To ask the Chancellor of the Exchequer what progress has been made as regards the conditions that must be met before the United Kingdom enters the exchange rate mechanism of the European monetary system; and if he will make a statement.
Does the Chancellor agree that British farmers have no opportunity to compete on equal terms with their European counterparts because we are not full members of the European monetary system? What plans has he to help small farmers to overcome the problem of the high interest rates that now prevail?
Small farmers face the same difficulties with interest rates as other business men. I entirely understand the hon. Gentleman's point, but I am bound to say that I think that the principal competitive problem that affects small farmers is caused by the unfair subsidies often received by their counterparts elsewhere in the Community.
May I support the plea by the hon. Member for Ceredigion and Pembroke North (Mr. Howells) for help for farmers, and draw my right hon. Friend's attention particularly to the extensification part of the common agricultural policy? The CAP is badly in need of modernisation, but surely extensification is the true new social way of helping farmers to retain their rural economy.
The Chancellor said on 2 November, and has said subsequently, that inflation must come down before Britain can join the exchange rate mechanism. He has also forecast that, at the end of next year, inflation will be running at 5¾ per cent. Will that figure be low enough, or is the inflation criterion simply another way of saying that he has no intention of taking Britain into the ERM in the foreseeable future?
As the hon. Gentleman's hon. Friend the Member for Dunfermline, East (Mr. Brown) pointed out in a recent debate, I indicated my support for the exchange rate mechanism as long ago as 1981. The Government have set out four conditions that must be met before we can join the ERM; they were made entirely clear at Madrid, and they remain the same today.
Does my right hon. Friend agree that we cannot make progress on an exchange rate mechanism while restrictions on capital movement between member countries remain? Those restrictions include not only exchange rate control, but restrictions on the activities of banks in various countries in raising foreign currency debt.
My hon. Friend is entirely right. He has touched on the other conditions that need to be met. We certainly need to see capital liberalisation, freedom of financial services and, of course, strengthened competition quality. Those matters are well understood by our European partners, who must deliver accordingly before we are in a position to join the ERM.