HC Deb 13 February 1986 vol 91 cc1081-2
4. Mr. Adley

asked the Chancellor of the Exchequer what factors he estimates are currently most likely to determine the exchange rate; and if he will make a statement.

10. Mr. Fatchett

asked the Chancellor of the Exchequer what representations he has received from British industry as to the sterling exchange rate; and if he will make a statement.

Mr. Ian Stewart

In recent weeks the markets have been influenced by the substantial and rapid fall which has taken place in the price of oil.

Mr. Adley

Is it not interesting that those pundits who have said that we have an oil-based economy have been confounded, in that the fall in oil prices has not been followed by a rise in interest rates, panic on the exchanges or a rundown on reserves? Is that not a matter of congratulation for the Government? As the pundits are now suggesting that my right hon. Friend the Chancellor is still considering reducing direct income tax, will he agree to confound them again by concentrating his mind entirely on raising thresholds instead?

Mr. Stewart

My right hon. Friend the Chancellor listens carefully to all Budget representations which are made to him. I think it is indeed most welcome that there was much less disturbance recently in the markets than many had expected. That is a tribute to the strength of the economy and the sound financial policies of my right hon. Friend.

Mr. Fatchett

Is not the reality somewhat different? Is not the fact that we have kept the exchange rate as it has been over the past few months simply a result of historically high levels of interest rates? Have not those interest rates damaged British industry, putting many firms out of business and losing many jobs? Is it not about time that the Government accepted that that is the reality of economic policy?

Mr. Stewart

The reality is that British industry has been doing very well. In fact, exports of manufacturing industry rose by over 8 per cent. last year.

Mr. Higgins

I join those congratulating the Chancellor on the subtle way in which he has sought to influence the complex relationship between oil prices, interest rates and the exchange rate, particularly since the beginning of the year, which would otherwise have been a difficult period. Does my right hon. Friend agree that the relationship between the dollar and sterling is not unsatisfactory, and that for exports the relationship in relation to the deutschmark is better that it was before?

Mr. Stewart

My right hon. Friend's remarks about the handling of financial and monetary matters recently are indeed welcome. On the matter of the relative position of the exchange rate, I think that there were serious imbalances, which have, to a substantial extent, been improved. I particularly welcome the strengthening of the deutschmark and the yen since the Plaza agreement.

Mr. Tony Lloyd

The Minister told the House that manufacturing industry had not suffered by over-high exchange rates. Manufacturing industry, particularly in areas traditionally dependent on manufacturing, has suffered crippling effects because of an inability to export, which is shown up in a record manufacturing deficit on the balance of payments. Can he give a guarantee for the future that the pound will now reflect the needs of those parts of the country which depend on the export of manufactured goods?

Mr. Stewart

The current level of the exchange rate undoubtedly gives manufacturing industry important opportunities. I only hope that it will not dissipate those opportunities by failing to control its unit costs, in particular wage costs.

Mr. Roger King

Does my hon. Friend agree that if we were to take a great deal of notice of the Opposition's horrendous expenditure programme, as they foresee in terms of the Budget, that could have an effect on international confidence in our country?

Mr. Stewart

I am sure that international observers are confident that the British people would never be so foolish as to elect a Government with a spendthrift programme of the kind which would involve VAT of 41 per cent. and all the consequent implications for inflation.

Dr. McDonald

Do the Minister's remarks imply that the present relationship of the pound to the dollar and to the deutschmark constitute the Government's present exchange rate target?

Mr. Stewart

I have to remind the hon. Lady, as one frequently has to remind Labour Members, that the Government have no target for the exchange rate.