Exchange Rate Policy (Hansard, 21 May 1998)

§ 3. Mr. Damian Green (Ashford)
What plans he has to stabilise the rate of sterling against the euro. [41674]

§ 4. Mr. Robert Syms (Poole)
If he will make a statement on his policy on the exchange rate. [41675]

§ 7. Mr. Nigel Waterson (Eastbourne)
If he will make a statement on his exchange rate policy following the launch of the euro. [41679]

§ The Chancellor of the Exchequer (Mr. Gordon Brown)
The Government's aim is for a stable and competitive pound over the medium term. The best contribution that the Government can make is to create the right conditions for economic stability. The Government have put in place policies to deliver that objective and are determined to avoid a return to boom and bust.

§ Mr. Green
I am sure that the Chancellor will have seen an excellent document from the European 1089 Commission, which makes it clear that those countries that do not join economic and monetary union on 1 January next year will have to fulfil various criteria to qualify. One of them is the observance of the normal fluctuation margins provided for by the Exchange Rate Mechanism … for at least two years, without devaluing against the currency of any other Member State". When does the Chancellor plan for that two-year period to start for this country? Will it be in the lifetime of this Parliament?

§ Mr. Brown
If the hon. Gentleman is suggesting that we should rejoin the exchange rate mechanism, which his friends took us into in 1990, that is not the Government's intention—I make that absolutely clear. If he is suggesting that our policy should be for exchange rate stability, let me say that our aim is a stable and competitive pound over the medium term. That is the policy which we are pursuing and that is right for the British economic interest.

§ Mr. Syms
Given the recent economic report that 400,000 jobs may be lost in manufacturing over the next few years, the deterioration in the balance of payments, and the fact that, earlier this week, Nissan Europe said that it would not consider investing in Britain unless the value of sterling was between 10 and 20 per cent. lower, has not the Chancellor got the balance of his policies wrong, and is not new Labour bad for manufacturing, for exporters and for people with jobs in those industries?

§ Mr. Brown
The hon. Gentleman did not say that Nissan wants the Government to join the European currency, which is exactly the opposite of the policy of Conservative Members. He may have thought of his question when the pound was at DM3.10. Today, it is at DM2.86 and I remind the House that, when we came into power, it was at DM2.81. The rise in the pound over the past two years was almost entirely under the last Conservative Government.

§ Mr. Waterson
With a higher pound, higher interest rates and £20 billion worth of extra taxes, is the right hon. Gentleman at all surprised that manufacturing industry is in recession? Has he seen the Confederation of British Industry regional survey, which suggests that manufacturing output is falling in six regions and rising only in three?

§ Mr. Brown
The hon. Gentleman seems determined to avoid asking a question about Europe. It may be because the Conservative party is in such disarray on the matter after this week's speech by the Leader of the Opposition. The hon. Gentleman knows that, over the past few months, manufacturing employment has been rising, not falling, that the CBI, which he quotes, predicts that manufacturing output will rise this year and that that is in line with independent forecasts. He knows also that this Government's policy is to avoid a return to the situation that was created by the previous Government, when 1 million manufacturing jobs were lost as a result of the failure of economic policy and of the creation of stop-go and boom-bust in the late 1980s. We are determined to avoid a return to that situation and to have a sensible policy on Europe. That cannot be said of Conservative Members.

§ Mr. Robert Sheldon (Ashton-under-Lyne)
Would not my right hon. Friend's task in managing the economy be 1090 made much easier if he were to announce his intention to join economic and monetary union—without setting a date? Would that not lead to a reduction in interest rates, a more competitive pound and greater investment—all achievable almost at a stroke?

§ Mr. Brown
The one thing on which my right hon. Friend and I agree is that we need clarity of policy—something which the Opposition do not have. Our policy is very clear. We are, in principle, in favour of the single currency; we shall apply the five economic tests that are in the country's interests; and we shall make a recommendation, if we believe it right to do so, early in the next Parliament, subject to a referendum. That policy was set out in October and widely welcomed by business, and we shall continue to follow it.
The country cannot understand how the Leader of the Opposition could announce a new policy against a single currency on Tuesday when he spoke in France, which the former Deputy Prime Minister has said is extreme and the former Chancellor has said makes the Conservatives unelectable.

§ Ms Sally Keeble (Northampton, North)
Will my right hon. Friend confirm that one of the practical consequences of the start of the euro next year is likely to be that some smaller firms down the supply chain of multinationals that settle in euros will be required to bill in euros? Will he give assurances that the preparations that he and his colleagues have made, which have been so welcome compared to the previous Government's irresponsible approach, will continue, in order to ensure that all sectors of the economy, including the smaller firms, are fully prepared for the introduction of the euro?

§ Mr. Brown
I am grateful to my hon. Friend. We discussed exactly that issue with business at the meeting of the standing committee on preparations in the Treasury yesterday. The president of the Association of British Chambers of Commerce and the president of the CBI, as well as the secretary of the British Bankers Association, were represented at that meeting to put exactly my hon. Friend's views about the need to help small and medium businesses make proper preparations. I should have thought that it would be agreed across the Floor of the House that business should be prepared for the advent of the euro.
We have decided on a course of action that will provide information and an opportunity for businesses' questions to be answered. A campaign of information will begin in June. We are determined that every business, large, medium and small, is properly informed about the implications of the euro. We are determined to do what we can to ensure that banks and other financial organisations are in a position to help. Preparations have been behind because the previous Government refused to take the necessary steps.

