Exchange Rate (Hansard, 11 November 1982)

§ 6. Mr. Woolmer
asked the Chancellor of the Exchequer what role he considers a reduction in the exchange rate can play in restoring the United Kingdom's relative competitiveness.

§ 7. Mr. Sheerman
asked the Chancellor of the Exchequer if he has any plans to increase the competitiveness of the £ sterling against other currencies.

§ The Minister of State, Treasury (Mr. John Wakeham)
The level of the exchange rate is taken into account in judging monetary conditions, and in interest rate and other policy decisions. Experience shows that the effect of a fall in the exchange rate on competitiveness is soon eroded by inflationary pressures, and that increased productivity and a sensible attitude to pay are the only ways to secure lasting improvements in our competitive position.

§ Mr. Woolmer
Is it not clear to all except the Government that the pound is greatly overvalued and that that is a major reason for the increasing import penetration and diminishing trade and export prospects? As the Government's policies imply at least a wage freeze for a number of years, would it not make a great deal more sense to industry and the unemployed to bring real interest rates down sharply and get the pound into a position where British workers and management can compete?

§ Mr. Wakeham
It is not as simple as that. Even at the CBI conference there was considerable disagreement on whether a reduction in the rate of sterling would assist. A devaluation can be relied upon to improve competitiveness only if it is maintained by stringent pay controls afterwards. It comes ill from the Labour Party to propose that sort of remedy.

§ Mr. Sheerman
Does the Minister agree that if the CBI is still the Tory Party at work, it is the Tory Party at work in the service and importing industries and not in the manufacturing heartland of our country, which my hon. Friend the hon. Member for Batley and Morley (Mr. Woolmer) and I represent? We have the highest capital exports in Britain, but firms are still going out of business with alarming regularity because of the unfair exchange rate?

§ Mr. Wakeham
The way for Britain to become competitive is to bring our labour costs down and improve our productivity. For many years that has been the problem with British industry. In the past year or so there has been some improvement in that position and we want to see it maintained.

§ Mr. Renton
To what extent has my hon. Friend considered the point, which was congently made in the Financial Times this morning by Mr. Samuel Brittan, that a more rapid reduction in our short-term interest rates would help to reduce our exchange rate against the German mark and the Japanese yen, which would greatly help to restore our competitiveness in export markets?

§ Mr. Wakeham
I wish that I had the confidence that Mr. Samuel Brittan appears to have. The Government's ability directly to influence the exchange rate is limited.

Mr. J. Enoch Powell
What would be the benefit to this country of taking steps to increase our already large current surplus and consequently, at the same time, our already large capital deficit?

§ Mr. Wakeham
The issue does not directly arise from the original question. Competitiveness depends upon the costs of production of manufacturing industry.

§ Mr. Eggar
What is the justification for the present world-wide level of real interest rates? Could we not afford a reduction in real interest rates in the United Kingdom, even if some of that had to be taken up by imposing a strain on the exchange rate?

§ Mr. Wakeham
The Government have consistently pursued policies to get interest rates down and have had considerable success over the past year. We shall continue that policy, because, although interest rates have fallen considerably over the past year, they are still high compared with the level of inflation.

§ Mr. Robert Sheldon
Is it not clear that although a number of companies can surmount the level of 36 per cent., which is the loss of competitiveness that they have suffered—that is obviously so since we would have had no exports at all—a large number of important companies cannot do so? Is it not abundantly clear that those are important companies, whose futures are at risk under this Government?

§ Mr. Wakeham
I do not accept the right hon. Gentleman's figure of 36 per cent. However, it would be idle to pretend that some companies are not having great difficulty as a result of the high value of the pound. That does not mean that we can necessarily pursue the policies advocated by the Opposition.