Exchange Rate Mechanism (Hansard, 6 July 1992)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, no.

§ Lord Stoddart of Swindon
My Lords, is the Minister aware that that is a most disappointing Answer? Is he further aware that far from expanding, as the Government pretend, the British economy is now teetering on the edge of a slump? Does he further agree that what is now needed is a cut in interest rates? They are now almost double real interest rates, which are nearly double what they were when we entered the ERM.
Finally, will he tell the Germans that this country is not prepared to finance their unification by mass unemployment in this country, by a lowering of the standard of living and by business failures?

§ Lord Henley
My Lords, I am sorry that the noble Lord found my Answer disappointing, but I suspect that it was not unexpected. The noble Lord asks for a realignment. That is a polite way of asking for devaluation. That would send completely the wrong signals. It would undermine our anti-inflationary credibility and quite likely lead to a rise in interest rates due to the necessity to prevent a run on the pound. That could also lead to a rise in inflation to pay for the higher price of imports.

§ Lord Boyd-Carpenter
My Lords, in the light of my noble friend's admirable original Answer, is he aware that most of us will sympathise with him in the virtual impossibility of dealing with this immensely complicated and important issue on a Starred Question? If noble Lords are to deal with the matter surely we need to do so in a full House in a full debate.

§ Lord Henley
My Lords, I note what my noble friend says. I imagine that the usual channels will have noted it. I kept my original Answer simple to make it possible for the noble Lord opposite to understand exactly what I meant.

Lord Bruce of Donington
My Lords, speaking as one who, as noble Lords know, would not wish to disturb the very cosy relationship between the Government, the Opposition and the Liberal Party on this very important Question, will the Minister take note that, outside those cosy political circles, practically all those who have some dealing with ordinary commerce, employment and so on in this country believe that the Government's decision to remain stone pat on the issue, with a grossly overvalued pound, is causing enormous damage to the economy, is preventing a recovery from taking place and is making nonsense—inevitably—of every government forecast about recovery being round the corner?

§ Lord Henley
My Lords, the noble Lord will not be surprised to hear me say that I do not agree with him. Nor will he be surprised to hear me say that I do not agree that there is a cosy relationship between the two Front Benches and the Liberal Party on this issue. I do not know the view of the Front Bench of the noble 988 Lord's party because we have received conflicting reports from the Shadow Chancellor and the Shadow Chief Secretary.

§ Lord Molloy
My Lords, if, as the noble Lord, Lord Boyd-Carpenter, has stressed, this is an important Question, and notwithstanding the Minister's abrupt reply, when is it likely that we shall discuss the matter?

§ Lord Henley
My Lords, as I said earlier, I am sure that the usual channels will have noted my noble friend's remarks.

§ Lord Harvey of Prestbury
My Lords, will my noble friend reply to my earlier question? How does he reconcile the questions with the fact that the Italian Government have put up their interest rates by 1 per cent. as from today?

§ Lord Henley
My Lords, I do not answer for the Italian Government. As noble Lords will know, since joining the exchange rate mechanism we have been able to bring down interest rates some nine times, while the German Government have had to put up interest rates four times.

§ Lord Monson
My Lords, does the Minister agree that a general as opposed to a unilateral realignment of exchange rates within the ERM will help not only this country but France in its present considerable political difficulties, most of which stem from high unemployment and widespread bankruptcies following the close pegging of the franc to the deutschmark? Does the Minister also agree that a realignment will help our exports to the United States which are currently being squeezed as a result of the high rate of sterling against the United States dollar?

§ Lord Henley
My Lords, I do not agree with the second part of the noble Lord's question. As regards the first part, it is possible for all members to agree realignment of all the currencies. I cannot speculate about whether or when such a procedure might be activated. However, as I said earlier, the United Kingdom Government have no intention of doing so.

§ Lord Marlesford
My Lords, does my noble friend see a distinction between the revaluation of the deutschmark and the devaluation of the other currencies in the ERM?

§ Lord Henley
My Lords, that is a slightly harder question to answer. It would amount to a realignment of all the other currencies and I dealt with that matter when answering the question which came from the Benches opposite.

§ Lord Desai
My Lords, does the Minister agree that, if the Government do not want to realign, they should be bolder in cutting interest rates because that would be an advantage in establishing credibility in the exchange rate markets?

§ Lord Henley
My Lords, of course we can cut interest rates without realigning or devaluing within the ERM. However, I want to make it clear that there is no question whatever of our making cuts in interest rates which are not fully consistent with our ERM commitment and our anti-inflation discipline.

§ Lord Campbell of Alloway
My Lords, is there any real distinction between the so-called "realignment" and devaluation of the pound sterling?

§ Lord Henley
My Lords, as I said in response to the noble Lord, Lord Stoddart, "realignment" is merely a polite way of talking about devaluation.

§ Lord Peston
My Lords, given the Minister's answer, I do not wish to be accused of being remotely in cahoots with the Government Front Bench, even though I have argued consistently for maintaining sterling's value in the ERM for at least as long as the Government have done so. If the Government are so keen to maintain the value of sterling, why do they not have the courage to do what almost everyone in the field believes that they should have done ages ago; that is, to move to the narrower bands within the ERM? After all, with a 6 per cent. plus band sterling is fluctuating like mad as it is, which is of no great help either to British exporters or to traders generally.

§ Lord Henley
My Lords, I was hoping to hear a lucid explanation of the policy of the noble Lord's party. I do not know whether that was such an explanation or the noble Lord's view. He asked whether and when we should move to the narrower band. My right honourable friend has made it clear that we shall move to the narrower band in due course but we cannot speculate when that might be. I repeat that we shall join the narrow band at the existing rate of 2.95 deutschmarks.

§ Lord Peston
My Lords, obviously I must help the Minister. My party has consistently taken the view that we should be in the ERM at the present parities within the narrow band. That is about as simply as I can put it. I can give the Minister several hours' worth of lecturing, and if we have the debate that has been referred to I shall take that time. Will the Minister accept that our position is abundantly clear and that, if anything, the Government's position is slightly queasy because of their refusal to move to the narrow bands?

§ Lord Henley
My Lords, I have made the Government's position absolutely clear. I was trying to say earlier that the views of the Shadow Chancellor of the Exchequer and the Shadow Chief Secretary are not clear; both appear to have slightly different views. It appeared that the Shadow Chancellor was seeking a realignment.

§ Lord Boardman
My Lords, will my noble friend make it clear that any realignment of the currencies that amounts to a devaluation of sterling will almost inevitably lead to an increase and not to a decrease in interest rates?

§ Lord Henley
My Lords, I thank my noble friend for asking that question. I could not agree with him more.