§ Ms Claire Ward (Watford)
Do not the Opposition have a cheek, showing concern about manufacturing industry jobs, given the number that were lost when they were in government? Is my right hon. Friend aware that, although we believe that there should be a sustainable and stable economy, manufacturing industry in my constituency is facing difficulties as a result of the high rate of sterling? One company, which conducts a large 1091 amount of its work in exporting manufacturing components, is finding it particularly difficult to make ends meet. Will he assure companies in my constituency that undertake a great deal of exporting that we are considering the problems that they face, will be ensuring a stable economy and will be attempting to achieve some stability in sterling?

§ Mr. Brown
I agree with my hon. Friend that stability is what matters to industry. Creating a stable foundation and a platform of monetary and fiscal stability from which industry can build is an absolute pre-condition for this Government. That is why we made the Bank of England independent, have set a five-year deficit reduction plan and, for the first time, have a proper long-term fiscal and monetary framework. We are determined to avoid a return to the boom-bust, stop-go conditions of the late 1980s that lost 1 million manufacturing jobs. I should remind the House that, when the previous Conservative Government came to power, there were 7 million manufacturing jobs. When they left power, there were only 4 million. That is what they thought of manufacturing industry.

§ Mr. Peter Lilley (Hitchin and Harpenden)
The right hon. Gentleman was an unqualified supporter of Britain's previous membership of the exchange rate mechanism. Can he explain to the House why he is now so opposed to Britain rejoining or shadowing the ERM?

§ Mr. Brown
The right hon. Gentleman has a cheek to blame membership of the exchange rate membership—[HON. MEMBERS: "Answer."] They do not like it. The previous Government took us into the exchange rate mechanism, chose the rate that became unsustainable and caused our exit from the ERM in 1992. As for our policy on exchange rate stability, we are committed to a stable and competitive pound over the medium term. We believe that the basis of achieving that is sound economic policies and the avoidance of a return to the stop-go policies of the past. We shall not join the exchange rate mechanism—we have no intention of doing so. We shall make the decisions that are right for Britain.

§ Mr. Lilley
The Chancellor should realise that, every time he goes off into auto-rant instead of answering the question, he alienates thousands of people who listen to these exchanges. We should still like to know why he is opposed to membership of the ERM or shadowing of it, whereas he was an unconditional supporter of the ERM. Does not that reluctance to rejoin the ERM sit rather oddly beside his enthusiasm for the euro? Is it not a bit like being unwilling to paddle in the shallow end but willing to throw the pound in the deep end?
Does the Chancellor realise that the words quoted by my hon. Friend the Member for Ashford (Mr. Green) were taken from the treaty of Maastricht? They are a clear obligation to rejoin the ERM. The Chancellor's own supporters recognise that obligation. Mr. Duisenberg says that we have to join; the Bundesbank says that we have to join; Commissioner de Silguy says that we have to join; and the Commission says that we have to join. Are they all wrong?

§ Mr. Brown
The right hon. Gentleman has reminded me not only that his Government took us into the ERM, and that he was Trade Secretary at the time—he was 1092 supposed to be reporting to the Cabinet on its effect on manufacturing industry—but that his Government signed the Maastricht treaty. As for lectures on European economic policy from Conservative Members, it would be better if they were to tell us their real position. The Leader of the Opposition made a statement on Tuesday, saying that he would never join the euro or economic and monetary union. The next minute, we had a statement from the former Deputy Prime Minister, saying that that was an extreme position. We were then told by the former Chancellor that the position makes the Conservative party unelectable. May we be told the true position of the Conservative party? Is it in favour of a single currency, or is it against it?
The Government will pursue a stable and competitive exchange rate. That is the policy which we established when we came into power, and that is the policy which we shall pursue. Italy and Finland were not members of the exchange rate mechanism for two years, but have been accepted for membership of the euro. As for the Government's policy: we shall not join the ERM. I have made it absolutely clear.

§ Mr. Lilley
The Chancellor has still not answered the question of why he is opposed to renewed membership or shadowing of the ERM. Has he no reasons for his own policy?

§ Mr. Brown
We are pursuing the policy that is right for Britain. The policy that is right for Britain is a stable and competitive exchange rate over the medium term. [HON. MEMBERS: "Oh!"] I do not know whether Conservative Members think that it is wrong to pursue a policy of a stable and competitive exchange rate, or whether they merely do not like such a policy being pursued—successfully—by a Labour Government. We shall succeed in the policy because we are determined to eliminate the stop-go policies and the instability that has caused so much damage in the past—the very instability that caused ERM membership under the Conservatives to be such a disaster for Britain.

§ Mr. Bill Rammell (Harlow)
I hope that the Chancellor will acknowledge that a pattern is developing in the Conservative party's attacks on the single currency, all in an attempt to undermine the launch of the euro. The shadow President of the Board of Trade has been saying that the Government should go out of their way to destabilise the euro. The Leader of the Opposition has been comparing the creation of the single currency to the creation of a Bosnia-style situation throughout Europe. Is it not crucial, whether we are in or out, that the euro is launched successfully? That is in our economic self-interest. Does my right hon. Friend agree that the wholly exaggerated and unjustified attacks by the Conservative party could undermine to Britain's economic self-interest?

§ Mr. Brown
The first point that the Conservatives should explain is why their policy on the euro is disliked by almost all this country's major business leaders. Secondly, they should explain why even if the economic benefits of a single currency were proved to be clear and unambiguous, they would oppose it for ideological and doctrinal reasons. It is the Conservatives who must now explain, particularly after the remarks of the former 1093 Deputy Prime Minister and the former Chancellor, their real policy on the euro and their economic policy for this country.