EXCHANGE RATES (Hansard, 9 July 1973)

§ The Chancellor of the Exchequer (Mr. Anthony Barber)
After the regular monthly meeting at Basle of the Bank for International Settlements, the Central Bank Governors, in a statement, recalled the communiqué of the Ministerial Meeting of the Group of 10 issued in Paris on 16th March which included the following: The Ministers and Governors agreed in principle that official intervention in exchange markets may be useful at appropriate times to facilitate the maintenance of orderly conditions, keeping in mind also the desirability of encouraging reflows of speculative movements of funds. The Central Bank Governors at Basle concluded that this approach remained appropriate and noted that the necessary technical arrangements are in place to implement it.
The Governor of the Bank of England will, of course, be reporting to me later today on his return from Basle.
I should add that recent movements in rates in the foreign exchange markets, whether of sterling or of other major currencies, do not correspond with movements in relative costs and prices in the countries concerned.

§ Mr. Healey
May I first agree with the Chancellor's last remark, that the changes in parities which have taken place 1025 over the last week or two are quite out of proportion to the real economic facts which should justify them? All of us will feel it intolerable that manipulators of money should be allowed to play ducks and drakes with the jobs and living standards of the peoples of this and many other countries. I must confess that I was extremely disappointed and surprised by the poverty of the Chancellor's reply.
Can the right hon. Gentleman tell us, on the international side, whether it is the case, as might be implied by the agreement to which he referred, that the central banks are now prepared to use the arrangement already made to limit changes in currency parities? Secondly, will he undertake urgent talks with other Governments to control short-term capital movements which are the main cause of the current problem and are likely to increase enormously in scope as the Arab oil revenues are added to the mass of footloose funds available in the world?
Thirdly, in view of the fact that the expectation that the pound might be devalued to enter the common European float may be one reason for the fall in the parity of the pound, will the right hon. Gentleman give the House and the world a firm undertaking that he will continue the float at least until inflation in Britain is as far under control as it is in our competitor countries?
The Chancellor avoided making any reply to my initial question asking him to comment on the devaluation of the £sterling. The £sterling has now been devalued 18 per cent. compared with the level just over a year ago. That is a far greater fall in the value of the £sterling than took place in 1967. Will the right hon. Gentleman accept the view of the overwhelming majority of the British people that he must now take urgent action to protect those most hurt by the fall in the value of the £sterling against its consequences on the cost of living? Would he not agree that this 18 per cent. devaluation in the pound—[HON. MEMBERS: "Too long."] Not too long at all. Would the Chancellor agree that this 18 per cent. devaluation of the pound is likely to push the increase in the cost of living during phases 1 and 2 of his prices and incomes policy above 10 per cent. at a time when, as we know from figures given last week, the standard of 1026 life of the majority of British people has been falling, at a time when the national wealth has been increasing by 5 per cent.?
Will he therefore immediately reverse the attitude he took in the House last Thursday and immediately increase pensions, family income supplement and family allowances and introduce new subsidies on food prices? Is he aware that unless he does this he will be inflicting suffering on the overwhelming majority of the British people, which is totally inconsistent with his duties as Chancellor?

§ Mr. Barber
I think that the right hon. Gentleman will on reflection appreciate that it is not and never has been the policy of this Government to disclose matters concerned with intervention in markets. Short-term capital movements are a matter of great importance. The right hon. Gentleman is right to stress this and it is one of the matters on which I hope we shall make progress in the reform of the international monetary system. As he knows, there is to be another meeting, which I shall be attending, of the Committee of 20 in Washington later this month.
I have in the past explained the circumstances in which we shall be joining the common European float, and I have nothing to add. I must tell the right hon. Gentleman that I know of no evidence that the pace of inflation has been faster in Britain than in the generality of other European countries, to anything like the extent that would be required to justify the recent fall in the exchange value of sterling. The right hon. Gentleman referred to the effective rate of sterling and he will be pleased to know that just before I came into the Chamber the effective rate of sterling as compared with the closing effective rate on Friday evening has improved by one-half of 1 per cent.

§ Mr. Skinner
Big deal.

§ Mr. Barber
Turning to the last of the series of points which the right hon. Gentleman put to me, the alternative policy which the right hon. Gentleman and his colleagues chose when they had responsibility was to impose massive increases of taxation all round, to bring the economy of the country to a grinding halt, to fritter away our reserves, to put 1027 this country in pawn to overseas creditors to the tune of £1,500 million and in addition to devalue the pound. That was a disastrous policy and the whole country knows it.

Mr. Edward Taylor
Does the Chancellor's statement mean that he considers that sterling is undervalued at present? Does he see any greater scope for the use of gold to stabilise international currencies? Finally, is there any precise guidance that he can give to holidaymakers who, because of the present uncertainties, are being taken to the cleaners in international markets?

§ Mr. Barber
I recognise the problem for those who are holidaying abroad. This is the result of the temporary uncertainty which is affecting all major currencies.
There is no doubt that on any objective criteria sterling is undervalued at present.
The question of gold is obviously one of the matters being discussed in connection with the longer-term reform of the system.

§ Mr. John Mendelson
Accepting the Chancellor's view that on normal commercial grounds the pound ought to have a higher value in the exchange markets today, and agreeing that it is in the national interest that this view should be made known and accepted on the continent and in other exchanges, may I ask whether he is aware that when one has discussed this matter with people who deal in money on the continent in the last 10 days the answer invariably given has been, "We understand that the Chancellor has entered into a private agreement with the French Government to bring the pound back on a much lower level than it is today into the bondage of the agreement into which he originally entered"? Is it not, therefore, in the national interest that he should respond to my right hon. Friend the Member for Leeds, East (Mr. Healey) and give a categorical denial that he has entered into any such agreement?
Secondly, will he answer my right hon. Friend's further question, that the pensioner and the lower-paid, who are now suffering severely under this galloping inflation, will be looked after before October and that the Government will take immediate action?

