Sterling Exchange Rate (Hansard, 26 February 2002)

§ Lord McIntosh of Haringey
My Lords, the Government do not comment on day-to-day movements in the foreign exchange market. While the Government do not have a specific: exchange rate target, a stable and competitive pound is sought over the medium term.

§ Lord Tebbit
My Lords, the Minister's Answer comes as no surprise. Does he recollect that on the two occasions when this Question was previously asked, the Government confirmed that although an object of their policy is indeed to have a stable and competitive rate for sterling, they do not know whether the current rate is either stable or competitive? How will the Government know when this desirable. optimal position is reached?

§ Lord McIntosh of Haringey
My Lords, I have had the privilege of answering the noble Lord, Lord Tebbit, once on this matter. My noble friend Lord Davies had the privilege on an earlier occasion. The answer, as the noble Lord knows very well, is the same. We talk about a stable and competitive pound over the medium term because we should not be answering questions about the current exchange rate or about daily changes. As he also knows very well, if certain Ministers—not myself, but perhaps the Chancellor of the Exchequer—were to comment daily on the exchange rate, it might affect that exchange rate. That would not be very desirable.

§ Lord Peston
My Lords, does my noble friend agree that the exchange rate has been extraordinarily stable for at least the past two years? The question about a stable exchange rate answers itself: we have one.

§ Lord Tebbit
That is not what the Minister said.

§ Lord Peston
My Lords, the Minister assumes that the noble Lord can do what I do and look up the data in various government publications.
Is it not also the case that, although the exchange rate is not very competitive for some sectors of the economy—manufacturing is under pressure—it is 1315 extremely competitive for the service sector? Overall, the economy is extremely competitive, as one can tell from the fact that we have no difficulty in financing our overseas borrowing in any manner we wish. The answer to the Question is therefore pretty self-evident.

§ Lord McIntosh of Haringey
My Lords, like my noble friend Lord Peston, I can read the figures, and I am certainly happy to observe what they show. He is entirely right. On the whole, the exchange rate has been pretty stable over a recent period. However, that implies no judgment as to whether it is competitive, which is what the noble Lord, Lord Tebbit, asked. Exchange rates are the result, rather than the cause, of other economic policies. They are the result of low and stable inflation, which this Government have achieved, and the result of stable and sound public finances, which, again, we have achieved.

§ Lord Kilclooney
My Lords, as the United Kingdom trades more in dollars than in euros, and as the United Kingdom has a greater percentage of its trade in dollars than has the euro zone, is not the sterling-dollar exchange rate more important to United Kingdom business and trade than the sterling-euro exchange rate?

§ Lord McIntosh of Haringey
My Lords, the Bank of England basket of currencies and exchange rates calculated on that basis shows that the euro is more significant than either the dollar or the yen and represents more than half of our trade. I am therefore afraid that the noble Lord is not correct in his initial premise.

§ Lord Barnett
My Lords, surely my noble friend the Minister will be surprised that, given his vast experience of macroeconomic and financial matters, the noble Lord, Lord Tebbit, does not recognise that the best way of achieving currency stability would be to be inside a single currency, namely the euro. Will my noble friend try to explain that point to the noble Lord?

§ Lord McIntosh of Haringey
My Lords, I speak for the Government and not for the noble Lord, Lord Tebbit. Indeed, I did not gather from his question even whether he was in favour of a stable and competitive pound.

§ Lord Newby
My Lords, does the Minister agree—

§ Lord Saatchi
My Lords, the Minister—

§ Baroness Symons of Vernham Dean
My Lords, I believe that it is the turn of the Liberal Democrat Benches.

§ Lord Newby
My Lords, does the Minister agree that the best way of achieving both a stable and competitive exchange rate is to be within the euro zone? Does he therefore agree that it would be sensible for the 1316 Government to announce now the date on which a referendum on the issue will take place? If he finds that an unpalatable thought, will he at the very least announce the date on which the Government's assessment of the five economic tests is to be published?

§ Lord McIntosh of Haringey
My Lords, no thoughts are unpalatable—it would just be a bad thing to do. What we have to do now is to carry out our assessment of the five economic tests, which is what the Treasury is going to do. When and if we reach the conclusion that the five economic tests have been met, the issue will then be decided by government, by Parliament and by the people of this country. There is no point in rushing decisions of that sort.

§ Lord Lawson of Blaby
My Lords, does the Minister agree with the remarks made yesterday at Chatham House by Mr Ed Balls? It would certainly dispel some of the confusion if he could say clearly that he does. In particular, does he agree that sterling's current rate is not opportune if one is thinking of joining the euro? Equally, does he agree that it would be wholly wrong to massage down the rate in order to seek to join?

§ Lord McIntosh of Haringey
My Lords, I am afraid that I have not had the advantage of reading the remarks by the economic adviser to the Treasury. Although I shall do so with great interest, I am unable to comment on them at the moment.

§ Lord Stoddart of Swindon
My Lords, the noble Lord, Lord Barnett, and others suggest that the best way of achieving a stable currency is to join the euro. However, is it not a fact that, in the past four years, the most unstable currency in the world has been the euro? In fact, the euro has depreciated against every other major currency, including our own, by at least 15 per cent and against the American dollar by much more.

§ Lord McIntosh of Haringey
My Lords, it certainly was the case that, in the initial months or so following the euro's introduction, there was a decline in its value. However, the figures for the period show that variations in the euro-sterling exchange rate and in the Bank of England's effective exchange rate against all currencies very closely follow the same pattern. I do not think that that leads us to the conclusion that the noble Lord, Lord Stoddart, would wish us to reach.

§ Lord Saatchi
My Lords, as always the Minister is very relaxed about the sterling exchange rate. Is he equally unconcerned about the position of Britain's balance of payments, perhaps the acid test of our competitiveness? Last year it fell into an all-time record deficit of £33 billion, a staggering sum which amounts to nearly 8 per cent of our GDP.

§ Lord McIntosh of Haringey
My Lords, if the noble Lord, Lord Saatchi, wishes to table a Question on the balance of payments he is entirely free to do so.

§ Lord Blackwell
My Lords, the Minister may not have read Mr Balls's remarks, but can he repeat the 1317 assurances he has previously given the House that the Government will not intervene to attempt to change the exchange rate, and in particular the sterling-euro exchange rate, prior to a referendum?

§ Lord McIntosh of Haringey
My Lords, I have always said, when answering questions such as this, that if we allow for the fact that the size of our reserves, both those held by the Treasury and by the Bank of England, are equal to approximately one day's trading on foreign exchange markets, the opportunities for intervention are extremely modest. Any intervention that took place would have to be by common agreement among the major economies of the world. I can probably go so far as to say that that is unlikely to be achieved.