§ 11.8 a.m.
§ THE MINISTER OF STATE, DEPARTMENT OF HEALTH AND SOCIAL SECURITY (LORD ABERDARE)My Lords, with your Lordships' permission, I should like to repeat a Statement being made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:
"Despite the continuing surplus in the balance of payments, sterling has been under increasing pressure for some days, both in London and in overseas markets. As the House is aware, an announcement was made this morning that dealings in sterling will not necessarily be confined within specific limits: that is to say that, as a temporary measure, sterling will be allowed to float. The London foreign exchange market will be closed today and Monday in order to provide for an orderly transition to the new arrangements.
495 "A number of Sterling Area countries no longer link their currencies to sterling. With a floating pound there could be a speculative outflow from the United Kingdom to these countries. Pending consultation with the Governments concerned, we have taken immediate temporary measures applying exchange control to transactions with the Sterling Area. The details are being announced by the Bank of England.
"The immediate cause of this decision has been the weight of international short-term capital movements, which have proceeded despite concerted intervention by the Bank of England and other European central banks. There was nothing in the objective facts of our balance-of-payments position or the level of our reserves to justify these movements. The trade balance has deteriorated in recent months: but this was from an exceptionally and unusually favourable position and was foreseen in my Budget speech. Our invisible earnings continue at a high rate and, while the full figures are not yet available, there seems little reason to doubt that we remained in current surplus during the second quarter. Looking ahead, there are prospects of an upturn in world trade which should have a beneficial effect on our exports.
"But it is a fact that short-term movements developed with consequent loss to the reserves. If this had continued at the rate of the last few days, we might have found that in due course our reserves had been greatly diminished in response to this pressure. I was determined that we should not revert to that situation or allow ourselves to slide into a situation where we would have to borrow substantial sums. It was therefore necessary to act decisively.
"One of the underlying causes of this situation has undoubtedly been the concern about inflation. In my Budget speech I warned that 'There can be no soft options if we fail to get a grip on ever-rising costs'. To curb inflation remains our first priority.
"We have set our national economy on the path of a 5 per cent. rate of expansion—more than twice as fast as 496 the rate we have achieved over the past decade. Recent statistics, especially those showing the very big reduction in unemployment, confirm that we are well on course.
"There is still room in the economy for considerable further developments without straining either capacity or the labour force, or pressing on demand. The general growth in exports will not therefore be impeded by limitations on capacity and, unlike some previous occasions, it is not necessary, or indeed desirable, to introduce restrictive measures. "
§ 11.12 a.m.
§ LORD SHEPHERDMy Lords, I thank the noble Lord for making what I think the House will recognise is a very grave Statement. I think there must be a touch of sadness in the fact that it comes at a time when the Government have recently celebrated their second year in office. They took office when the pound was strong and was rising, and for the first time in many years there was a real belief, not only in this country but throughout the world, that the old problems that had beset this country were behind us. Now, two years later, we are confronted with a very grave situation not only in terms of this country but of all those other countries and people who have put their money on deposit in this country. Undoubtedly one of the problems that has caused the decision of the Government has been their failure to cope with inflation. I think this can be attributed in the main to their policy of "confrontation". The balance of payments has been causing great concern in the last few months. Can the noble Lord give any assurance that there is any sign of an upturn in our exports and a lessening of our imports, which are clearly rising as a consequence of the various incentives that were given by the Chancellor in his Budget? Can we hope for a Statement next week from the Government?—because quite clearly immediate and urgent steps will be needed to restore confidence.
May I ask the noble Lord three specific questions? In the Statement there is reference to "pending consultation" Are we to assume that Her Majesty's Government took this decision without consulting the I.M.F. and other associates 497 of the E.E.C.? Secondly, will the Government now consider removing those parts of their policies that are directly inflationary—in particular, the Housing Finance Bill and also their proposals on V.A.T.? Will the noble Lord undertake that the proposed major salary increases to the chairmen of the nationalised industries, to senior civil servants and senior military officers will not be proceeded with—because these are bound to have a provocative effect on the trade unions?
