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Mr. Geraint Davies: Is it not the case that, in the middle of May, the exchange rate slipped from DM3.10 to the pound to 2.90 due to the agreement of leaders in Europe to set a date for the start of the new currency? Is it not therefore obvious that, if the currency is successful following its launch at the beginning of next year, the rate for the pound will converge down towards 2.65 anyway?

Sir Peter Tapsell: I do not think that anything is ever certain about the movement of currencies. I have earned my living in this sector, often with some difficulty, for 40 years. If one even knew what the exchange rates of the world were to be tomorrow, one could become another Soros overnight. It is absurd to project forward months ahead what would be the possible rates at which the great currencies would relate to one another.

I turn to the terms of the motion of censure that my party has rightly put on the Order Paper. The Chief Secretary advanced the rather curious and, I should have thought, entirely novel constitutional proposition that an Opposition censure motion was an opportunity for the Opposition to set out their policies. I have listened to a great many Opposition motions over the past 40 years in the House and it has never seemed to me that that was the object of the movers of such motions.

I have always thought that a censure motion on a Government was exactly what it said, and that it set out the criticisms that the Opposition of the day have of the Government. The Government are then expected to defend their policies and answer in detail the criticisms that have been made. There has been no attempt to answer our criticisms in detail and the Chancellor of the Exchequer has even pushed off to continental Europe. It is extraordinary. It is not surprising that the Chief Secretary wants us to start behaving as though we were the Government, which I have no doubt that we shall be again in a few years' time.

When the economic historians come to study the reasons for the failure of this Government, I believe that they will point to the origins of the failure arising on the fourth day of the Government's life, when they suddenly announced the new arrangements for the Bank of England. The whole of that episode will be of great fascination to political and economic historians. That immensely important decision, incidentally, reversed at a stroke a Labour Act of Parliament, not a Conservative one. It reversed the Bank of England Act 1946, which was introduced by the post-war Labour Government.

The decision was taken furtively and in a tremendous hurry. The policy was not in the Labour party's manifesto, and, in the campaign before 1 May, no Labour Front Bencher said that such a decision would be taken. Indeed, I understand that it was not even discussed and approved by the Labour shadow Cabinet before 1 May. However, it was one of the most important constitutional and economic decisions of this century--indeed, since the reign of Charles II, as anyone who knows the history of the Bank of England will accept--and it was taken in what David Smith, the economics editor of The Sunday Times, described yesterday as a frenetic hurry. It will have

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tremendous implications for the duration of the Labour Government and will, I believe, have very adverse effects on the British people.

The effect of giving the Bank of England independent operation on interest rates is--as I have said repeatedly in the House from the moment that it was announced--to separate fiscal and monetary policy. The hon. Member for Gordon (Mr. Bruce) pointed out that a number of major countries separate fiscal and monetary policy, but sometimes the number is exaggerated--Japan does not separate the two, although I do not want to use Japan as an example for us to follow. People are usually thinking of the United States and Germany, but we should consider the effects of that separation on those countries' recent economic history.

Nye Bevan, who was the best speaker that I have heard during my time in the House, was fond of saying that one did not have to look into the crystal ball when one could read the book. Recent books show that the United States ran a slack fiscal policy and a tight monetary policy in the 1980s, and that Germany did so in the 1990s, after the Berlin wall came down. The slack fiscal policy in Germany required a tight monetary policy as a counterpoise, which was the cause of all our difficulties as a member of the exchange rate mechanism. The fact that interest rates had to be high in Germany meant that they were inappropriately high in Britain at a time when we were entering deep recession, which--or the reverse--is exactly what might happen if we were in a single European currency. An economy can be organised much more efficiently if elected Ministers are responsible for both fiscal and monetary policy.

Mr. Beard: Is it not the case that, immediately after the Monetary Policy Committee took control of interest rates, long-term interest rates fell? That fall, which was the result of the policy about which the hon. Gentleman complains, had a direct impact on one of the longest-standing problems of the British economy--the lack of investment.

