Sterling/Euro Relationship (Hansard, 29 February 2000)

§ Lord McIntosh of Haringey
My Lords, UK exporters have been coping well with sterling's appreciation against the euro. In the three months to December 1999 the volume of exports of goods to EU countries was 5 per cent up on a year earlier.

§ Lord Renton of Mount Harry
My Lords, I thank the noble Lord for that Answer. However, is he not perhaps a little too dismissive of a growing problem? Is he aware that only last week Sir Clive Thompson, president of the CBI, said: Exporters in particular are suffering from the strength of sterling. If it stays at this level against the euro, it will only be a matter of time before companies start reviewing their investment decisions, and look at relocating outside the UK"? Does the noble Lord recall that when the UK left the exchange rate mechanism the rate of exchange was one pound to 2.77 deutschmarks, whereas it is now one pound to 3.21 deutschmarks? Does the Minister see any long-term improvement in the British economy to justify such an increase in our rate of exchange?

§ Lord McIntosh of Haringey
My Lords, I do not underestimate the difficulties for British industry, and British manufacturing industry in particular, with the high exchange rate against the euro. The noble Lord quotes Sir Clive Thompson of the CBI. However, I am sure he will be aware that the January CBI expectation survey indicated the first positive balance—in other words, more manufacturers expecting to improve their position—since the second 446 quarter of 1997. So Sir Clive's members are more confident than others may be. However, the problems are still there; and they are long term.

§ Lord Brookman
My Lords, will the Minister—

Noble Lords
The bishop.

§ The Lord Bishop of Hereford
My Lords, is the Minister able to give us any reassurance that the Government are prepared to draw down the available agrimonetary compensation to help the particularly beleaguered farming industry which is doubly disadvantaged by finding it difficult to export and knowing that CAP help is worth less to the industry because of the exchange rate? Will the noble Lord encourage his right honourable friend the Prime Minister to fulfil the promise he made about a month ago to meet leaders of the pig industry? It is badly affected and faces destitution and extinction.

§ Lord McIntosh of Haringey
My Lords, I was going to thank the right reverend Prelate for arbitrating between noble Lords who wished to intervene. However, I feel less inclined to thank him after that difficult question which does not arise from the Question on the Order Paper.

§ Lord Barnett
My Lords, has the Minister seen the recent minutes of the Bank of England Monetary Policy Committee? They refer to a recent IMF study which showed the pound about 15 per cent higher than it should be compared with most of the average industrialised countries. Is there not such a serious problem that the Chancellor should at least consider modifying the inflation target and the way it is used through the Bank of England Act? He still has those powers.

§ Lord McIntosh of Haringey
My Lords, my noble friend has been urging the Government to modify their inflation target ever since the Chancellor gave his directions to the Bank of England in May 1997. They were confirmed in the Bank of England Act 1998. No, we do not think that it would be right for us to target exchange rates as well as targeting price stability. If one targets factors which are potentially in conflict, the Bank of England does not know what to do if it has a choice.

§ Lord Newby
My Lords, does the Minister agree that the most helpful contribution to reducing the sterling exchange rate over a period would be for the Government now to announce a clear intention and a broad timetable for joining the euro?

§ Lord McIntosh of Haringey
My Lords, this is another siren voice which has been heard from the Liberal Democrat Benches for a considerable period of time. I do not know on what basis the Liberal Democrat Party thinks that an announcement of a 447 date for joining the euro would bring down the value of the pound. So far as I know, no evidence has been produced to that effect.

§ Lord Marsh
My Lords, is the Minister losing sight of the fact that for well over a year now the euro has been behaving totally contrary to the pattern that was forecast? Presumably something must be fundamentally wrong with the system—no one doubts the abilities of the people leading it—or it will right itself. Can the noble Lord tell us whether he still thinks that the euro will challenge the dollar?

§ Lord McIntosh of Haringey
My Lords, I do not believe that noble Lords can have it both ways. On the one hand, it is claimed that British manufacturing industry is suffering badly as a result of the high pound. The converse must be that European industry is benefiting from the low euro. Is there any indication—I should not be asking the question—that any damage is being done to European industry by the low level of the euro?

§ Lord Brookman
My Lords, will the Minister—

§ Baroness Hogg
My Lords—

§ The Attorney-General (Lord Williams of Mostyn)
My Lords, I think that it should be the noble Baroness first followed by my noble and extremely helpful friend behind me.

§ Baroness Hogg
My Lords, I shall try also to be helpful and ask the Minister a non-siren question. Does the noble Lord agree with the Bank of England that there is no evidence from the trade figures that the long-term sustainable rate of the exchange rate for the UK has risen? Does he also accept the view of a number of members of the Monetary Policy Committee that there have already been bankruptcies in the UK which would not have occurred if the exchange rate were at a more sustainable level?

§ Lord McIntosh of Haringey
My Lords, we take seriously the views of the members of the Monetary Policy Committee. It is not our job to endorse or reject them. Certainly, we are aware of, and take seriously, the warnings about the long-term effect of exchange rates.

§ Lord Brookman
My Lords, will my noble friend confirm that the Labour Government put great importance on manufacturing in the United Kingdom? However, does he agree that industries such as British Steel, which has been renamed since its amalgamation with a Dutch firm, is in serious difficulty? As recently as last year, for every one pfennig movement in the deutschmark against sterling it was claiming a loss of £100 million in potential profit. Does he agree with that statement from that major exporter?

§ Lord McIntosh of Haringey
My Lords, I hope that I have not in any of my answers sought to 448 underestimate the difficulties for British manufacturing industry, in particular for the steel industry. That is why the Government have been taking action to encourage enterprise and investment in this country; for instance, the abolition of advance corporation tax, the cut in the main and small business rates of corporation tax and the extension of first year capital allowances.

§ Lord Saatchi
My Lords, is not the Minister being a little modest in his approach to my noble friend's Question? Do not the Government have a brilliant solution to the problem of the high pound versus the euro? Is it not that when they came into office the British economy was growing faster than that of France or Germany but that according to this week's Goldman Sachs forecast it is set to grow more slowly than the economies of those two countries? Presumably, when the markets wake up to the Government's achievement the pound will duly fall and the problem will have gone away.

§ Lord McIntosh of Haringey
My Lords, I hear siren voices from all sides of the House. When complaining about the rise in sterling, I must remind the noble Lord that in the 16 months before the election it was 20 per cent, but the rise in the 22 months since the election has been only 10 per cent. That is not exactly a condemnation of this Government.