§ 1. Mr. Denzil DaviesTo ask the Chancellor of the Exchequer whether it is the policy of Her Majesty's Government to resist a devaluation of the pound sterling.
§ The Chancellor of the Exchequer (Mr. Nigel Lawson)The Government are determined not to allow the firmness of their monetary stance to be undermined by a depreciation of the exchange rate.
§ Mr. DaviesMay I remind the right hon. Gentleman that since he became Chancellor the pound has been devalued by 25 per cent. against the deutschmark? Whatever the Government's policy, is it not now obvious that with the balance of payments deficit likely to be horrendous for some considerable time, with foreigners now depositing £25 billion in very short-term money in the City of London—a figure which exceeds the Government's foreign currency reserves—and with the Government having vetoed entry to the European monetary system, which could have stabilised those reserves, the stage is now set for a major run on the value of sterling? Is the Chancellor aware of that?
§ Mr. LawsonWell, in the first place I would like to thank the right hon. Gentleman who is, of course, a former Treasury Minister, for supporting the policy of the Government when he said last month:
Mr. Lawson has got no option to what he is doing. The Labour Party idea that you should have credit controls is rubbish. There is no way you can control credit except by controlling the price of credit, and the price of credit is Bank Rate.The Opposition Front Bench, in short, is all over the place.He is quite right, so I would like to congratulate him on that.As for the question of what has happened to sterling, it is true—[Interruption.] It is not the case that entry to the EMS has been vetoed. My right hon. Friend the Prime Minister reaffirmed, at the Madrid European Council, our intention to join the exchange rate mechanism of the EMS. I do not think that it is really very helpful for the right hon. Gentleman to try to talk the pound down. It makes him look particularly silly in a week in which the pound has been rising.
§ Mr. Beaumont-DarkDoes my right hon. Friend agree that it is important to ensure that the pound finds its own true value? Does he further agree that, in the end, the most important factor for Britain will be its export potential? Is it not true that with the pound at present levels British industry, at long last, has a chance to compete? If the pound is too high, there is difficulty with imports and exports. My right hon. Friend's policy of allowing the pound to find its own level is right, as long as he stops interfering.
§ Mr. LawsonI have noted, of course, a certain asymmetry in my hon. Friend's views. He is very anxious that the pound should find its own level when he thinks the pound is likely to go down; he is very anxious that 453 everything should be done to prevent any movement when he thinks the pound is likely to go up. I have noticed that there are a number of hon. Members on the other side of the House and also some outside this House who take that rather asymmetrical view. [Interruption.] What I do tell my hon. Friend is that he is absolutely right that the present climate is one in which British exporters have every chance of doing very well in world markets, and indeed I am glad to say that they are doing well. Exports are well up, and that was shown particularly in the most recent trade figures.
§ Ms. ShortDoes the Chancellor agree that the balance of payments problem shows that the pound is over valued? I thought that he believe in market forces. Why does not he stop intervening, allow the pound to drop and then join the EMS? Is not that the answer to our problems?
§ Mr. LawsonI am interested to hear the hon. Lady, who does not normally support her Front-Bench spokesmen, on this occasion supports the inflationary policies that they are putting forward, including a substantial devaluation of the pound. That would not be helpful to the British economy; least of all would it be helpful to the struggle against inflation. The Government have no intention of following that policy.