HC Deb 25 October 1976 vol 918 cc29-37
The Chancellor of the Exchequer (Mr. Denis Healey)

With permission, Mr. Speaker, I shall make a statement.

The sterling dollar rate declined sharply when business began this morning. At one point, it was more than 7 cents down on its closing rate in London at the end of last week, a week in which sterling held up well in active trading conditions. There has been some improvement in the rate in the last few hours.

I understand that the whole of today's pressure has stemmed from the story in The Sunday Times yesterday which suggested that the International Monetary Fund and the United States Treasury have agreed on a set of conditions, including a lower exchange rate, for the projected United Kingdom drawing from the Fund.

This story has been denied in the most unequivocal terms both by the IMF and by the United States Treasury. The House will have seen that Mr. William Simon, the United States Secretary of the Treasury, has described the story as—I quote his words—"irresponsible and patently untrue". Mr. William Dale, the Acting Managing Director of the IMF, said that the reports—I quote again— have absolutely no basis in fact as to either the Fund's methods of procedure or the particular nature and size of the terms. The Fund does not, and cannot, determine its views on detailed measures until after a careful examination of the economic indicators on the spot. These are Mr. Dale's words.

In fact, the mission from the IMF staff will not be arriving in London for discussions with Her Majesty's Government until next month. It will not form a view on what terms are appropriate until it has been able to assess the prospects for the British economy in the light of Treasury forecasts which will then be available.

Sir G. Howe

The House will be glad to have the Chancellor's confirmation of the firm denials already made by the United States Treasury and the International Monetary Fund, but does this not suggest the necessity for speeding up the timetable of the visit of the IMF? Is not the entire story a savage condemnation of the Chancellor's management of the economy—namely, that 7 cents has been knocked off the value of the pound as a result of a single newspaper story? Will the Chancellor not now accept that it is only by resolute and urgent action in cutting public spending, and by abandoning the partisan and gravely damaging measures that are being forced through this Parliament, that confidence in the pound can ever again be restored?

Mr. Healey

Neither I nor any other Minister—nor indeed anybody on the Opposition Front Bench—can accept responsibility for an irresponsible newspaper article or for the market's decision to pay more attention to that article than to unequivocal denials from those whose views it purports to describe. The right hon. and learned Gentleman may recall that a Conservative Government of which he was a member were equally vlunerable to that type of article in a newspaper.

On the question of speeding up the visit of the IMF staff, the right hon. and learned Gentleman will recognise, if he reads Mr. Dale's statement, that the Fund does not wish to consider the prospects of the British economy and the terms under which a borrowing might be made until it has an opportunity to consider forecasts for prospects over the next 18 months which are not currently available. I have made it clear on many occasions that this was the view of the Fund and that this has determined the programme of discussions with the Fund.

On the right hon. and learned Gentleman's last point, I have made it clear repeatedly—and I did so in my Mansion House speech last Thursday—that I believe that our strategy is the right one and that the Government are moving in the right direction. My view has been endorsed in the last week by leading members of the Governments who are likely to contribute to the standby, particularly by Mr. Simon and Mr. Greenspan of the United States, and by Chancellor Schmidt and Dr. Emminger of West Germany. The whole country would benefit if the Opposition Front Bench could sometimes be as optimistic in their views about the future of the United Kingdom economy as are our friends abroad.

Mr. Pardoe

Is the Chancellor aware that his statement this afternoon demonstrates a stupefying complacency? Does he really believe that one newspaper article could knock this amount off sterling in one weekend? Is he not aware that before last Friday the forward market was already forecasting a rate below $1.50 in a year's time. If The Sunday Times had not been published this Sunday, the view of Professor Friedman, the Nobel prize winner, would have undermined the rate of sterling by as much as The Sunday Times has done.

Mr. Healey

The hon. Gentleman is no less an expert on stupefaction than is the right hon. and learned Member for Surrey, East (Sir G. Howe) on anaesthesia, but he should know, because I understand that he studies these things, that the forward discount is very much less a reflection of what the market thinks the spot rate will be at the relevant time than a measure of the cost of borrowing sterling. If he has watched the movement of the forward discount over recent months, he will be able to verify that that is the case.

Mr. Jay

Would it not be more reputable if the British Press, the Opposition Front Bench and the hon. Member for Cornwall, North (Mr. Pardoe) refrained from making statements which they must know will do the utmost harm to their own country?

Sir John Hall

Does not the Chancellor agree that this dramatic fall in sterling today does not reflect the effect of one newspaper article but, instead, shows the lack of confidence among our overseas depositors in a number of countries in any intention by our Government to take action to get our country on its feet?

Mr. Healey

I cannot agree with that statement, and if the hon. Gentleman watches the movement of the exchange markets he will know that his statement is untenable. There is no question whatever—and he can consult his friends who are dealers—that the sole cause of the fall today was yesterday's article in The Sunday Times.

