HC Deb 08 April 1982 vol 21 cc1071-2
1. Mr. Dubs

asked the Chancellor of the Exchequer why he has no target level for the exchange rate.

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I do not believe that the conditions exist in which a target level for sterling against one or more foreign currencies would be either practicable or helpful for policy. Account is taken of the exchange rate in interpreting monetary conditions.

Mr. Dubs

Does the Chancellor agree that the effect of the Government's policies is to keep the exchange rate higher than it would normally be, thus damaging employment and exports?

Sir Geoffrey Howe

The exchange rate is determined by the market and stands at about the same level as when the Government came to office. Improvement of the prospects for exports depends upon the improvement of British industry's competitiveness. I am glad that that is being achieved.

Mr. Archie Hamilton

Is my right hon. and learned Friend aware how welcome is his reply, since the pound has been slipping on the foreign exchanges? Does he agree that it is much better to allow that process to continue than to have far too high interest rates, which raise the costs to industry?

Sir Geoffrey Howe

I am grateful to my hon. Friend for his comment. It cannot be said too often that effective competitiveness is achieved not by devaluation, but by improvement in performance.

Dr. Bray

Did the Chancellor include an announcement of the effects on the exchange rate in the simulations that he gave to NEDC yesterday? Will he deposit the full print-out of those runs in the Library so that we may see all the fixes that he made? Will he ensure that an up-to-date version of the Treasury model is available for immediate public use so that we may see what he is up to?

Sir Geoffrey Howe

The hon. Gentleman, with his passionate interest in these matters, need have no fear that anything remarkable is taking place. He knows that the Treasury model is updated from time to time, and arrangements are made regularly for those outsiders who know the structure of the model to be informed of such changes. I shall certainly consider his request to place in the Library the paper that was put before NEDC, but I cannot give any undertaking to go beyond that.

Mr. Shore

I am sure that the House will be glad that the Chancellor said that it would be unwise to have a target rate for sterling. Does the right hon. and learned Gentleman agree that the Government have what one might call an unannounced target rate or range? Is it not also the case that the rate at which sterling is being maintained against principal competitors is still far too high? Will the Chancellor seriously consider the wisdom of boosting British exports and reducing foreign imports by achieving a far more realistic level of sterling than has hitherto prevailed?

Sir Geoffrey Howe

I have made it clear to the House on many occasions, most recently in my Budget Statement, that the Government have no target, undisclosed, secret or otherwise, for the exchange rate. Official intervention in foreign exchange markets is limited to smoothing and moderating excessive fluctuations to preserve an orderly market. I must repeat that it is not sensible to believe that export or import prospects for British traders can effectively be improved by devaluation. That is what experience tells us, and it was the experience of the Government of which the right hon. Member for Stepney and Poplar (Mr. Shore) was a member.

Mr. Shore

Will the Chancellor go a step further on this? It is a little difficult, and nomenclature may be confusing us all. The use of the word "target" implies something rigid. Does the Chancellor agree that in this year's Red Book the exchange rate is one of the three or four principal indicators that guide Government policy? That being so, does he agree that if it is maintained at a given rate it is at least a quasi-target, despite what he has said?

Sir Geoffrey Howe

The right hon. Gentleman does not correctly understand the position. As I said in my original answer, account is taken of the exchange rate when interpreting monetary conditions, but it does not, in that or any other sense, constitute a target or a quasi-target.