§ 3.1 p.m.
§ Lord Donoughue asked Her Majesty's Government:
§ What has been the percentage devaluation in sterling against (i) the deutschemark and (ii) the US dollar since 1st January 1989.
737The Paymaster General (The Earl of Caithness)My Lords, sterling has fallen just over 14 per cent, against the deutschemark and just under 11–5 per cent, against the US dollar since 1st January 1990.
§ Lord DonoughueMy Lords, I thank the noble Earl for that helpful and accurate reply. Bearing in mind that each 10 per cent, fall in sterling is calculated by economists to produce an increase in inflation of up to 3 per cent., will the Minister agree to take on a bet with me that at the year end the rate of inflation will, for the third year in succession, be higher than the Chancellor's Budget forecasts?
The Earl of CaithnessMy Lords, I do not bet any more, although I should be tempted to take on a bet with the noble Lord. However, he will be the first to appreciate that the present underlying rate of inflation is lower than at any time under the previous Labour Government.
§ Lord BarnettMy Lords, does the Minister agree that there would be better prospects for a stable exchange rate if we were to join the exchange rate mechanism? Noting the Government's view that inflation is a key factor in their decision arising from the statement in Madrid, will the Minister confirm to us that the exchange rate level at any particular time will not be relevant to the decision and that the only relevant consideration will be the inflation rate?
The Earl of CaithnessMy Lords, after Madrid my right honourable friend the Prime Minister clearly set out the exact terms under which we should enter the exchange rate mechanism. Those were repeated by my right honourable friend the Chancellor of the Exchequer in his Budget Statement.
I point out to the House that those advocates who support the exchange rate mechanism must remember that half of Britain's trade is outside the Community. Much of it is in US dollars and is therefore not affected by the exchange rate mechanism.
Lord Bruce of DoningtonMy Lords, does the noble Earl agree that even the existing rates of exchange against the dollar and the deutschemark have only been sustained after a net loss of reserves amounting to many billions of pounds? Does he also agree that some consideration should be given to a relief in the rate of interest at present subsisting coupled with a far more effective control of credit in the United Kingdom? Would not that be a far more sensible way of proceeding rather than allowing or proposing that the interest rate should take the whole strain in respect of both policies?
The Earl of CaithnessMy Lords, as my right honourable friend the Chancellor of the Exchequer made clear in his Budget Statement, which I am sure the noble Lord has read with care, he looked at the question of whether some form of credit controls would be appropriate. He decided that they would not and that the interest rate was the most effective and direct method of bringing down inflation, which is the Government's overall concern.
§ Lord Stoddart of SwindonMy Lords, is the noble Earl aware that not everyone goes along with the new fashion of thinking that to join the ERM is the panacea for all ills? Is he further aware that some people believe that it would actually deter the growth of the British economy? Can the noble Earl tell the House at what rate against the deutschemark the Government propose to enter the ERM at this point in time?
The Earl of CaithnessMy Lords, the noble Lord, Lord Stoddart of Swindon, is right to remind the House that to join the ERM is by no means a panacea. A tight monetary policy will still be needed. The right exchange rate at which to enter the ERM is a matter to be decided. It is important not only to bring down inflation in this country but also to ensure that other countries will fulfil their part of the bargain as set out in the Madrid Statement.
§ Lord Mackie of BenshieMy Lords, does the noble Earl care to speculate as to what inducement it would take to make the noble Lord, Lord Stoddart of Swindon, join the ERM?
The Earl of CaithnessMy Lords, after some of the debates on the student loans Bill, it is nice to see that the Liberals are more European than they have been of late.
§ Lord Stoddart of SwindonMy Lords, may I answer that question?
§ Lord Stoddart of SwindonMy Lords, I ask the noble Earl to say that no inducements are available which would persuade the noble Lord, Lord Stoddart of Swindon, to join the ERM.