HC Deb 24 March 1983 vol 39 cc1008-10
12. Mr. Dubs

asked the Chancellor of the Exchequer whether his policy on exchange rates has been affected by recent falls in oil prices.

Mr. Bruce-Gardyne

No, Sir.

Mr. Dubs

Does the Minister agree that the Government's policy on exchange rates has vacillated over the past 12 months between keeping sterling steady and letting it slide? What is his present view, and why?

Mr. Bruce-Gardyne

I do not for one moment accept what the hon. Gentleman says. My right hon. and learned Friend's policy throughout has been that we should pursue domestic monetary and fiscal policies that ensure a coherent and solid basis for future Government finance, which will be reflected over the medium term in the level of the exchange rate. Of course, the exchange rate is subject to passing fluctuations due to speculation about oil prices and the like. It is not within the power of this Government or any other Government to determine precisely how those short-term fluctuations will move. What we have to ensure—and we have done it—is that the basic fiscal and monetary postures of the Government are such as to ensure, in the long run, that the exchange rate remains firm.

Mr. J. Enoch Powell

Do not Treasury Ministers hug themselves with delight and relief when they recall that Britain has a freely floating currency and is therefore exempt from the crises and quarrels by which those who have not, such as members of the EMS, have been wracked?

Mr. Bruce-Gardyne

I am not sure that I agree with the right hon. Gentleman that Treasury Ministers should hug themselves with relief over anything. I agree with him that the recent experience of the European exchange rate mechanism exposes the fragility of attempts to maintain particular exchange rates against the current market pressures.

Mr. Nelson

Will my hon. Friend bear in mind, when some right hon. and hon. Members suggest that we are exempt from such crises, that one reason why interest rates in this country are not only very high in real terms, but are substantially above the current and prospective rate of inflation, is that we have had to maintain the exchange value of sterling? Does he accept that if it were not for that, there would be some prospect of earlier economic and industrial recovery and that there is therefore a case for us joining the European monetary system and having some mechanism other than interest rates alone to ensure that the value of sterling is maintained?

Mr. Bruce-Gardyne

I am not sure that I agree with my hon. Friend that the experience of the French, for example, suggests that membership of the monetary mechanism enables one to avoid interest rates being higher than they otherwise would be. The policy of the Government towards interest rates, as my right hon. and learned Friend the Chancellor has consistently made clear, is that they are determined by our assessment of domestic monetary conditions. That remains the case.

Mr. Shore

I thought that the Government's policy was basically to leave the oil price and, indeed, the exchange rate to underlying market forces, allowing for temporary action. Will he confirm that this is the case? Does he agree that the pursuit of these policies over the past 12 months means that we have depreciated against the dollar by 18 per cent., against the yen by 20 per cent. and against the deutschmark by 17 per cent? Will he give the assurance that it is not his intention artificially to prop up the level of the pound, as his hon. Friend the Member for Chichester (Mr. Nelson) suggests, by artificially high interest rates?

Mr. Bruce-Gardyne

I assure the right hon. Gentleman that the Government do not intend to follow the example of his right hon. Friend the Member for Leeds, East (Mr. Healey) who, in 1977, attempted to use domestic monetary policy to organise the exchange rate. Of course, it is true that the exchange rate in the short term is substantially influenced by a wide range of factors, including expectations of oil prices and expectations of United States interest rates policy, over which we have no control. It is clear that the Government will not pursue the right hon. Gentleman's advice and try artificially to lower the exchange rate by promising policies of complete economic irresponsibility, because the market would draw its own conclusions.