HC Deb 28 April 1977 vol 930 cc1464-7
3. Mr. Biffen

asked the Chancellor of the Exchequer, what proposals he has to return to a fixed sterling exchange rate.

14. Mr. Crawford

asked the Chancellor of the Exchequer if he is satisfied with the present value of the £ sterling.

Mr. Robert Sheldon

For the reasons indicated in my right hon. Friend's Budget Statement, the stability of sterling that we have been enjoying is welcome. We do not, however, have any present intention of returning to a fixed rate.

Mr. Biffen

Is the right hon. Gentleman aware that the manifest advantages of a floating exchange rate have been confirmed, even within the past 48 hours, by the Federal German Republic Bundesbank? Does he therefore agree that sterling should float freely rather than dirtily, and will he give an undertaking to the House that he will resist pressure from the International Monetary Fund that might require the Government to return to the regime of a fixed exchange rate?

Mr. Sheldon

I understand the hon. Gentleman's interest in a free float, which he has maintained for many years. The position of the Government is quite clear in this respect. At the end of it all, it is the market that determines the exchange rate of the pound. I am sure that the House welcomes the stability shown in the past few months, but we must realise, at the same time that an exchange rate wildly out of line with what our trading partners are prepared to pay for the pound will not last very long.

Mr. Gould

How is investment to be encouraged in manufacuring industries if the exchange rate means that our exports are not competitive? When will the Chancellor fulfil his undertaking to the IMF that he will manage the exchange rate in order to maintain competition?

Mr. Sheldon

The undertaking was to ensure stability and to maintain competitiveness. We have seen support for this from large sections of industry, which consider that our exchange rate provides them with a degree of competitiveness that enables them to increase their exports. A balance has to be struck, and I am sure my hon. Friend will appreciate the balance we have in this country between competitiveness and the rate of inflation and that they both ultimately have a bearing on the exchange rate.

Mr. Crawford

Since the right hon. Gentleman is answering Questions Nos. 3 and 14 together, will he explain why, when the pound is stabilised, that is greeted with paeans of praise, but that when the Scottish National Party suggests that after self-government for Scotland the Scottish pound will be worth £1.20, we are told that that is economically wrong? Can the hon. Gentleman reconcile those two positions?

Mr. Sheldon

If the hon. Gentleman is to have anything to do with the economy of Scotland, I grieve for it. If that is the way he intends to operate the exchange rate policies of his country, he will find it extraordinarily difficult to come to terms with what industry will require to invest and to make Scotland and the rest of the country competitive. I believe that the present arrangements are the best guarantee to that end.

Mr. Wrigglesworth

Is my right hon. Friend aware of the anxiety of some of us that the market might push up the exchange rate because of the surplus on the current account later this year arising from the oil resources? Such a rise in the exchange rate could, despite the inflation rate, force our industries into an uncompetitive position.

Mr. Atkinson

Not at all.

Mr. Sheldon

That problem does exist, and it will depend very largely on what we do with the money from North Sea oil. If that money is added purely to consumption, the country will face the problem that my hon. Friend foresees. If, on the other hand, means are found of diverting those resources into investment and industry, they will contribute to our long-term growth, and that is the way in which we should use the money.

Sir G. Howe

Does not this exchange of argument across the Floor of the House about what is or is not the right level for the exchange rate underline the wisdom of the Minister's original reply—that it should be judged by reference to what the market in the end decides? Does it not point to the dangers of maintaining a policy of trying to hold the exchange rate at some level determined by some politician? Would it not be better, therefore, to accept the advice offered by my hon. Friend the Member for Oswestry (Mr. Biffen)?

Mr. Sheldon

I can only repeat what I said at the beginning, which the right hon. and learned Gentleman found so congenial. Of course, at the end of it all, the market will determine the final exchange rate over a long period of time. But within those overall limits there can, of course, be excessive fluctuations and part of the task of any responsible Government is to produce stability within the limits set by the market itself.