I begin from the position that, in the situation in which the Government found themselves last Thursday evening, the action they announced on Friday was the least harmful course they could have taken. It was technically well executed. How they got themselves into that situation we can leave for a moment. The fact is that the Bank Rate was increased on the Thursday morning. It did not do the trick and the speculative run on sterling seems if anything to have increased following the rise in Bank Rate. The figures quoted today by the Chancellor of the Exchequer were horrifying.
The Government could not face an intensive run on sterling on Friday. They could not allow the speculators a free hand. To have gone for an open devaluation last Friday—the decision to float is, in effect, a decision to devalue—would have meant a hasty decision on what the rate should be. Too small a devaluation would have invited a further run on sterling, probably of the same virulence, within perhaps a short period. Playing safe by a more swingeing cut could have triggered off not only a state of total confusion in Europe, which we have so far avoided, but only so far, but would possibly have completely undermined the Washington Agreement of last December. Therefore, in that situation the Government took the right decision. But they must recognise that that difficult choice—the "Morton's fork" of too small a devaluation, or too large—has only been deferred. The decision has to be made when floating gives way to a return to a state of grace.
Last Friday, considering the situation they had got themselves into, the action which the Government took was the least damaging for that day, and it had the merit of giving them time to consult, which they had not done despite their obligations, and time to think—a painful process, as we all know, in the circumstances. So, in a world where floating has become respectable, they were in the circumstances—I emphasise "in the circumstances"—right to float.
Two other points should be made which will evoke echoes from the Treasury Bench. The first relates to the suddenness and virulence of the concentrated attack on sterling, whatever the cause. For two years, the Government have not had to face, as we had repeatedly to face, bear raids, many of them for totally irrational reasons, on sterling. They did not have to face them because of the record balance of payments surplus we bequeathed to them, combined for a time with the weakness of the dollar. Indeed, for a great part of the two years, what they had to contend with was the influx of "hot" money —embarrassing no doubt but in its way comforting as well. It is a question for further debate whether they did not render themselves vulnerable by taking in so much "hot" money, and in particular whether their over-confident attitude towards it did not lead to unwise outflows of portfolio investment, which could not be mobilised in a crisis. Borrowing short and lending long is a classic recipe for trouble.
What is clear is that the power, force, and suddenness of a bear attack on a major currency, almost out of the blue, has increased, is increasing and must be diminished. If there is a parallel in the world of nature, this latest attack can be likened to the hurricane which simultaneously and suddenly swept through Pennsylvania and other States a week ago. Ministers were right, following the weekend, to bring the attention of their overseas colleagues to the need for an analysis of last week's events and the need for safeguards against speculation.
To my mind the cost of the increased borrowings may well be the prodigious volume—and here I take a phrase from my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) speaking in Vienna this week—of footloose funds, mercurially mobilised funds, splashing about in the Euro-dollar market. Estimates have been published showing a total of some 85 billion dollars in the Euro-dollar market—the Chancellor can perhaps tell us the exact figure—restless, uncontrolled paper generating paper.
I warned a year ago that a breakdown of confidence in one of the major Eurodollar operators could sooner or later generate a crisis comparable with the Kredit Anstalt disaster which plunged the world into depression over 40 years ago. It has not been such a development which has provoked this crisis, but Euro-dollars clearly played their part last week. If it is the sinister speculator one seeks, then his masse de manoeuvre his fire power, is immensely increased by the growth of the Euro-dollar market. But speculation for speculation's sake apart—and it is only a part—custodians of the liquid reserves of multinational companies, treasurers and financial controllers on both sides of the Atlantic, seeking perhaps no more than the prudent disposal of their funds, are in this multinational age capable of decisions, individual decisions reasonable to them, which in the end become decisions of a Gadarene herd which can overthrow parities literally overnight.
They had seen the Chancellor's statement in his Budget Speech de-throning parity—we understand why he made it and we did not criticise him for it—and they thought, however wrongly, that he was about to invoke it. I think they were wrong. They saw the shambles resulting from certain cases brought before the Industrial Relations Court; they feared, some of them feared, some of them saw a chance of profiting from it, a national dock strike. They could not foresee the benevolent influence which the Official Solicitor could exercise. Because of their inability to see that, £1,000 million and more of sterling was lost on the expectation of action by an ultimately grounded court official—the tipstaff who launched £1,000 million and never got his man! The danger—and I think the Chancellor recognises this—is that all this could happen again.