§ LORD BYERSMy Lords, I am grateful to the Minister for repeating the Statement. The situation is a serious one and I would hope myself that it would not turn at this moment into a matter of Party political controversy. We have some very hard days ahead of us internationally, and there will come a time when we can debate the sort of subjects to which the noble Lord has referred. But this is a reminder of the seriousness of inflation in this country, and it is an inflation for which all of us have a responsibility.
May I ask just one question of the Government? Is it not time that we had another look at the principle of the "crawling pen" whereby the pound can float only within very narrow limits over very short periods, instead of being faced with this shock tactic of allowing it to float without knowing exactly where it is going to settle? I wonder whether the Treasury ought not to have another look at this with some urgency.
§ LORD ABERDAREMy Lords, may I say to the noble Lord, Lord Shepherd, that the root cause of our trouble has been speculation against the pound and that we are confident of the underlying strength of the pound. We are allowing the pound to find its own level, and I am sure that its underlying strength will become apparent on the free markets. We certainly intend to return to a fixed rate, in accordance with our international obligations, as soon as possible and certainly before the date when we join the European Economic Community.
I should like to thank the noble Lord, Lord Byers, for what he had to say. I am sure we should be ill-advised to go too deeply into this matter at the moment, especially as regards making it a Party political issue, when what is at stake is sterling.
§ LORD CHAMPIONMemories are short.
§ LORD ABERDAREMy Lords, it is perfectly true that inflation is at the root of the whole problem, but this has nothing to do, I would suggest, with what the noble Lord called "confrontation"; and certainly we have done our utmost in every way to discourage inflationary wage settlements.
The noble Lord, Lord Shepherd, asked three specific questions. First, as regards the International Monetary Fund, we are of course consulting the Fund in the usual way, but they have not yet had time to reach any formal decision.
§ LORD SHEPHERDMy Lords, the question I asked was: did the Government consult the I.M.F. before they made this decision?
§ LORD ABERDAREMy Lords, this was a decision which had to be taken immediately if it was to be effective and, as I have said, we are consulting the Fund. The noble Lord asked me about the Housing Finance Bill and about the value added tax. We have no intention whatever of changing our policies on these matters. The noble Lord further asked me about the salaries of higher civil servants. As he knows perfectly well, this is a matter for the Boyle Committee, and that Committee is an independent Committee.
§ 11.19 a.m.
§ LORD BESWICKMy Lords, I wonder whether the noble Lord would agree that the atmosphere in this Chamber would be slightly more healthy if we had less humbug about Party politics, especially when we think back to what was said both by the noble Lord, Lord Byers, and by noble Lords opposite at the time when we had difficulties about the exchange rate.
§ LORD BESWICKThe noble Lord, Lord Aberdare, says that the root cause of this situation is speculation. Would he not agree that there can be no speculation over a basically sound currency, and that the difficulty is that this Government, having inherited one of the strongest currencies in the world, have 499 increasingly weakened it? That is the basic trouble in this situation.
May I also ask specific questions? Could the noble Lord, Lord Aberdare, tell us how Her Majesty's Government reconcile this Statement with the undertakings that they gave in Washington in the Smithsonian Agreement? Secondly, when he says that there have been no consultations with the E.E.C. countries does he mean that this is in accordance with the declared policy of the E.E.C., or are we to assume that this is a preparatory step to a devaluation to enable us to meet the competition of Europe? If Her Majesty's Government are now contemplating a devaluation, can the noble Lord give any estimate of the increased cost of our entry fee into Europe? Lastly, may I ask the noble Lord whether it will now be absolutely essential, apart from the departure from the dear food policy and the higher rents policy, to do something about money supply? Would he not agree that the reckless way in which the Government have allowed money to increase in supply by 23 per cent. has something to do with our present difficulties?
