HL Deb 21 March 2000 vol 611 cc136-40

2.38 p.m.

Lord Boardman

asked Her Majesty's Government:

By what percentage the euro has depreciated against sterling since its introduction and what is the effect of this upon the British economy.

Lord McIntosh of Haringey

My Lords, the euro has depreciated against sterling by around 12 per cent since its introduction at the start of 1999. Over this period the euro has also depreciated by around 17 per cent against the dollar and by around 23 per cent against the yen.

It is, however, difficult to isolate the effects of exchange rate changes from other influences on the economy.

Lord Boardman

My Lords, because of the depreciation of the euro against sterling, are not United Kingdom exporters under severe pressure? Since the Chancellor of the Exchequer handed over the control of monetary policy to the Monetary Policy Committee, have the Government proposals to help our export industries in the present climate?

Lord McIntosh of Haringey

My Lords, I do not want in any way to underestimate the difficulties of a strong pound for manufacturing industries. However, our exports in the last quarter—October to December—of last year were 4.8 per cent above the figures in the similar period for 1998. Manufacturing output has risen by 2.7 per cent compared with the comparable period. Although the difficulties are great, manufacturing industry and our economy generally are responding well to the challenge.

Lord Marsh

My Lords, exporters are undoubtedly having a difficult time. However, importers are having a happy time as a result of the strength of sterling. Does the Minister have a net benefit/disbenefit figure?

Lord McIntosh of Haringey

My Lords, I imagine that there must be hundreds of benefit/disbenefit figures which vary according to where one's interest lies. If one is an importer one's interests are one way; if one is an exporter they are another way. If one is a consumer it depends on whether the balance of one's consumption is from imports or home grown goods. I do not think that conceptually, let alone in terms of facts available, there is any such single figure.

Lord Taverne

My Lords, is it not becoming more evident by the day that in important parts of the manufacturing industry—I refer to the shipbuilding and motor industries—the high pound is having a devastating effect? Will the Government consider seriously the suggestion I made on 27th January that they ask the Bank of England to intervene on the exchanges by way of sterilised intervention? That can be done in a way which can bring down the value of the pound without adverse effects on interest rates or inflation.

Alternatively, do the Government take the same view as the Conservative spokesman in this House? The noble Lord said: If we have a strong exchange rate for our currency, we should simply say 'Hooray—.[0fficial Report, 27/1/00; col. 1665.]

Lord McIntosh of Haringey

My Lords, my answer has to be the same as that which I gave to the noble Lord on 27th January. I said: the best contribution the Government can make to exchange rate stability consistent with their objective of a stable and competitive pound over the medium term is to maintain sound public finances and low inflation".—[Official Report, 27/1/00; col. 1661] I believe that the Chancellor will give some force to that statement later today.

Lord Stoddart of Swindon

My Lords, in the light of my noble friend's Answer, is it not dishonest of BMW to blame the strength of the pound for its difficulties when in fact what is to blame is the weakness of the euro? The euro has depreciated and the pound has appreciated. Will my noble friend confirm that since 1992 sterling has been firm and stable against the yen, the dollar and other currencies? Therefore, is not the BMW position just an excuse for wanting to get out of the British car industry?

Lord McIntosh of Haringey

My Lords, BMW gave a number of reasons for its action, but it is not appropriate for me to indulge in a detailed critique of the company. The Secretary of State for Trade and Industry has already made his views clear. However, as regards my noble friend's second point, it is true that the pound is strong principally against the euro and not against the dollar or the yen. Therefore, I believe that it is correct to say that instead of appreciation of the pound it is depreciation of the euro.

Lord Forsyth of Drumlean

My Lords, does not the Minister's original Answer and his last answer indicate that if the pound had been abandoned and we had joined the euro at the same time as other countries, the savings and pensions of people in this country would now be worth 12 per cent less? Had we taken the advice of those who wished to abandon the pound, our future purchasing power against other world countries would be greatly diminished. Therefore, given the figures that the Minister has announced, does he not believe that the enthusiasm on his Benches for the euro ought to be reconsidered?

