Exchange Rates

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 23rd April 1998.

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Photo of Dr Alan Williams Dr Alan Williams Labour, Carmarthen East and Dinefwr

What assessment he has made of the effect of the current value of the pound on his long-term objective of economic stability. [38261]

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I understand the concerns of exporters, but an even greater worry would be any risk of a return to the boom and bust that we experienced in the late 1980s.

Photo of Tim Boswell Tim Boswell Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Trade and Industry)

The Chancellor took the decision to increase taxes on savings more than those on consumption, and also connived at the fudged criteria for the euro, which will weaken that currency. As he has by those two actions compounded the consequences of his hasty decision to hand over responsibility for monetary policy to a group of bankers and economists, does he not feel just a little isolated in suggesting that he has no personal responsibility for the implications of the current exchange rate for manufacturing industry and, increasingly, on the economy more generally?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

That is a very interesting position being adopted by the Conservative party's trade and industry spokesman. The hon. Gentleman now says that he is against independence for the Bank of England. I therefore assume that the Conservative party would repeal the legislation, and we should now have a statement from the shadow Chancellor to that effect.

Photo of Dr Alan Williams Dr Alan Williams Labour, Carmarthen East and Dinefwr

Does the Chancellor agree that the 1979–81 recession, during which 2 million manufacturing jobs were lost, was caused by an overvalued pound, when the pound was a petro-currency, and that the 1990 to 1992 recession was likewise caused by an overvalued pound which stood at DM2.95 in the exchange rate mechanism? I welcome the 4 per cent. drop in the value of the pound against the deutschmark in recent days, but does he agree there is still a long way to go, and that, unless we have a realistic and sustainable exchange rate, we will not have the stability for which he is working so hard?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I understand entirely. As my hon. Friend hints, the question asked by the hon. Member for Daventry (Mr. Boswell) was formulated when the pound stood at DM3.10, whereas it now stands at DM2.98. The Government's aim is a stable and competitive exchange rate over the medium term. We are not going to get into devaluing the pound continually in the long term, because we need to pursue the long-term road to high productivity. That is the way to ensure the industrial and export success that this country wants.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Leader and Party President, Plaid Cymru

Does the Chancellor accept that it is not only some manufacturers who are suffering because of the high level of the pound but that agriculture in particular is suffering enormously? Agriculture faces competition from low-cost imports, and suffers an inability to export because its products are being priced out of markets. Given the other pressures on agriculture, cannot something be done as a matter of urgency?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The main reason that agriculture is in difficulty is the bovine spongiform encephalopathy mess left by the previous Government. The right hon. Gentleman knows that we have already provided an extra £85 million this year to help agriculture. That is in addition to measures that we took previously and, indeed, some that have been taken since. As for the effect of the pound on industry in general, in Wales and elsewhere, exports are still rising in a considerable number of sectors. The right hon. Gentleman may have seen yesterday's figures, which show that employment in the manufacturing sector has been rising over the past three months, too.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee, Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee

Is it not clear that the prime determinant of sterling is the level of interest rates? As the Monetary Policy Committee is split 4:4, should not my right hon. Friend remind the committee that it also has responsibilities for the economic situation in the country, as he pointed out in his instructions to it? As there is no certainty as to what the committee is thinking, should he not remind the committee of this—or perhaps he has done so already?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I am grateful to my right hon. Friend who, as a former Chairman of the Public Accounts Committee and a Minister in the last Labour Government, is an expert on these matters. When he reads the minutes of the Monetary Policy Committee—this is an open process, in which the voting, the minutes and the inflation report are published—he will see the factors taken into account by the Bank of England.

The elusive policy in this country over the past 30 or 40 years has been long-term stability in place of stop-go. When we came to power, we found that inflation was rising way beyond the target set by the previous Government. That is why we took the necessary long-term action. Although I understand the concerns of exporters, they will agree, on reflection, that the biggest worry—which we are determined to avoid—is that we will return to the stop-go policies which have disfigured this country in the past.

Photo of Damian Green Damian Green Conservative, Ashford

I am sure that farmers around the country will be interested in the Chancellor's analysis that wheat prices have gone down because of the BSE crisis. On the exchange rate, he has repeated his normal mantra that we want a stable and competitive pound. Which of these two desiderata is more important? As the Chancellor knows from what has happened over the past few months, it is possible to have a reasonably stable and uncompetitive pound. Which is more important—stability or competitiveness?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The hon. Gentleman's question was framed in his mind before the movements in the exchange rates over the past few days. He says that the exchange rate has been stable for a long period, but it was DM3.10 only a few days ago and it is now DM2.98. I repeat that our aim is a stable, competitive pound in the medium term. However, in the circumstances we face, everybody should take a long-term view—the Government, by creating stability; industry, by planning for long-term investment; and the financial community, by avoiding a resort to the short-termism of the past.

Photo of Mr Barry Jones Mr Barry Jones Labour, Alyn and Deeside

The steelworkers at Shotton in my constituency now find it more difficult to export their product because of the standing of the currency, but they can see that it is cheaper to buy in some of their materials. Does my right hon. Friend know that British Steel nationally finds it hard to compete abroad, particularly because some of its competitors in the European Union are cheating by employing illegal subsidies?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

In an attempt to improve the workings of the single market and end unacceptable subsidies, we have proposed a programme of economic reform in the EU. My hon. Friend makes a good point that import prices have been reduced substantially in recent months. I should add that two thirds of the rise in sterling took place under the previous Conservative Government.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

The Chancellor listened a moment ago to a rather pessimistic picture put forward by the hon. Member for East Carmarthen and Dinefwr (Mr. Williams), yet he was happy to agree with a very optimistic picture put forward by the Confederation of British Industry. Which one is right?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I met the CBI last evening—the fourth time I have done so since the election. The CBI understands very well that the policy of stability to which we are committed is the best policy for the country. Of course I understand the concerns of exporters expressed by my hon. Friend the Member for East Carmarthen and Dinefwr, but my hon. Friend would agree that it is important to make the right long-term decisions for the country. We have made those decisions, such as the one giving independence to the Bank of England. I wait to hear the view of the Opposition.