Exchange Rate Mechanism (Hansard, 9 July 1992)

§ 9. Mr. Enright
To ask the Chancellor of the Exchequer what progress has been made towards joining the narrow band of the exchange rate mechanism and if he will make a statement.

§ Mr. Dorrell
Sterling will move to the narrow band of the ERM in due course at the current central rate of DM2.95.

§ Mr. Enright
If the Minister is so confident in what he is doing, when will he bring down interest rates?

§ Mr. Dorrell
They have already been brought down nine times from 15 to 10 per cent.

§ Sir Teddy Taylor
As the former Prime Minister whose Government forced the ERM business through the House now appears, according to The Evening Standard, to be having second thoughts about the ERM business, would it not be wise and helpful for the Government in a quiet and scholarly way to reconsider the whole ERM business and ask where is the logic of pretending that the pound is worth something that it is not when it is being accompanied, and probably partly caused by, huge Government borrowing, massive unemployment and a chronic balance of payments problem? Is there not a case for the Government quietly and thoughtfully to ask whether there is any sense in that at all?

§ Mr. Dorrell
The logic of our determination to maintain our position within the ERM is our wish to match our standards of monetary control and discipline not, like the Labour party, to the average but to the highest standards in Europe. Our determination to do so is based on our recognition of the fact that not to do so would be to impose a quite unnecessary competitive disadvantage on British industry.

§ Mr. Bell
Regardless of when we shall be joining the narrow band of the ERM, can the Financial Secretary share with the House the Treasury's views on a general realignment of currencies within the mechanism?

§ Mr. Dorrell
Our policy is clearly to move to the narrow band at DM2.95. There is no realignment in prospect and we do not seek one.

§ Mr. Ian Taylor
Does my hon. Friend agree that those who wish to cut and run on interest rates would once again inflict on this country the inflationary problems which have made us uncompetitive and would, through inflation, once again try to disguise the failure to adjust to international markets? Will he therefore reaffirm the Government's intention to maintain the central rate against the deutschmark and to move to the narrow band as soon as possible so that this country can once again be competitive in the international arena and British industry can flourish?

§ Mr. Dorrell
Yes, I can give my hon. Friend that absolute affirmation. If we consider 30 years of economic history, we should be conscious that not to provide that discipline is to provide a background which is a needless impediment to the development of investment and long-term planning in British industry, especially the manufacturing sector, which is so often espoused by hon. Members.

§ Mr. Boyce
Will the Minister be kind enough to tell the House who was responsible for increasing interest rates to 15 per cent. in the first place?

§ Mr. Dorrell
This Government have always made clear their determination to use interest rates to bring inflation under control to match, as I said earlier, our standards of monetary control with the highest in Europe.