HC Deb 24 February 1983 vol 37 cc1047-8
15. Mr. Maxton

asked the Chancellor of the Exchequer if he will assess the influence of the fall in sterling exchange rates on competitiveness of the United Kingdom since July 1982.

Mr. Leon Brittan

There are many aspects to competitiveness such as marketing, reliability and design, which are not directly affected by the changes in relative costs. But the fall in the exchange rate since July has probably improved relative unit labour costs by about 12 per cent. Whether this improvement is sustained depends upon the future level of wage settlements and productivity.

Mr. Maxton

Is the Chief Secretary now saying that his statement in December that three-quarters of the improvement in competitiveness had been due to the decline in the value of the pound was wrong? If he is not saying that, does he not agree that the pound should fall still further if we are to improve our competitiveness?

Mr. Brittan

I do not think that a further fall in the pound would improve our competitiveness. It improves relative costs only so long as the nation is prepared to accept lower real wages and lower living standards that result from the higher cost of imports. It does not follow by any means that this would be the case.

Sir William Clark

Does my right hon. and learned Friend not agree that many sections of our industry are extremely competitive, bearing in mind that last year we had a balance of payments surplus of £4,500 million, £2,000 million of which was on manufactured goods?

Mr. Brittan

I agree entirely with my hon. Friend. I would go further and say that the comparison of the competitiveness figures in terms of cost competitiveness can be extremely misleading. West Germany's relative costs deteriorated by 20 per cent. between 1970 and 1980, but during that period she maintained her 20 per cent. share of main manufacturing countries' exports. That is not, therefore, the proper test of these matters.

Mr. Shore

As the Chancellor of the Exchequer has presided over a 12 per cent. depreciation in the past three months, and as, on his own admission, this has improved relative normalised labour costs by 12 per cent., why does the Chief Secretary not come clean and say that he thinks that this is, on the whole, to the advantage of this country and its manufactures? If he does not think that it is to the advantage of this country, what does he propose to do to reverse it?

Mr. Brittan

I have explained in my last two answers just how misleading that statistical test is, if one looks at what has happened to Germany. I have also explained that it is by no means beneficial for the value of sterling to fall unless the consequences of lower living standards are prepared to be met. At the same time, it is right that full advantage should be taken by British industry of the advantages that do accrue.