HC Deb 27 October 1988 vol 139 cc445-6
6. Mr. Turner

To ask the Chancellor of the Exchequer what representations he has received from the Confederation of British Industry about the exchange rate of pound sterling.

Mr. Lawson

I receive representations from the Confederation of British Industry from time to time on a wide range of matters.

Mr. Turner

Surely the Chancellor is aware of two extremely hostile resolutions which are down for the CBI conference on 6 November. If he is not aware of them, I shall be very pleased to send him copies of two resolutions. I ask the Chancellor, as I have before, when he will give some support to industry instead of giving support, as he has continued to do, to the City?

Mr. Lawson

As for the first half of the hon. Gentleman's question, if he had gone on much more about resolutions at the CBI conference I might have read to him one or two resolutions of the Labour party conference. Industry is well satisfied with the policies that the Government are pursuing. If I may, Mr. Speaker, I shall read one quote from Mr. David Wigglesworth, the chairman of the CBI's economic situation committee. On Tuesday, introducing the CBI's quarterly industrial trends survey, he said: Industrialists strongly believe that the Chancellor's measures to curb excessive demand and credit should be given sufficient time to work. He went on: Manufacturing industry was not 'losing its nerve' and was still in a 'winning situation'. That is the view of the CBI.

Sir Peter Hordern

Will my right hon. Friend confirm that if industrialists and business men raise the wages and salaries of their workers by nearly 10 per cent. he will not bail them out by reducing the exchange rate? Would it not be a good idea to align sterling more closely with the deutschmark and with the European monetary system when the time is right—which it must nearly be?

Mr. Lawson

As for the first part of my hon. Friend's question—and over the years he has been a particularly acute observer of economic affairs in this country and in the world as a whole—the answer is yes. As for the second half of the question, yes, indeed, there are many advantages, I believe, for the United Kingdom in joining the exchange rate mechanism of the EMS, and we are committed to do so. As for the question of when the time will be right, that is a matter for the Government as a whole and not just for me.

Mr. Robert Sheldon

Is not the high exchange rate in danger of repeating the problems of 1979 to 1981, when we had a high exchange rate and high interest rates at the same time? The high exchange rates prevented many people from exporting, and the high interest rates meant that many people could not compete at home in comparison with imports. Are we not in danger of repeating that disaster, and what will the right hon. Gentleman do to alter that?

Mr. Lawson

A firm exchange rate and adequately high interest rates are absolutely essential in keeping on top of inflation and getting inflation down. Indeed, the right hon. Gentleman will recall that they were extremely effective in doing that in the period to which he referred—1980–81. The situation is totally different now. Then, industry was suffering because it was inefficient. It had inherited from the previous Government gross overmanning, inefficiency, in many cases poor management, very low profitability and very poor liquidity. It was extremely vulnerable. Now industry is stronger than it has ever been and is well able to cope with the present level of interest rates and exchange rates.

Mr. Beaumont-Dark

Does my right hon. Friend accept that, when interest rates came down in June, many of us thought that he was right to help the pound not to be so strong? If a strong pound helps to squeeze out inflation, is there not a real chance that it could also squeeze out profit from exports, and that that could be equally damaging?

Mr. Lawson

What it ought really to squeeze out is excessive pay rises in British industry. That is the lesson that British industry has to learn.

Mr. Chris Smith

Will the Chancellor confirm to the House what he said on Tuesday? He said: there can be no question of … permitting the exchange rate to depreciate."—[Official Report, 25 October 1988; Vol. 139, c. 185.] Does the Chancellor realise that that policy places an enormous burden on British exporters? Does he also realise that his policy of high interest rates to maintain the exchange rate places enormous burdens on British industry and on home buyers in this country?

Mr. Lawson

To listen to the hon. Gentleman, one would think that it was somewhat unusual for interest rates to be raised. There have been a number of periods during my time as Chancellor during which I have had to put interest rates up, and I have always kept them up for as long as it was necessary to do so. So far from that, damaging British industry, it is doing better than it has ever done before.