Exchange Rate Mechanism

Part of the debate – in the House of Commons at 5:25 pm on 23 October 1990.

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Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 5:25, 23 October 1990

When I heard the former Chancellor announce last night that he would retire from politics at the next general election, I had to admire his timing. However, the timing over which he had no control was when Britain joined the exchange rate mechanism. He made it clear today—when he lifted the covers—that five years ago he would have advocated, and presumably was advocating inside the Government, British membership, and in the whole of those five years he was unable to induce the Prime Minister to take that step.

The stage 2 which the right hon. Gentleman has described accurately today, a stage that naturally involves independent central banks in the member countries, is even more unwelcome to the Prime Minister than was entry to the exchange mechanism about which he talked earlier. The various views that the right hon. Gentleman correctly attributed to the Leader of the Opposition are shared in full measure by the Prime Minister, who, at the Dispatch Box, has said that an independent central bank contravenes the democratic and parliamentary traditions of this country. Yet the independent central bank is a mechanism which is proven to work in controlling inflation and which, as the right hon. Gentleman says, operates in democracies such as Germany and the United States of America. That is a view with which I agree. But it will take as many years, and probably more, to persuade this Prime Minister of the merits of that view as it has taken to persuade her of the merits of joining the exchange rate mechanism. Persuading her, of course, involved the great watering down of conditions.

It had to be entertaining to watch the change of condition, from a condition that we would get our inflation down to the level of that of our European partners to a condition that we would get it proximate to that of our European partners. When that was not attainable, it became a condition that inflation had to be falling towards the level of that of our European partners; then it became apparent that inflation was not even falling towards the level of that of our European partners, so it had to be forecast to fall to the level of that of our European partners.

I must tell the Chancellor that, year after year, the Treasury has been publishing Red Books that faithfully forecast that our inflation would fall to the level of that of our European partners. On that basis we could indeed have joined the exchange rate mechanism five, four or three years ago and would have greatly benefited in terms of our interest rates and the health of our economy. Of course, as the Labour party has proved, conditions are generally devised to get round the situation——