Lord McIntosh of Haringey

My Lords, in response to the question from my noble friend Lord Stoddart, I refrained from saying—he would not have liked it— that one of the reasons BMW gave for selling Rover was that we had not entered the single currency. However, I really do think that noble Lords opposite must make up their minds as between attacking the strong pound as being damaging and saying, as did the noble Lord, Lord Forsyth, that a weaker pound aligned with the euro would be damaging in other ways. Of course there are swings and balances; some things are better and some things are worse.

Lord Tomlinson

My Lords, does my noble friend agree that, notwithstanding the impact on manufacturing, it is a far more satisfactory position to be grappling with the strength of sterling than the situation we were in a few years ago when we were forced into humiliating exit from the exchange rate mechanism?

Lord McIntosh of Haringey

My Lords, I believe that that is too simple. With due respect to my noble friend, there are advantages and disadvantages. As I tried to say to the noble Lord, Lord Taverne, and as some noble Lords opposite have said, we do not fully understand what makes exchange rates tick. Attempts to deal with them by direct intervention are likely to be doomed to failure.

Earl Ferrers

My Lords, may I ask the Minister an even simpler question? He said that the British manufacturing industry was coping well with the strong pound. Can he say how British agriculture is coping with the strong pound and what, if anything, the Government propose to do about it?

Lord McIntosh of Haringey

My Lords, British agriculture has much the same difficulty and for much the same reason. I acknowledge those difficulties, but as regards future government policy it would be unwise for me to venture comments just before the Budget Statement.

Lord Pearson of Rannoch

My Lords, bearing in mind the Minister's answer to the noble Lord, Lord Stoddart of Swindon, will he go further and agree that, as some 60 per cent of all world and British trade is conducted in dollars, and as the pound has been the most stable of all world currencies against the dollar for the past six years, he will do his best to persuade his colleagues in government and others of a Europhile tendency that they must stop referring to the strong pound and talk instead more accurately about the weak euro?

Lord McIntosh of Haringey

My Lords, I thought that I had answered that question by acknowledging that the pound is particularly strong against the euro and stronger than against the dollar or the yen. That was the thrust of my first Answer as well as of supplementary answers.

Lord Lea of Crondall

My Lords, does my noble friend agree that, contrary to what has been stated from the Opposition Benches, when the euro was introduced as the ecu in 1979 it was at parity with the dollar and that today it is at parity with the dollar? Does he further agree that that means that in a broad sense these two great currencies have been equal to each other for 20 years and that the American and European economies are equal with each other? The only difference is that the American economy has a deficit of 200 billion dollars a year whereas Europe's is in surplus?

Lord McIntosh of Haringey

My Lords, my noble friend rightly identifies the beginning and the end of his statistical series. He will agree that the dollar/euro, or dollar/ecu, parity has varied considerably at different times in the intervening period. However, in terms of the original Question, it is true that the euro has depreciated against sterling by around 12 per cent since its introduction at the start of 1999. That was a particularly high period for the euro, when at the end of 1998 it rose in anticipation of the creation of the single currency. The longer term trend had been much closer to the present position than it was at the beginning of 1999.

Lord Saatchi

My Lords, can the Minister say whether the House should attach the same weight to his denials about European tax harmonisation as it does to his earlier denials about the domestic tax burden? In case, by some mischance, the Government do not live up to their promises on vetoing European tax harmonisation, will he tell the House the amount of extra tax that the average British family would pay if Britain's tax burden was the same as that of Euro-land?

Lord McIntosh of Haringey

My Lords, there has been no change in the answers that I have given about tax harmonisation, and I have no intention of announcing further tax policies this afternoon.

Lord Boardman

My Lords, does the Minister agree that the increased interest rates which have arisen since 1997 and the extra burden of taxation which has been imposed during the same period are making it particularly difficult for industries which are dependent largely on exports to survive?

Lord McIntosh of Haringey

My Lords, all higher rates of interest make it harder for exporters in particular and, indeed, for any business to finance its own operations. That is a matter of fact. However, the relatively narrow bands within which interest rates have changed since May 1997 have been very much smaller than those experienced in the years of the government of the party that the noble Lord supports.