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Mr. Mitchell: I apologise for interrupting the hon. Gentleman again, but that is not true. I have argued consistently for a competitive exchange rate, although
sometimes that would have been more competitive than at other times. That is not an argument for constant devaluation.
Mr. Davey: With due respect, it seems to me that that was exactly your argument. You talked about going for a competitive pound, but in 1987 you seemed to think that that was lower than--
Mr. Deputy Speaker (Mr. Michael Lord): Order.
Mr. Davey: Mr. Deputy Speaker--
Mr. Deputy Speaker: Order. When I am on my feet, hon. Members must sit. The word "you" is being used again. Can the hon. Gentleman try to remember the right form?
Mr. Davey: I apologise, Mr. Deputy Speaker.
In the speech that the hon. Member for Great Grimsby made to my undergraduate colleagues and me, he said that if we devalued, even from DM3.5 to the pound, we would get a competitive exchange rate. Now, however, he suggests that if we devalue from about DM2.7 we will get a competitive exchange rate. At what level does he believe a competitive exchange rate lies?
I believe that the hon. Gentleman's remedy is a recipe for inflation. He argues that we should slash interest rates and have a lower pound, which would surely stir up inflation. The worst aspect of his proposals is that they would damage manufacturing industry--the sector of the economy that he hopes to help--because the spiralling inflation that his policies would cause would produce short-termism in British industrial investment. Industry would need to consider financial factors all the time instead of the real aspects of its business.
The real issues that face people who run a business are the training of their staff and investment in research and development. If there is spiralling inflation because of ever devaluing exchange rates, they are reduced to financial jiggery-pokery instead of dealing with the real elements of their business success. That is why an independent central bank is a good idea, and a good policy for manufacturing industry. It would set a stable framework for our macro-economic policy and help the Government in their attempts to bear down on inflation over the long term. That would reduce short-termism in the British economy and such a reduction is the one thing that manufacturing industry really needs if it is to invest for the future.
The hon. Member for Great Grimsby seems to have a bizarre understanding of how the exchange markets set exchange rates. He thinks that the Chancellor of the Exchequer has a powerful voice and can suddenly talk down the pound at will. I am sure that past Chancellors would say, "If only." If only they could open their mouths and the exchange rate would go wherever they said.
The idea comes from cloud cuckoo land. There is no way in which the Chancellor could push the sterling exchange rate in any long-term direction just by opening his mouth. Serious macro-economic policies are needed to direct the level of the pound and I am afraid that the hon. Gentleman gave no indication of the policies with which he proposed to direct that level.
For example, the hon. Gentleman seemed to suggest that we should loosen monetary policy, while giving us no idea what he wanted to do with fiscal policy. That is where the tough questions for setting macro-economic policy lie. If he really wants to reduce the level of the pound he needs to propose a massive tightening of fiscal policy.
In simple terms, that means that we must ask the hon. Gentleman whether he proposes to slash public expenditure or to increase taxes massively. The logic of your argument means that you have to--I am sorry, Mr. Deputy Speaker, I mean the hon. Gentleman has to--answer that question. He failed to do so.
The hon. Gentleman also failed to tell the House what type of exchange rate regime he wanted--a flexible or a fixed regime. I am worried that he seems to have taken no account of the need for stability in our exchange rates. He proposed neither a fixed exchange rate system nor support for the single currency.
Having made those criticisms of the hon. Gentleman's speech--
Mr. Mitchell:
A speech I made 10 years ago.
Mr. Davey:
The criticisms are still pertinent today, because the hon. Gentleman's arguments have not changed.
None the less, I welcome the debate, because it gives the Minister a chance to state Government policy on exchange rates--or perhaps the Chancellor of the Exchequer will enlighten us on Government exchange rate policy this afternoon in his Budget statement. Until now, we have heard nothing.
Mr. Tim Boswell (Daventry):
I congratulate the hon. Member for Great Grimsby (Mr. Mitchell) on initiating this interesting debate and all who have played a part in it. I also take the opportunity to welcome the Economic Secretary to the Treasury to her post, the ministerial counterpart of mine. I look forward to debating matters such as these many times with her.
First, I must say from the Opposition Benches, in case there is any doubt--although my hon. Friend the Member for Macclesfield (Mr. Winterton) will have left the House in no doubt--that there is as much sympathy for and interest in manufacturing industry on our side of the House as there is on the Government side. In my election address, directed to a constituency in which engineering is extremely important, I took the trouble to mention the subject, as well as information technology. It is of great importance to us all.
In terms of the analysis offered by the hon. Member for Great Grimsby, some parts of manufacturing industry are undoubtedly feeling the pinch. He cited British Steel as a clear example; I could add agriculture to the others
that have been given. As everyone will know, agriculture is an industry whose financial arrangements are somewhat distinctive, but the effect of green pound revaluations has much the same, although an indirect, effect.
I pause to make the point that things can vary over time. Certain industries may be able to bear a high exchange rate for a period, but it may cause difficulties in the longer term.
As for the Opposition's approach, first, there is no simple policy of targeting the exchange rate. There have been excursions into that idea in the past--I need not return to them now--but they met with little success.
Secondly, there must be a middle way between the danger of abandoning all approach to fiscal prudence--at times it seemed that that was the hon. Gentleman's argument--and the equal and opposite danger that may be described as neurotic over-caution in the conduct of fiscal and monetary policy.
Thirdly, whatever the exchange rate is at any one time, it can be no cop-out or substitute for the adoption of policies designed to support business success and competitiveness. In that context, I cannot understand why the Government wish to go ahead with the minimum wage or sign the social chapter.