§ LORD ABERDAREMy Lords, I would not wish to shy away from Party politics; but when sterling is at stake it is rather a different matter, and I should have expected noble Lords opposite to give some assistance in making sure that there was less speculation against the pound. The noble Lord asked about the Smithsonian Agreement. It is a matter for regret that we have not been able to continue to observe the Smithsonian Agreement. The fact is that we have been under this considerable pressure and we have this morning informed other Governments concerned. I am sure they will understand the pressures which have led us to make the decisions that we have been obliged to make. The noble Lord asked about the E.E.C. countries. We have also had to inform them this morning of our decision. What the eventual outcome will be will depend on what happens over the next few days and at what level the pound finds its value. I would remind your Lordships that the pound was floated at the end of last year between June and December. I have noted the views of the noble Lord on other points, 500 such as money supply, but I do not think that I should enter into those matters today.
§ LORD HALEMy Lords, while congratulating the noble Lord on this unexpected show of speed in the last furlong, may it not result in a stewards' inquiry at Brussels—because there appears to have been some bumping and boring of our Common Market support financial partners? If it really be the case that the snake has emerged from the tunnel which would appear immediately to become a snake in the grass, could it not develop into an asp in the common aspic, or has there been full consultation with the parties to the Agreement? Secondly, would the noble Lord say that the Government will show equal speed in considering and disseminating the pending report of the International Monetary Fund experts upon the United Kingdom under a Conservative economy?
§ LORD ABERDAREMy Lords, I find it a little difficult to follow some of the noble Lord's metaphors. Certainly our E.E.C. partners have been informed and we shall be in close consultation with them. I have taken note of his second point.
§ LORD ROBERTHALLMy Lords, while I agree with the noble Lord, Lord Shepherd, that the reason for this situation is inflation and the difficulty the Government have had in dealing with that matter, I also agree that this is not the place to talk about it. One ought to say that this particular action of the Government, faced with this situation, is absolutely right. Without going into the matter of how we got here, I believe that at least one economist should go on the Record as saying that with heavy short-term speculation to try to hold a fixed rate has all the odds against us. This puts the balance right so that at least so far as this action is concerned, may I say how glad I am that the Government have faced it and acted quickly?
§ LORD ABERDAREMy Lords, I am extremely grateful to the noble Lord, Lord Roberthall, for having said that. I am sure that he echoes what the majority of your Lordships feel.
§ LORD DAVIES OF LEEKMy Lords, is the noble Lord aware that in his last 501 volume of memoirs, Pointing the Way the right honourable Harold Macmillan, who was a Prime Minister that mattered, pointed out the difficulty that he had with discussions with the Treasury? All Governments are prone to try to rescue the pound and osclerise the people. Is the noble Lord aware that my noble friend on the Front Bench pointed partly to the core of the problem when he referred to not taking physical controls over speculation? Is the noble Lord further aware that the Radcliffe Report, which was published during the term of office of the Macmillan Government, pointed out that while Macmillan did not endorse the patriotism of investment overseas, to him it was good business; namely, a famous banking consultants that I will not name? After 30 years of this problem may we now have a new look at the relationship of the Exchequer to the reality of production and the distribution of wealth in this country?
§ LORD ABERDAREMy Lords, I am afraid that I have had great difficulty in finding time to read the last volume of the memoirs of Mr. Harold Macmillan as I have had to spend so much time in this House recently. I will certainly take note of what the noble Lord says. Physical controls over speculation are international matters. It is not very easy for us unilaterally to control these short-term capital capital movements.
§ LORD BROCKWAYMy Lords, may I ask whether the Governments of the Commonwealth countries have been informed of this position, and whether consultations will take place with them regarding the effect on the prices of their primary products?
§ LORD ABERDAREYes, my Lords; the Governments of the Commonwealth countries have been informed this morning and we shall be consulting closely with them.
§ LORD BESWICKMy Lords, has any consideration been given in that information to the sterling guarantees that were given to Commonwealth holders of sterling in this country?
§ LORD ABERDAREMy Lords, this also will be discussed with the Commonwealth Governments.