important for the future living standard of this country than any Budget Statement is likely to be? Is the hon. Gentleman aware that whatever value is fixed, even if it is right today, it cannot be right tomorrow or the day after? Is the hon. Gentleman further aware that the decision to fix parity—any parity—is an act of economic madness and wilful sabotage of the future living standards of the people of this country?

Hon. Members


Mr. Emery

May I ask my hon. Friend whether he can add anything to his statement, in so far as one of the basic causes of the imbalance was the problem between the Japanese currency and the United States dollar, about whether anything has been negotiated whereby the Japanese will allow into their country goods from other places in the world which will entirely alter the balance of trading, position in that part of the world?

Mr. Macmillan

I think the House will appreciate, and I hope my hon. Friend will, that I am not really in a position to answer for what decision is made by the Japanese Government. On the question of exchange rates, my right hon. Friend the Chancellor of the Exchequer has made clear his position over a floating exchange rate, and I have nothing to add to that.

Mr. Dalyell

Reverting to the original statement, what exactly was the reference to short-term trading negotiations, other than the 10 per cent. surcharge?

Mr. Macmillan

I am not quite clear what the hon. Gentleman has in mind.

Mr. Dalyell

In his original statement the hon. Gentleman referred to short-term trading negotiations. I want information about precisely what is meant by that if it is not in the context of the 10 per cent. surcharge.

Mr. Macmillan

That was a reference to negotiations between the United States Government and the Commission of the European Economic Community, which are not the concern of the United Kingdom.

Sir H. Legge-Bourke

Whilst warmly endorsing what was said by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) about the Chancellor of the Exchequer and the Governor of the Bank of England, may I ask whether this new agreement increases the chances of eliminating the dollar surrender premium? Many people believe that its removal would greatly encourage the investment of American capital in this country.

Mr. Macmillan

I have no doubt that in due course my right hon. Friend will note that and consider it most carefully.

Mr. Skinner

Is the hon. Gentleman aware that about four years ago hon. Gentlemen opposite, who were then the Opposition, described the devaluation measures as a disaster? Why is it that, faced with the opportunity of revaluing against the dollar to the extent of 14 per cent., the Chancellor of the Exchequer has gone out of his way to say that 8 per cent. is not going to be too high to take the competitive edge off our exports?

Mr. Macmillan

I think that the difference between devaluation forced unilaterally on this country by the failure of the then Government's policies and a total realignment of currencies reached in agreement between ten countries is so obvious that I do not need to explain it further.