Orders of the Day — Pound Sterling

Part of the debate – in the House of Commons at 12:00 am on 29th June 1972.

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Photo of Mr Denis Healey Mr Denis Healey , Leeds East 12:00 am, 29th June 1972

I have come to know the hon. Member for Horsham (Mr. Hordern) very well in recent weeks in the Finance Bill proceedings upstairs. I am greatly surprised by the hon. Gentleman's comment, for he knows very well that I regard the decision taken by the Chancellor last Friday as right in the circumstances. I wish he had taken it sooner, but it was necessary and right only because of the total failure of Government policy over the last two years and the new foreign exchange burdens which the Government had deliberately chosen to inflict on themselves by entering the European Community on the terms which they negotiated.

The fact is, as we all know, that the Chancellor surrendered to pressure from the French and United States Governments last December and gave in again to the French Government on 1st May—gratuitously, with no obligation whatever, by deciding to accept the narrow band of fluctuation set by the Community for Britain, though there was still nine months to go before Britain joined the Community as a full member. What is more, the right hon. Gentleman admitted in that extraordinary apologia for this action that in this case the guns happened to be facing the wrong way, and that this protection against flotation and against devaluation was totally inappropriate for meeting any serious threat. But it was more than inappropriate, because, as the Chancellor of the Exchequer made clear in his opening remarks, by accepting the obligation to stay within this very narrow band he was forced to lose reserves on a scale which staggered the House when he gave it to us in a way which would not have been necessary if he had been free to act even within the limits set by the Smithsonian agreement and the IMF.

That is what he did in terms of foreign exchange. Domestically what he did was much more serious. This year the Government have not been able to do anything right. The right hon. Gentleman provoked a gladiatorial combat with the miners and the railway men in order to dramatise his defeat. He complained today about the publicity given to those settlements. But who was responsible for the publicity? Who made these bombastic weekend speeches showing how to crush the workers It is all very well Ajax defying the lighning as long as he is fireproof. But if he is the present Chancellor of the Exchequer he is reduced to a heap of cinders. That is what happened in this case. By incurring and encouraging a demonstrative defeat on these two occasions, as he admitted today, he added a great deal to the lack of confidence in his Government's ability to control the economic situation.

Meanwhile the balance of payments was worsening dramatically partly because the right hon. Gentleman had stimulated demand for consumer durables without making sure that the capacity existed in Britain to supply that demand. The result is that over recent months we have seen a very much greater rise in imports of consumer durables from foreign countries than the rise in our exports of those durables to those countries, especially of cars. If the right hon. Gentleman consults Lord Stokes on this matter or even reminds himself of the advice that he received from Lord Stokes on earlier occasions, he will realise to what I am referring.

The extraordinary fact is that the right hon. Gentleman chose the very moment when the balance of payments was seen to be deteriorating to make this statement during the Budget debate in March indicating that he would abandon parity rather than sacrifice growth. We on this side of the House applauded those sentiments thoroughly but it was and has proved to be a disaster to express them in that way and at that time, as my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) pointed out in that Budget debate. The result was that even before the May trade figures were published just over a fortnight ago everyone concerned in a direct way with the British economy was talking about devaluation.

It is important that the House and the country should realise how widespread the expectation of devaluation had become by that time and why it was that Mr. Graham Hutton was able to write in this morning's Daily Telegraph: Every qualified observer was awaiting last week's financial crisis"— everyone, it appears, except the Chancellor of the Exchequer.

The June number of Vision, a leading European management magazine, reported a poll of 200 leading European bankers, economists, finance directors and journalists which had been made in mid-April. It showed 52 per cent. believing that the present parity of the £ sterling was not realistic and 56 per cent. believing that the £ would be devalued by the end of the year. That was on the basis of a poll in which the questionnaires were sent out in April, and it was published at the beginning of June.

What was being written in this country was very similar. I begin with the trendiest Cassandra of them all, the Economist. In its report of 10th June it said: No one should jump to conclusions, but a run out of sterling in the late summer or early autumn cannot be ruled out.The Times wrote a long leading article recommending devaluation to 2·40 dollars this summer. It was followed a week later by the Spectator.

Then we got the trade figures on 13th June which showed that the average deficit over the first five months of this year was £42 million—