The Government have been left a golden legacy by my right hon. and hon. Friends--a strong economy. It will take a long time for that to dissipate and be lost--but lost it can be, if the wrong policies are adopted. For reasons that have a lot to do with electoral credibility, the Economic Secretary and the Chancellor have invested a great deal of effort in emphasising fiscal prudence. That is fine and good, but the danger is that it may lead to excess zeal and end up damaging the real economy. That is the substance of the argument we heard in the speech from the hon. Member for Great Grimsby.
The Economic Secretary to the Treasury (Mrs. Helen Liddell):
I congratulate my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on securing this debate, which takes place on a day when there is considerable interest in the performance of the economy. We have seen on two occasions this morning great posturing from the Opposition on matters unrelated to the substance of this debate, yet when it comes to matters of considerable substance the Opposition Benches are almost empty. An intriguing development is the use of these Adjournment debates to hold the Government to account in relation to policy and then not to leave sufficient time for the Government to explore the policy options.
We were, as always, treated to an engaging canter through macro-economic policy by my hon. Friend the Member for Great Grimsby, who referred to self-trussed turkeys and the pound as a phallic symbol. We heard from the hon. Member for Macclesfield (Mr. Winterton) about the dogma-driven lust of the Governor of the Bank of England. These were unusual phrases to be used in a debate on this subject.
Many interesting points have been raised; some I can agree with, but a considerable number I cannot. Not the least of those was the comment made by the hon. Member for Macclesfield that inflation is dead, a point made also by my hon. Friend the Member for Great Grimsby. For ordinary people, inflation is a significant element in how they control and plan their lives, and gaining control of inflation is of considerable significance.
The remark by the hon. Member for Kingston and Surbiton (Mr. Davey) that he had heard a number of the points made in this debate before was correct, as this debate on the nature of the exchange rate and its relationship with the overall performance of the economy has been going on for more than 20 years. With respect to my hon. Friend the Member for Great Grimsby--whom I admire greatly--there was a touch of deja vu in my mind in relation to some of his remarks on devaluation.
I take this opportunity to welcome the hon. Member for Daventry (Mr. Boswell) to his responsibilities. I look forward to engaging him in debate in the years ahead. The Government have inherited an economy that has repeatedly gone through periods of boom and bust, with too little long-term stability. Our record of economic stability is one of the worst in the G7 and, since 1979, the United Kingdom has experienced the two deepest and longest recessions since the war.
As my hon. Friend the Member for Great Grimsby pointed out, our inflation performance has been poor also. Over the last full international economic cycle, from 1982 to 1993, the UK's inflation rate was higher than any other G7 country apart from Italy. Short-term interest rates are higher than in most other major industrialised countries and long-term interest rates--as my hon. Friend pointed out--have been well above the average for the major G7 industrial economies. That record reveals the lack of credibility of the previous Government's ability to meet their inflation targets, and it is why my right hon. Friend the Chancellor has made clear that the commitment of this Government is to secure long-term stability and, from that, economic growth.
Changes have been made in monetary policy to enable the country to secure the basis of sound finances and the criteria for setting the level of inflation. We are taking politics out of the matter, so that businesses--manufacturing businesses in particular--are in a position to plan ahead to secure economic growth.
The Government share the anxieties about the exchange rate, but there are no short-term fixes--despite what my hon. Friend the Member for Great Grimsby suggested. There is a need for a stable and competitive exchange rate, consistent with the Government's objective of price stability. That is one of the main reasons why we are committed to creating an environment of macro-economic stability. Low inflation and sound public finances are necessary conditions for sustained exchange rate stability
and are sensible objectives in their own right for the management of the economy. Monetary policy has to be guided by the long-term needs of the economy and not just by short-term political considerations. In putting monetary policy into that long-term framework, we believe we are in a position to create the climate for growth and competitiveness.
The subject of this debate was not just exchange rates, but raising long-term growth and competitiveness. I disagreed with my hon. Friend the Member for Great Grimsby on the price mechanism, which he said was the only way to secure competitiveness. Securing competitiveness is much more complex than that and the Government have acted to put in place mechanisms to secure long-term competitiveness.
The appointment of my noble Friend Lord Simon as Minister for Trade and Competitiveness in Europe underlines the Government's commitment to taking forward growth and competitiveness. Lord Simon will play a leading role in completing the single market and will call for firm action to be taken against illegal state aid, which distorts the operation of markets and the criteria for long-term growth. He is also chairing the interdepartmental ministerial group on competitiveness and the single market, on which I serve as the representative of Her Majesty's Treasury. It will consider how to improve EU competitiveness as an effective means of improving the performance of United Kingdom firms in world markets, thus creating sustainable jobs and greater prosperity.
I accept what the hon. Member for Macclesfield said about improving export performance, particularly in relation to manufacturing, but we must not forget the other aspects of the economy which require good export performance. The Government are establishing a new export forum to revive the United Kingdom's export performance. One critical element in that is improving the skills and training of the work force, so that it becomes internationally competitive. That underpins many of the announcements made by my right hon. Friends in the two months since the Government were elected.
We are investigating ways to improve the advice and support available to small and medium-sized businesses that need to be brought much more into the export market--the background from which I come. I know only too well that it is important to provide the right economic conditions in which investors can make decisions with greater certainty to allow companies to plan for the future. The announcements made by the Government since our election underpin our commitment to invest in infrastructure, technology and people as the keys to future economic success. In addition to the economic criteria determined by monetary and fiscal policy, they are critical elements in ensuring this country's growth and competitiveness.
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