European Monetary System (Hansard, 6 July 1989)

§ 5. Mr. Simon Hughes
To ask the Chancellor of the Exchequer what is the latest figure that he has for the rate of inflation in the United Kingdom; and what is the average inflation rate for countries who are full members of the European monetary system.

§ Mr. Lawson
Excluding owner-occupier housing costs in order to put the figures on a more comparable basis, United Kingdom inflation currently stands at 6 per cent. compared with an average of 44 per cent. for the countries which are full members of the European monetary system.

§ Mr. Hughes
Given that the other inflation figure is 8.3 per cent. and not 6 per cent., when will the Chancellor say that our inflation will be low enough to allow us to join the exchange rate mechanism? What figure does he put on that inflation rate to allow us to join, given the conditions that he laid down before the Treasury and Civil Service Select Committee and that the Prime Minister laid down in Madrid?

§ Mr. Lawson
On the first point that the hon. Gentleman has made, I have to tell him that he is mistaken. Of the other countries that he mentiooned, only one has mortgage interest payments in its index, and a great many of them—in fact, about a half of them—have nothing at all for owner-occupier housing costs, nothing at all. Therefore, the only way to have a truly comparable figure is to take owner-occupier housing out, which is what I did, and that is a very different comparison between the 6 per cent. and the 4¼ per cent. As for the second question that the hon. Gentleman put to me, the answer is: lower than it is today.

§ Mr. Dykes
Does not the impressive experience of the EMS and the ERM show that it makes the vulnerable currencies in the system stronger rather than weaker? Are there not good lessons to be learnt for the pound sterling?

§ Mr. Lawson
Certainly, it is true that all those countries that are members of the exchange rate mechanism of the EMS to my knowledge believe that this has been beneficial to them, but it is a mistake to infer from that that all one has to do to run a successful economic policy is to join the exchange rate mechanism of the EMS. That is very much not the case. The same hard choices that have to be taken outside the exchange rate mechanism have to be taken inside it as well.

§ Mr. Foot
As it was obviously a major event in the control of our economic policy and inflationary policy, would the right hon. Gentleman care to tell us the exact terms of the apology that he received from the Prime Minister?

§ Mr. Lawson
I have no wish to comment at all on private conversations that may or may not have taken place between my right hon. Friend the Prime Minister and myself. We are at one on the subject of economic policy.