£ Sterling

HC Deb 10 November 1977 vol 938 cc825-9

1. Mr. Cronin

asked the Chancellor of the Exchequer if he will make a statement on his general policy with regard to the parity of the £ sterling, having regard to its effects on employment and export competitiveness.

16. Mr. David Price

asked the Chancellor of the Exchequer what is his current policy for the exchange rate of the £ sterling.

23. Mr. MacGregor

asked the Chancellor of the Exchequer if he will make a statement on the decision to allow the £ sterling to float upwards subsequent to his Budget Statement on 26th October 1977.

The Chancellor of the Exchequer (Mr. Denis Healey)

The Government's policy for the sterling exchange rate was set out in a Treasury Press statement on 31st October. As that statement explained, inflows were endangering adherence to the Government's domestic monetary targets. Intervention policy in the exchange markets has been adjusted accordingly. It is too early to predict the effect, if any, on employment and export competitiveness.

Mr. Cronin

With regard to any future upward movement of sterling, will my right hon. Friend bear in mind that export competitiveness is dependent chiefly on quality and delivery and also that any intransigence on the part of the unions towards the Government's wages policy is likely to cause more unemployment than any other factor? Will he also undertake to continue his tight monetary policy, in contrast to the last Conservative Government, who treated the money supply like drunken sailors?

Mr. Healey

I can certainly give my hon. Friend the assurance he asked for at the end of his supplementary question. I see that the right hon. Member for Down, South (Mr. Powell) particularly appreciated the terms in which it was put.

On the earlier part of the question, competitiveness depends partly on price and partly on other factors, such as design, reliability and delivery. Price competitiveness is affected by many factors, of which increases in wages costs are one. Changes in the exchange rate may be another and the level of productivity a third.

Mr. MacGregor

In view of the position on North Sea oil and the expected balance of payments surplus in the future, does the Chancellor intend shortly to relax exchange control requirements on direct investment, particularly into the EEC, as we are required to do under the Treaty of Rome?

Mr. Healey

I am passionate in my desire to answer that supplementary question, but, unfortunately, parliamentary protocol forbids me to answer a question which is specifically down for answer later this afternoon.

Mr. Gould

If we really have the margin of price competitiveness suggested by the Government's willingness to see the exchange rate rise, how is that to be squared with warnings to workers that they are in danger of pricing themselves out of jobs?

Mr. Healey

As I pointed out earlier, price competitiveness depends on many things. One is the movement in the exchange rate. Another is the movement in relative unit wage costs. Policies designed to reduce the increase in relative unit wage costs are likely to be assisted by anything that brings down the rate of inflation and an appreciation in the sterling exchange rate would be one such factor.

Mr. Powell

As the Chancellor of the Exchequer was good enough to recognise my copyright on this subject, may I ask him whether he does not agree that it is important that, with movements of the sterling exchange rate, exporters should not be quick to adjust their sterling prices, since it is pricing in the selling market which is decisive?

Mr. Healey

That is often the case. The striking thing is the way in which some of our foreign competitors, when facing exchange rate movements, change their selling price accordingly. At the same time, it is important to recognise that a constant price with a falling exchange rate will increase the unit profit margin, and that can often encourage manufacturers to work harder on exporting than they otherwise would have done.

Mr. Watkinson

Does my right hon. Friend agree that at present there is considerable instability in international monetary markets? Does he further agree that it is necessary for the international community to take some steps to control the flow, often irrational, of speculative hot money?

Mr. Healey

I very much agree with my hon. Friend. One of the problems of maintaining a stable effective exchange rate in current circumstances has been to do with the wild movements of the parities of various currencies over the past few months.

I certainly agree that the atomic cloud of footloose funds that is liable to search for easy targets for speculation, either upwards or downwards, has had a destabilising effect on the international monetary scene. Anything that could be done to bring it under control would be of great value.

Mr. Tapsell

Does the Chancellor agree that more important than the sterling exchange rate at any given moment is the amount of our own relative earnings per unit of output by comparison with our overseas competitors? Will he give an undertaking to give as much emphasis to encouraging investment and productivity in Britain as he is giving to restraining wage increases?

Mr. Healey

A moment ago I made the point—I should have thought that the House heard it—that the hon. Member made in introducing this question.

On the question of the importance of taking measures that will encourage in- vestment, I must tell the hon. Gentleman that the Government have done a great deal to help. Let me give one example. The tax relief on stock appreciation means that any manufacturing company that reinvests its profits for productive purposes pays no corporation tax. I hope that the hon. Member deplores as much as I do the fact that British industry this year has failed to fulfil its stated investment intentions. I hope, too, that he shares my hope that British industry will do better next year than it has this in fulfilling the intentions for investing that it has announced.

13. Mr. Pardoe

asked the Chancellor of the Exchequer what estimate he has made of the effect of the recent rise in the value of the £ sterling on Great Britain's trade in manufactured goods.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

Any estimate made at this stage would be highly speculative. Much will depend on the actual path of the exchange rate and on the response of domestic costs.

Mr. Pardoe

Does the Chief Secretary accept that the foundations of German industrial strength since the war were laid during a long period of undervaluation of the deutschmark in the fifties? The lesson holds good for Britain today. Whatever the reasons that have caused the pound to rise in the last two or three weeks, the improvement has made a substantial difference to the Government's industrial strategy. What action do the Government intend to take?

Mr. Barnett

I do not accept the hon. Gentleman's point. It depends at which base one is looking for the change in exchange rate. If one looks back over the last two years, one sees that, relative to our competitors, there has been an improvement in our unit labour costs. It is misleading to take any one factor and say that that is why the Germans. the Japanese or anybody else has done better than we have. They have done better than this country has, under successive Governments—that is absolutety true—but I do not accept that any single factor is the reason for it.

Mr. Tapsell

Why is it that Treasury Ministers apparently find it impossible to comprehend the illogicality, in manufacturing terms, of allowing a free float of sterling while maintaining such strict exchange control? Why, for instance, is it better for the Government to invest in low-yielding United States Treasury bills than for private industry to invest in high-yielding export-linked manufacturing ventures overseas?

Mr. Barnett

We should start on the assumption that the level of comprehension in the House is probably broadly equal on both sides, and one should not be so pompous about it. It seems to me, from listening to the speeches of hon. Gentlemen on exchange control, that they appear to be arguing that what we should allow is a dissipation of North Sea oil proceeds in order to ensure that investment takes place abroad rather than at home. I do not agree with such a policy

Mr. Ian Lloyd

Is there not an important lesson to be learned by those who pontificate on this matter from the fact that the continuing rise in the value of the German deutschemark and the Japanese yen has throughout that period been associated with considerable strength in the export industries of both those countries?

Mr. Barnett

The rise in the deutschemark has been due to the much better industrial performance in Germany than in many other countries, including ours. I concede that. I do not dispute it. I do not pretend to pontificate on that, although some do.