Mr. Atkinson

Does my right hon. Friend not agree that it is an absolute outrage that our manufacturers should continue to be blackmailed and imperilled by the antics of speculators based in London who can undermine British exporting effort to such an extent that the pound is now grotesquely undervalued? Will he now say that the time has come when we should take away from the speculators the chance of dealing in that way, that the Government will set the exchange rate and will adopt positive policies to bring our external trade into balance, thus doing away with the vulnerability which continues to exist and to weaken the Labour Government?

Mr. Healey

I very much agree that it is the Government's duty to adopt a policy to bring our external trade into balance. I hope that the Government will have the support of all my hon. Friends in any measures that are necessary for that purpose. My hon. Friend must accept that speculation against sterling as properly defined is not possible by people based, as he suggested, in this country. The element of pressure that can be exerted on sterling and by those based in this country is associated largely with what are termed leads and lags. The action taken by the Government in the monetary field a fortnight ago in operating a credit squeeze has already had some effect in discouraging that kind of pressure by United Kingdom residents.

Mr. Tapsell

Does the Chancellor deny that he and the Prime Minister know perfectly well that in the national interest it is necessary urgently to take further measures to restore international confidence in sterling, and that they are delaying doing so only for fear of splitting the Parliamentary Labour Party?

Mr. Healey

The hon. Member was responsible the other day for making a statement about the terms which, according to him, the IMF would press upon this country. Interestingly that statement was totally at variance with the report in The Sunday Times yesterday. The Government have shown on many occasions that they are prepared to take whatever measures are required—we proved that again a fortnight ago—to keep the economy on course and to see that we reach our goal in time. It would be quite improper and unwise for us to act before, like the IMF, we have the chance for mature consideration of the prospects for the next 18 months.

Mr. Mellish

Is my right hon. Friend aware that many members of the public, perhaps most, and perhaps many Members of this House are utterly bewildered that we should have a situation in which, as a result of an article in a newspaper or a speech by Mr. McGahey, or some other unimportant people, sterling can drop in price, forcing the Treasury to borrow vast sums of money from abroad and getting us further into debt? Is there no way in which such speculation or manipulation can be suspended? Is there nothing that the IMF can do collectively to stop what appears to most of us to be an appalling and disastrous story? Is there no answer and is it just a question of going down and down? Is my right hon. Friend further aware that anyone with any common sense knows that if the Conservative Party had got into power there probably would not be a pound at all?

Mr. Healey

All experience in this country when the Tory Party was last in power suggests that my right hon. Friend's final words represent no less than the truth. As for the vulnerability of sterling to articles in newspapers, the House must recognise that at a time when the IMF mission is about to visit London and when sterling is already under pressure an article in what was regarded as a responsible newspaper stating unequivocally that the United States Government and the IMF staff have colluded to insist on the depreciation of sterling by another 15 points is bound in any situation to have the most damaging effects on the rate. This point was made by Mr. Simon in his statement yesterday. I am glad to see that at least one Tory Member—the hon. Member for Gosport (Mr. Viggers)—regards the behaviour of the newspaper as requiring further consideration.

My right hon. Friend will also recognise that the currency will remain vulnerable, like the franc and other currencies whose value has fallen in recent months, as long as our inflation rate is higher than that of our major competitors and as long as our economy has not yet recovered from the disastrous imbalance which we inherited two-and-a-half years ago.

Mr. Alan Clark

Does the Chancellor ever ask himself why it is that these recurrent and repetitive statements of his about the value of the pound do not have any effect? Could it not be because all that he has done and all that he proposes to do is to borrow enormous sums of money from one set of foreign bankers to finance speculation against the currency by another set?

Mr. Healey

The hon. Gentleman has given a comical description of what he thinks is happening with currency borrowed by this country. The hon. Gentleman will have seen that the Government's economic policies have been warmly endorsed recently by the United States President and the Federal German Chancellor. I put it to right hon. and hon. Tory Members that they do themselves no good with British opinion in taking pleasure in fouling their nests.

Mr. Heffer

While, up to now, I have never accepted the theory of politics based upon conspiracy, in view of the circumstances I am increasingly becoming convinced that the theory of politics based upon conspiracy is actually taking place—

Mr. Sandelson rose

Hon. Members

Hear, hear.

Mr. Heffer

Is my right hon. Friend aware that many of us are now convinced that there is a conspiracy on the Tory Benches and among certain Press barons to try to force the Government out and that that is the whole design behind the present policy which we are facing? Is it not clear that we have to ignore the nonsensical rubbish that we are getting from people such as Milton Friedman, who advised the Chilean junta on how to deal with its economy and which now has tripled its unemployment and inflation rates—all as a result of the rubbish we have been hearing from Tory Members and people such as Milton Friedman?