My second point is that on all the evidence—I agree with the Chancellor, although it may not be a popular view—there is nothing to suggest that the £ at this moment is over-valued. It is vulnerable, yes. The balance of payments surplus which the right hon. Gentleman inherited went on, as we forecast in the election—and the Prime Minister falsely denied—from strength to strength for 18 months thereafter. But that balance of payments surplus has gone and now we just see a tenuous statistical battle between a worsening visible trade deficit and an invisible payments surplus.
That is not all. We have all seen figures and charts showing that in terms of comparative costs, comparative export prices, the advantage accruing to our exports from the 1967 devaluation has been dissipated by rising costs in Britain. Having said that, none of it justifies the massive attack on sterling which took place. I am sure that I am carrying the Chancellor with me on this because we are tonight discussing a national crisis affecting us all. We may have differ- ences about how the causes develop. I hope that I am carrying the right hon. Gentleman with me, because I hope to carry him with me later when I refer to the lessons which have to be drawn from the crisis.
The fact is that confidence in the £ has been destroyed temporarily, not by comparative costs but by a realisation abroad as well as at home that the Government have failed, that they have no policy for countering inflation and have not a clue about how to set about getting one. The House must examine the price that has been paid for the events of the last week. For the period of the float—and the Chancellor as far as I know has set no time to it; I will put a question about that in a moment—British manufacturers and exporters are in a state of total uncertainty.
Let the House think of a plant manufacturer negotiating a £10 million contract—say, an export contract for an electrical or chemical plant, some kind of turnkey factory. How can he at this moment or as long as the float lasts form any idea of the rate he must quote either in sterling or in the foreign currency? For this reason, there will be a paralysis of new orders and in later years any gains from the 1972 devaluation will be diminished by the loss of orders due to the present uncertainty. We shall pay a heavy price in exports for this uncertainty and the inability to quote.
Secondly, with whatever maidenly delicacy the Government seek to present their action, this is devaluation. I do not think the Chancellor has used the word, but it is devaluation. If the Government do not admit this, the rest of the world knows it. The exchange markets know it, despite the easement—and there has been an easement, the Chancellor would agree—due to the technical position of sterling earlier this week—and the speculators were obviously very short of sterling earlier this week—and despite also the help, which we welcome, from the repayment of the New York swap. That was not aid from America, which I hope is realised abroad; it was repayment of a debt to us. The Stock Exchange knows it, and that is why we had the boom last Friday in the shares of export companies.
It may be a dainty devaluation—that is about the right phrase for the Chancellor —but it is a devaluation which will have to be admitted sooner or later. It is a dribbling devaluation, going on from day to day. But, because it is a devaluation, the Chancellor must admit that it will increase prices, especially food prices. He must admit, as I am sure he will sooner or later, that those with lowest incomes will suffer. In the 1967 devaluation announcement we at once announced immediate help for those in need—the large families through family allowances and increases in supplementary benefits. As soon as possible the Government must discard their cover story, admit the facts and announce the help to those who most need it.
Let the Government admit, too, that their action will sharply increase the already intolerable burdens which the Government accepted as the price of our contribution to the Common Market common agricultural policy. Devaluation means still higher food prices for the housewife as a result of the CAP deal, still higher payments across the exchanges.
Then there is the problem: how much devalution? The decision cannot be postponed for ever. Too small a devaluation and the whole grisly speculative process could start again, particularly if the Government remain paralytic over a policy for prices. Too big a devaluation and the right hon. Gentleman—I know that he realises this—could plunge the world into total monetary chaos, with our devaluation advantage eroded by the competititve devaluations of major currencies.
The Government have not entirely covered themselves in glory in their international transactions of last week. Europe? On 24th April the Chancellor blithely signed the Common Market Financial and Monetary Agreement, whether wisely or unwisely. We have formed a view about it now. This was the famous "snake in the tunnel" agreement. It can be no satisfaction to the Chancellor, or to any of us, that the soft underbelly of the snake proved to be sterling, just beating the lira to it. Another week and they might have been there first. The Prime Minister, after all he has said about Europe, cannot be proud that on the first of the many agreements which the Government signed with the Market—the first to come into effect—Britain defaulted within two months. The Press reports that the Chancellor intends to get back into the agreement. Why does he want to do that? I must press the right hon. Gentleman for an answer to the question which my right hon. Friend put to him but which he surprisingly refused to answer. Has he given any indication in private to the EEC or to anyone else setting a term to the float? Has he said to them privately that there is a definite time when the float will end and when he will return to the agreement? The House has a right to know the answer to that question. Perhaps the right hon. Gentleman will tell us the answer.