£ Sterling (Hansard, 4 June 1981)

§ 8. Mr. Bruce-Gardyne
asked the Chancellor of the Exchequer what has been the percentage movement of the £ sterling against a basket of currencies, and against the United States dollar, respectively, since the £ sterling reached its highest level against the dollar in the last 12 months; and what impact this movement is expected to have on the domestic inflation rate.

§ Mr. Lawson
The highest rate of sterling against the dollar in the past 12 months was 2.4565, reached on 4 November 1980. Since then, sterling has fallen against the dollar by around 20 per cent. and against a basket of currencies by about 7 per cent. The effective exchange rate is now roughly speaking back to where it was a year ago. Although these fluctuations in the exchange rate will have some temporary effect, in the long run, the domestic inflation rate is determined by the rate of growth of the money supply.

§ Mr. Bruce-Gardyne
I am most grateful to my right hon. Friend for that reply, which I shall study with care. Would my right hon. Friend agree that during the period 1979–80, when the exchange rate was rising fastest, so was our share of world exports and manufacture? In the light of the fact that our currency reserves are now at a record high level, would he agree that there might be no harm in encouraging the Governor of the Bank of England to show more enthusiasm for buying sterling, which would also help domestic credit expansion—just as he was enthusiastic to sell it in the past?

§ Mr. Lawson
My hon. Friend exaggerates the enthusiasm of the Governor of the Bank of England. Whether the rate is rising or falling, the Government's policy is to leave the rate to be determined primarily by market forces. The Bank intervenes from time to time to smooth undue fluctuations and to preserve orderly markets, as it has been doing in the past few days.

§ Dr. McDonald
What is the right hon. Gentleman's view of today's market judgment on the pound?

§ Mr. Lawson
I watch it with interest.

§ Mr. Higgins
Will the Financial Secretary agree that if the repercussions of a fall in the exchange rate on the inflation rate are to be contained, it is vitally important that cash limits should be rigorously imposed? Is he aware that many of us view with concern the suggestion that Civil Service pay next year should be negotiated with no predetermined cash limits? Since the industrial action by the Civil Service is continuing despite that offer, will he withdraw it or arrange for it to be withdrawn if the strike does not cease before the end of the week?

§ Mr. Lawson
I am aware of my right hon. Friend's views. They are taken very seriously by my right hon. and learned Friend the Chancellor of the Exchequer. Nevertheless, since negotiations are under way at present between the Lord President of the Council and the Civil Service unions, I do not think that it would be helpful if I were to add much to that reply.

§ Mr. Shore
The House will have heard the Financial Secretary's response to a very important question. We know that he has expressed the view that the Bank's intervention is merely one of smoothing out the fluctuation in the exchange rate. I should like to press him a little further on that. Can he tell us whether it is the view of the Chancellor of the Exchequer that it is the duty of the Bank of England to intervene to sustain the exchange rate, as his hon. Friend the Member for Knutsford (Mr. BruceGardyne) urged and argued a moment ago, or does he take the view that the loss of competitiveness that this country has suffered so grievously during the past two years is a strong argument for allowing corrective action to take place?

§ Mr. Lawson
I have never heard such a curious question. During the first half of the question, the principal economic spokesman for the Opposition was asking for the exchange rate to be held up. During the second half of his question he was asking for it to be pushed down. I suppose the conclusion must be that the Government's policy is just about right.

§ 9. Mr. Greville Janner
asked the Chancellor of the Exchequer by how much the buying value of the sterling has diminished since 1967.

§ Mr. Brittan
According to the general index of retail prices, the buying value of the £ sterling in April 1981 was about 21 per cent. of its value in 1967.

§ Mr. Janner
Is the Minister aware that outside this House last week the Secretary of State for Social Services announced that the present pathetic death grant of £30, which was fixed in 1967, will be increased? Will he draw his answer to the attention of his right hon. Friend and ask that the increase should be in the region of 79 per cent., to make sure that the backlog is met? Can he give an indication of when and how this is likely to be effected?

§ Mr. Brittan
These matters are for my right hon. Friend the Secretary of State for Social Services, who will take such note as he thinks appropriate of the answer that I have just given to the hon. and learned Gentleman's question. But in all matters of this kind one of the factors which have to be taken into account is not only what has happened to the value of the pound but how many pounds are available for the Exchequer to spend.

§ Mr. Peter Bottomley
Did my right hon. and learned Friend hear the Financial Secretary to the Treasury say chat domestic inflation is primarily controlled by the money supply? Can he tell the House who or what determines the money supply and who or what controls it? Is it the same person or the same events?

§ Mr. Brittan
My hon. Friend's questions go very much beyond the question on the Order Paper.