"Strong Pound" (Hansard, 28 February 2002)

§ Lord McIntosh of Haringey
My Lords, the Government do not comment on day-to-day movements in foreign exchange markets. 'The Government's objective for the exchange rate remains a stable and competitive pound in the medium term.

§ Lord Pearson of Rannoch
My Lords, on the other hand, the Government often use the expression "strong pound"—which is what the Question is about. Surely it must always be wrong to describe the pound as strong: since the euro's launch, it has fallen by about 15 per cent against the US dollar—in which, contrary to what the Minister told noble Lords on Tuesday 60 per cent of our foreign trade is transacted. Is not the problem that those who were euphoric at the birth of the euro simply cannot bring themselves to describe it as weak, and that, therefore, the poor old pound must take the blame? Furthermore, is not "weak euro" the only truthful expression, given that it has gone down like a stone against every major currency on the planet?

§ Lord McIntosh of Haringey
My Lords, I have done an extensive literature search, but I have found only three recent references by Ministers to a "strong pound". In all those cases, the reference was not to the dollar but to what the noble Lord, Lord Pearson, has rightly described as a "weak euro". Moreover, in all those cases, the suggestion was not that a "strong pound", in those terms, is a good thing or a bad thing. As for the euro's share in our overseas transactions, it comprises 65 per cent of the Bank of England sterling exchange rate index, whereas the US dollar comprises only 16.5 per cent of the index.

§ Lord Newby
My Lords, does the Minister agree that it is completely irrelevant whether it is a "strong pound" or a "weak euro", but completely relevant—as noble Lords discussed earlier—whether our exchange rate is stable and competitive? Does he also agree that the best route to making the pound stable and competitive is for the Government to announce now that they plan to join the euro?

§ Lord McIntosh of Haringey
My Lords, the noble Lord, Lord Newby, takes us hack to the Question 1528 asked on Tuesday by the noble Lord, Lord Tebbit. He may also have noticed that I gave exactly the same answer to the noble Lord, Lord Pearson, as I gave to the noble Lord, Lord Tebbit. I shall also give him the same answer as I gave him last time. It was right then and it is right now.

§ Lord Marsh
My Lords, can the Minister give the House any indication of how far he thinks the pound would fall if the Government were foolish enough to announce that we shall join the euro?

§ Lord McIntosh of Haringey
My Lords, no; we do not comment on day-to-day movements in the pound.

§ Lord Hodgson of Astley Abbotts
My Lords, does the Minister agree that, regardless of whether the sterling exchange rate is strong or weak, the current exchange rate combined with the Government's policies is doing immense damage to British manufacturing industry, and thousands of jobs have been lost as a result of those policies?

§ Lord McIntosh of Haringey
My Lords, no exchange rate is right for all purposes. It is true that manufacturing industry finds difficulty in the pound's current exchange rate—not only against the euro but against other currencies as well—which is why we have taken so many measures to help manufacturing industry, notably in corporation tax levels and specific help for research and development. Nevertheless, what is bad and undoubtedly difficult for manufacturing industry is not bad for, for example, service industry, which is doing very well with current exchange rates.

§ Lord Hughes of Woodside
My Lords, does my noble friend agree that we need to have long memories in these matters? Is it not only a couple of years ago that manufacturing industry was screaming that the pound's exchange rate value was too low and that we were suffering dreadfully from overseas competition? Can one ever get it right?

§ Lord McIntosh of Haringey
My Lords, such pressure is always put on governments, but particularly in the run up to a Budget. We are currently in such a period, and we are hearing those pressures from manufacturing industry and the business sector generally. It is important that people should express their views to the Chancellor. However, those views should be expressed in the context of the fact that we have the lowest unemployment level in 30 years and our economy has the highest investment level in many years.

§ Lord Crickhowell
My Lords, if we start having pay increases of 9.5 per cent over a 12-month period in organisations in which the state has the sole shareholding, is there not a significant risk that we shall no longer have a strong pound?

§ Lord McIntosh of Haringey
My Lords, I have no doubt that the noble Lord is referring to particular wage increases. However, the general position is that wage increase levels are currently very low.

§ Lord Davies of Coity
My Lords, while recognising that the Question was intended to attack the euro's exchange level, does my noble friend agree that inflation and interest rate levels are much more important to our economic stability than the value of the pound?

§ Lord McIntosh of Haringey
My Lords, yes, it is correct to say that exchange rates are very seldom the prime move':; much more often they are the result of other economic indicators. My noble friend is right to say that the strength of our economy compared with those of other G7 members, our employment and investment levels, which I have described, and the improved productivity we have achieved are fundamentally important factors.

§ Lord Saatchi
My Lords, does the Minister agree with the business community that devaluation of sterling, in its exchange rate against the euro, is a precondition of joining the euro?

§ Lord McIntosh of Haringey
My Lords, I challenge the view that there is any settled view of the business community as such. There are those in the business community who support Britain in Europe, those who support sterling and those who support Britain out of Europe. There is no fixed or universal view in the business community. On the whole, however, the business community is very sympathetic to British membership of European monetary union.

§ Lord Pearson of Rannoch
My Lords, does the Minister mlise that, when he uses the Bank of England's trade-weighted index as the basis to mislead the House on the balance between our trade in euros and in dollars, that index is entirely irrelevant for his purpose? Would the Government be good enough to consider the Customs and Excise figures, which confirm the figures that I have given, rather than the figures that he gave to the House on Tuesday and again today?

§ Lord McIntosh of Haringey
My Lords, I do not take very kindly to the word "mislead". If the noble Lord wants the figures on trade shares, they are as follows: 50 per cent of our trade is with the euro zone; 16.5 per cent with the United States; and 18.5 per cent with NAFTA—which is, I know, what the noble Lord would like us to join.