Exchange Rate Mechanism (Hansard, 5 June 1990)

The Paymaster General (The Earl of Caithness)
My Lords, no.

§ Lord Stoddart of Swindon
My Lords, is the noble Earl aware that I consider that to be a most unsatisfactory and retrograde Answer? Why on earth will the Government not give the people of this country the opportunity to have a say on a matter which will affect them in every way in respect of prices, of interest rates, of the economy, of unemployment and a whole range of other matters? Why on earth do the Government ignore the people of this country when they come to such vital decisions?

The Earl of Caithness
My Lords, the answer to the noble Lord's first question is no; the answer to his second question is that there was, as I am sure he will recall from his experience in a previous position which he held in another place, a Green Paper. There has been much debate on this subject, most recently in your Lordships' House on 18th December of last year. At no stage have we sought to exclude opinion from whatever source. We have thoroughly encouraged debate throughout the country.

§ Lord Cockfield
My Lords, as my noble friend does not propose to issue a Green Paper, would he nevertheless agree that membership of the exchange rate mechanism is a discipline and not a licence or a crutch, and that in particular it will mean that no future government—or perhaps I should say, no government in future—will be able to rely upon inflation as a means of counteracting errors in economic or monetary policy?

The Earl of Caithness
My Lords, my noble friend is right in saying that the ERM is a mechanism. The key point which we should bear in mind is that entry into the ERM will not reduce the inflation rate, but it will, indeed, help to keep it down once we have got it down. My noble friend was right to remind the House that such membership would not be a panacea.

Lord Bruce of Donington
My Lords, in view of the fact that the noble Earl has not seen fit to dissent in any way from the disciplinary observations of the noble Lord, Lord Cockfield, does he agree, especially 1219 in view of the fact that the last Labour Government were very frank in informing the country as a whole exactly what would be involved at that time, that it would be a good thing and consistent with open and frank government that the Government's present position should be made well known in detail, rather than being hidden in a whole series of ambiguities? Surely the noble Earl can reconsider the matter and let us have details of the Government's thinking on these important issues and of the way in which their conclusions have been arrived at.

The Earl of Caithness
My Lords, the noble Lord is particularly persuasive today. I am happy to be able to reiterate to your Lordships the full conditions upon which we shall join the ERM, which I have spelt out to the House on more than one occasion. We are committed to join the ERM when the level of UK inflation is significantly lower. There is capital liberalisation in the community and real progress has been made towards completion of the single market, freedom of financial services and strengthened competition policy. We have had numerous debates and questions on the matter. I hope that the Government's position is now absolutely clear.

§ Lord Harmar-Nicholls
My Lords, if my noble friend cannot issue a Green Paper, can he at any rate set out the parameters which show how far the discipline extends? Can he also give a more detailed description of how we can use the crutch?

The Earl of Caithness
My Lords, the ERM will have benefits for this country in giving greater exchange rate stability against our Community trading partners. It will reinforce the Government's policy to get inflation decisively down. That is how we shall use the crutch.

§ Lord Boardman
My Lords, does my noble friend agree that the stability of the exchange rate mechanism is bound to be influenced, perhaps severely in the short term, by the impact of the unification of the two German currencies?

The Earl of Caithness
My Lords, I do not think that I attach the same importance to that fact as my noble friend. However, it is important that we should have a very firm commitment to join the ERM, and we shall do so when the conditions that I have set out are met.

§ Lord Williams of Elvel
My Lords, can the noble Earl say whether the Government's commitment to join is on a narrow band basis or on a broad band basis?

The Earl of Caithness
My Lords, I am delighted to welcome the noble Lord's question on the matter. However, that is a matter which will have to be decided at the time.

§ Lord Stoddart of Swindon
My Lords, the noble Earl made reference to the Green paper published in 1978, which is 12 years ago. Does he agree with 1220 the conclusions of that Green Paper? They were that the Government could not yet reach a decision (that was 12 years ago) to join the ERM; that the basic objective was to pursue policies for improving growth and reducing unemployment; that the foundation for these policies was an improvement in industrial production and victory in the battle of inflation; and that only those factors can provide a lasting basis for the stability of the exchange rate. Do the Government agree with that policy, which was propounded by my noble friend Lord Callaghan?

The Earl of Caithness
My Lords, the noble Lord will be well aware that we have brought down inflation. We shall bring it down from its present level. We have brought down the level of unemployment quite significantly. However, the noble Lord and the Government disagree if he believes that the ERM can be of no help; we believe that it will be of help.

§ Lord Callaghan of Cardiff
My Lords, surely the noble Earl recalls that the rate of inflation today is higher than it was at the time that the Green Paper was issued by the Labour Government?

§ Lord Graham of Edmonton
It says it in the book.

The Earl of Caithness
No, my Lords; I am not sure. I do not have the figures with me. However, what I know is that the average rate of inflation under this Government has been about half that which existed under the noble Lord's Government.

§ Lord Stoddart of Swindon
My Lords, was not the rate of inflation in 1978 only 8.5 per cent. whereas it is 9.4 per cent. today?