Mr. Healey

Without endorsing my hon. Friend's views about a conspiracy, I must say that the way in which many, but not all, right hon. and hon. Members on the Tory Benches have reacted to recent difficulties faced by the whole country which—as the recent policy pamphlet of the Conservative Party reminded us—long pre-date the accession to power of the present Administration two-and-a-half years ago shows their impatience to derive petty party political advantage from the nation's troubled economy. That is not a basis on which right hon. and hon. Members can seek popular support. They will certainly, as has been demonstrated, unite this party against them.

Mr. Viggers

Is the right hon. Gentleman aware that I have asked the Press Council to investigate the story in The Sunday Times so that in due course the truth may be known? Is the right hon. Gentleman further aware that he must know, as the world knows, that he cannot continue with his present policies, and that as long as he refuses to admit this, the pound can never be safe?

Mr. Healey

I have paid tribute to the hon. Gentleman's action. Whether the story was in detail well judged is not for me to say. The Press Council will take its view. I am glad to applaud the courage and patriotism of one Tory Back Bencher in respect of the behaviour of this newspaper. He, at least, felt that it was deserving of some consideration by those whose responsibility it is to ensure a responsible Press.

Mr. Anderson

Is it not clear that the only new event of significance over the weekend was this one Press article? In the light of that, does my right hon. Friend not agree that this journalist has been thoroughly unpatriotic? Can he give some measure of the damage done to the country by this journalist?

Mr. Healey

I do not think it fair to concentrate all recrimination on this individual journalist, although I must say that I was disturbed, listening to him broadcast on the "World at One" programme today, to discover that he thought that it would be a good thing if the rate fell and suggested that the consequences of his action were not unwelcome to him.

Mr. Norman Lamont

Is the Chancellor aware that many people will accept that The Sunday Times article was both inaccurate and irresponsible? But is he also aware that it is extremely difficult for financial markets to obey his injunction to pay more attention to official denials when these have been so misleading in the past, like the denial of the approach to the IMF up to the moment that it happened? Is he aware that the fall of sterling this morning is a comment not just upon his wrong policy but, I am afraid, upon his personal lack of credibility?

Mr. Healey

I am glad that the hon. Member has raised that point. I was asked in an interview by Mr. Peter Jay some weeks ago whether the Government had decided to apply for further standby credit from the Fund. I said that the Government had not so decided. Nor did they decide until after the run on sterling which started a few days later. There was no intent to mislead nor was there any misleading of anyone in the statement I then made. The hon. Gentleman must, if he reflects on the situation, recognise that that is the case.

Mr. Wrigglesworth

Would not my right hon. Friend agree that one of the causes of the constant pressure on sterling is the steady drain on the sterling balances? Has he had any discussions with our partners in the EEC, or the IMF or any other Governments about funding the balances, or does he propose to have any such discussions?

Mr. Healey

This is a matter of great concern to the Government, and we have considered it along with some of our friends. But I think that the general—indeed, unanimous—view is that the basis on which any action should be taken on it would be the successful application by the United Kingdom for a further standby by the IMF, and that is where the matter for the time being must rest.

Mr. Lawson

Is not the right hon. Gentleman aware that this House is sick and tired of hearing him blame everyone but himself—including the Press and the Opposition? [Interruption.] Is it not time for him to be man enough to take the blame himself for the total failure of his policies and to resign?

Mr. Healey

I have the impression from the reaction of my right hon. and hon. Friends that at least this side of the House is pretty sick and tired of the hon. Member.

Several Hon. Members rose

Mr. Speaker

I shall allow two more questions on this matter.

Mr. English

Has my right hon. Friend considered that the source of the story might be the people who have denied it? It also mentions the Federal Reserve Bank, and suggests that it regards the IMF loan as being one that could be granted without any tight conditions at all. Has my right hon. Friend considered that it might have been possible that that was not unconnected with the story?

Mr. Healey

I think that I can regard myself as the personal friend of the Chairman of the Federal Reserve Bank as well as of Dr. Witterveen and of Mr. Simon. I cannot speculate on the origins of the report in The Sunday Times, except to say that I would be flabbergasted if the origin were the Federal Reserve Bank.

Mr. Maurice Macmillan

If the right hon. Gentleman is so confident that his policies are on the right course, and attributes the fall in the value of sterling solely to the newspaper story, can we imagine that he expects it to recover? If not, what is the effect of this loss of 6 cents likely to be on both a rise in unemployment and a rise in the retail price index?

Mr. Healey

If this fall were maintained—it was just over 5 cents when I came to the House—it would lead to an increase in the retail price index over the next six months of well under 1 per cent. But, like, I think, the right hon. Gentleman, I hope that the fall will not be maintained.