§ Mr. Peter Shore (Stepney and Poplar)
(by private notice) asked the Chancellor of the Exchequer if he will make a statement about the level of sterling and the Government's exchange rate policy.
§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
The movements of the sterling exchange rate in the markets this week have been fully reported. Successive Governments have made it their practice not to make statements about the level of the exchange rate. I do not intend to depart from that practice. There are, however, two points that should be made.
First, the right hon. Gentleman asked about exchange rate policy. Let me assure him and the House that there has been no change in the policy of this Government, which has continued to be that the exchange rate should reflect market forces.
Secondly, let me similarly assure the right hon. Gentleman that the Government are determined to maintain firm monetary conditions conducive to success in the fight against inflation. We back that up by determined control of public expenditure and by reducing public borrowing as a share of national output. As I made clear to the House in last week's debate, we shall maintain these policies.
§ Mr. Shore
I am grateful to the Chancellor for making that statement. I might call it in some places a non-statement. Does he agree that it is a wholly understandable, if delayed, reaction by the foreign exchange markets to the appalling and uncorrected loss of competitiveness of British industry and, indeed, to the prospective wiping out of our current account deficit next year as revealed in the autumn statement?
Does the Chancellor consider that the movement of the exchange rate is beneficial, or not, to Britain's hard-pressed industry? Will he make it plain that he does not intend to reverse the adjustment by raising interest rates once again?
Does the Chancellor agree that it is far better to have a coherent and industry-related exchange rate policy than one that is buffeted and will increasingly be buffeted by foreign exchange markets as they come to understand the appalling weakening of Britain's real economy—in jobs, industrial output and general growth?
§ Sir Geoffrey Howe
The right hon. Gentleman has asked several questions, all of which essentially relate to industrial strategy. It is true, as hon. Members have pointed out on several occasions, that a moderate movement of the exchange rate of this type may be of some help to some parts of manufacturing industry but only if they control their costs rigorously to retain that benefit.
It is extremely important on this occasion, as on previous ones, that one should underline the need for continued and increased success in moderation in pay bargaining. The United Kingdom cannot solve its basic problems of competitiveness by depreciation. No one in the market, therefore, should have any doubt about our 416 determination to hold fast to our strategy to beat inflation. Sound money remains at the heart of our economic strategy.
§ Mr. Speaker
Order. I remind the House that I have said previously that a private notice question is an extension of Question Time. I shall allow two questions from each side and then move on. That is what I have normally done.
Mr. J. Enoch Powell
Will the Chancellor of the Exchequer confirm, contrary to the implications of many press reports, that a fall in the exchange rate cannot of itself cause inflation, nor a rise in the exchange rate remedy inflation?
§ Sir Geoffrey Howe
As I have often made clear to the House and to the right hon. Gentleman, many factors may or may not be regarded as causative of inflation. That is why the Government's policy is founded on the maintenance of a well-disciplined and well-balanced monetary policy. With regard to inflationary impacts or effects in industry, I repeat that it is for industry and those who work in it or manage it to take their own steps, in the light of their own competitive conditions, to maintain and improve their competitiveness.
§ Mr. Higgins
Does my right hon. and learned Friend agree that, although there were various interpretations of the CBI conference debate on the exchange rate, it was clear that British industry did not want a soft option? Does he also agree that if we are to restore our competitiveness, it must be achieved by a policy of restraining excessive wage settlements and cutting industrial costs, not by a downward spiral of devaluation, higher prices and higher wage settlements of the type envisaged by the Opposition?
§ Mr. Joel Barnett
I was interested to hear what the Chancellor said about exchange rates policy being related only to market forces. Bearing in mind the enormous advantage to manufacturing industry and jobs of the present decline in the exchange rate, may we take it from what the Chancellor said that he will not intervene in any way to ensure that the exchange rate will go up again?
§ Sir Geoffrey Howe
I shall not depart from my policy on the exchange rate as I outlined it. I shall allow it to be regulated by market forces. The right hon. Gentleman must appreciate that, although a lower exchange rate may bring some advantages to some companies and some industries, it also means higher costs to some industries and the consumer. No one can welcome that.
§ Mr. Forman
As there is no such thing as the perfect exchange rate for the pound against all currencies, and as the real problem is one of exchange rate volatility, is my right hon. and learned Friend prepared to reconsider the possibility of full British participation in the European monetary fund?
§ Sir Geoffrey Howe
The factors that have so far led successive Governments not to join the exchange rate mechanism do not seem to me to have changed significantly in the past few days.