§ Mr. Barber
The hon. Gentleman is either deliberately trying to make matters worse, or, alternatively, he is wholly ignorant. I assure him and the House that there is no truth whatever in what he says.

§ Mr. Tapsell
Will my right hon. Friend bear in mind that there is a growing body of opinion which feels that if the situation deteriorates further, particularly on the capital movements side, consideration should be given to the introduction of two-tier exchange rates here as in France?

§ Mr. Barber
I know that this view has been put forward in the past, but I believe that the past few weeks have established beyond doubt, as I think my hon. Friend from his interest in these matters will agree, the urgency of working out a reformed international monetary system. If I may say so—obviously I speak not only on my own behalf but on behalf of others who preceded me—no country has pressed harder for a reformed international monetary system or put forward more constructive proposals than the United Kingdom, first, by the right hon. Member for Cardiff, South-East (Mr. Callaghan) and, more recently, by myself.

Mr. Pardue
As the Chancellor said that sterling is under-valued, may I ask him how he assesses value? For instance, what to the Chancellor is the value of any currency other than that which those in the market will pay for it? Since June 1970, by what percentage has sterling sunk vis-à-vis a weighted average of other European currencies?

§ Mr. Barber
The objective criteria which, over the medium term, are taken into account and become effective, are in the main relative costs and prices. That is why I said that it would be wrong to assume that the present rate of sterling and, therefore, the change from any given previous point in time represents a rate which is justified by those objective criteria.

§ Mr. Tugendhat
Does my right hon. Friend agree that the main causes of the present crisis are the short and long-term doubts surrounding the dollar? When he considers the creation of a new international monetary system would he agree that we have reached a stage where it 1029 has become an urgent necessity to devise a new numeraire or co-ordinate to take the place of the dollar? In the long run clearly this can be done only with the co-operation of the United States, but does he agree that in the short run there are arguments in favour of joint European action to protect us against the basic weakness of the basis on which our currency system rests?

§ Mr. Barber
The members of the enlarged Community recognise full well the immense importance of the cooperative effort we are making together. We are also conscious that inevitably, because of all the implications, these matters are bound to take time. However, we are in constant touch with our colleagues in the enlarged EEC.
I am sure that the United States authorities are fully aware of the difficulties which are caused by the present instability.

§ Mr. Harold Wilson
I agree with the Chancellor about the great importance and stability of sterling to the whole country regardless of any party divisions. When the pound was devalued by floating last year we made no political points about it—indeed, we supported his action and helped to strengthen him in what he was doing—and we do not intend to take political advantage of the further devaluation of sterling on the lines of the present Prime Minister in his hysterical broadcast in 1967, which is on record. If we are to have any newspapers tomorrow, I hope they will reprint it.
In order that we may help the right hon. Gentleman in what he is trying to do, may I ask him to turn his attention again to the question posed by my hon. Friend the Member for Penistone (Mr. John Mendelson)? The Chancellor rather gave the impression either that he did not understand the question or that he was determined to evade it. May I help him both to understand and to answer it? Will he give an assurance that there will be no pegging of the parity of sterling in 1973?

§ Mr. Barber
I answered the question put by the hon. Member for Penistone (Mr. John Mendelson) perfectly clearly. As I have said before, we shall join the 1030 EEC margins scheme at an appropriate time.
Turning to the point made by the right hon. Gentleman about the broadcast by my right hon. Friend in 1967—

§ Mr. Harold Wilson
And yours.

§ Mr. Barber
And mine. I was about to say that my right hon. Friend's broadcast—I hope that any that I made can be included in the same category—was excellent and apposite to the circumstances at the time. The right hon. Gentleman talked about 1967, but I hope that he realises that there is nothing in the present situation, unlike 1967, which need cause us to bring the present good progress in the economy to a halt.

§ Mr. Speaker
Order. I am in some difficulty. There are two statements, a Standing Order No. 9 application, a matter of privilege and two debates, in one of which many hon. Members wish to speak. Therefore, supplementaries on this Question must stop fairly soon.

§ Sir B. Rhys Williams
Does my right hon. Friend agree that a large part of our currency difficulties on this side of the Atlantic are due to the disappointingly slow rate of progress in making the European Fund for Monetary Co-operation into an effective institution? Will he agree to an early meeting of the Council of Ministers to consider the Commission's proposal for the pooling of reserves?

§ Mr. Barber
The week before last we had a whole day's meeting of the EEC Ministers at which these matters were discussed. The importance of moving towards a pooling of reserves is certainly recognised by all the members of the enlarged EEC.

§ Mr. Healey
Cannot the Chancellor offer one word of comfort for the pensioner and the housewife in this situation? He steadfastly refused to give an undertaking of any action whatever before the autumn to help those who are suffering severe hardship as a result of the failure of his policies. If he is not prepared to introduce direct measures to help those in greatest need, will he at least undertake that he will immediately revise the prices code which is under severe attack by members of the Commission, including the chairman, Sir Arthur Cockfield, as reported in the 1031 Sunday Telegraph yesterday, because it gives the Commission totally inadequate powers to deal with exploitation by businessmen of the present situation in order to raise prices?

§ Mr. Barber
Matters of the code go wider than this Question.
I answered the other matters mentioned by the right hon. Gentleman when deal-ling with the subject the other day. I conclude answering the points put by the right hon. Gentleman by making a plea to him to take note of what was said by his right hon. Friend the Leader of the Opposition about being helpful.