Sir Peter Tapsell: Treasury Ministers have often made that point, but I do not think that they understand--any more than I think that the hon. Gentleman understands--the significance of long-term interest rates. It is perfectly true that long-term interest rates in this country are exceptionally low--they are at 6 per cent. In the United States, however, which has a totally different system and is not preoccupied with the things that we are discussing, long-term interest rates are 5.5 per cent.--that is almost a post-war low. One can, this afternoon, buy the 30-year US long benchmark bond on a 5.6 per cent. yield. In Japan, which also faces a totally different set of circumstances--it is in technical recession, perhaps moving into slump--long-term interest rates are even lower.

There can be a variety of reasons to explain the fact that long-term interest rates are low. People may fear a recession and savers may not be spending. There are many influences on long-term interest rates, and it is a great mistake to make deductions of the kind that the Government make from the fact that our fixed interest yield curve is more or less flat and that our long-term

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interest rates are low--one would have to make a close and scholarly comparison between Britain and the United States if one wanted to draw such academic conclusions.

The fact that the Government sacrificed control over monetary discipline--they can no longer determine it--means that the Chancellor can pursue a laxer fiscal policy than he otherwise could. I suppose that he was so keen to give the Bank of England independence over interest rates because he knew that, sooner or later, political pressures would force him to increase public expenditure, contrary to the pledges that he gave before the general election--he wanted to be able to blame another body for the increase in interest rates. There have already been six increases in interest rates since the general election, as the motion points out, and there are undoubtedly more to come. The effects of those increases are serious and extremely damaging to our exports. Indeed, I fear that sterling will become even stronger and that the high pound will persist for many months. The impact of that on the green pound will have a tremendously bad effect on British agriculture. We always talk about this problem in terms of exporting, but I represent an agricultural constituency and I know that farmers are having a desperate time as a result of Government policy.

The Chancellor has now announced a 2.75 per cent. increase in public expenditure per annum, but, when he is challenged on it, he says what I have heard Chancellors say time and again over the years--the deja vu that I experience in listening to him and the Chief Secretary is uncanny. Last Thursday, in response to a supplementary question, the Chief Secretary said:


No Opposition have ever answered those questions, but I tell the House who has--first, between 1964 and 1967 under the Wilson Government, they were answered by the international community, which forced the 1967 Callaghan devaluation of the pound, and secondly, between 1974 and 1976, when Lord Healey was Chancellor, they were answered by the International Monetary Fund, which told the Labour Government how the show was to be run.

I am sorry that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who was a Treasury Minister at the time, is temporarily not here, as he could confirm that, after the IMF had told the Government what to do, the quartet of Labour Treasury Ministers imposed the most savage cuts on all the public services. The Chief Secretary asks what services Opposition Members would cut and reads out all the popular public services on which the Liberals ask him to spend more. Those were precisely the services--health, education, transport and so forth--that the IMF cut most savagely under the last Labour Government. No new hospitals or roads were built: new building was cancelled--the whole thing.

I hope that we shall not have to listen for another three or four years to Treasury Ministers saying, whenever they increase public expenditure, "What would you cut?" I have never been one of those Conservatives who opposed public expenditure in principle. I am a Keynesian--I believe in public expenditure when it can be justified. One has to be careful not to increase public expenditure too quickly or out of line with GDP indexes.

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Indeed, until his extraordinary statement on the matter a fortnight ago, I thought that the chief message that the so-called iron Chancellor had for the country was that public expenditure had to be kept under the tightest possible control. However, because of a few minor revolts by a few Labour Members whom the Government are now trying to strike off their candidates list, that iron Chancellor was panicked almost overnight into announcing that restraints would be considerably eased. We shall wait to find out how long it is before the IMF starts to take an interest.

The shadow Chancellor said the other day that we have boom and bust at the same time, which is true. The Organisation for Economic Co-operation and Development said only last week that our latest increase in interest rates might well tip this country into recession, and I share that view. On 27 November last year, in a supplementary question to the Chancellor of the Exchequer, I asked:


That is my view, and I said that before the Thai baht collapsed and before the chaos in Indonesia and the economic crisis in Asia. The dangers of deflation are demonstrably much greater now than they were in November, and the latest increase in interest rates by the Bank of England was a mistake.

The Bank will make further mistakes, which brings me back to my opening remarks. I do not have much confidence in the new Monetary Policy Committee that has been set up to run such affairs instead of the elected Government. Members of the MPC are mostly respected economists, but they do not have wide business experience--certainly not in exporting--and they are not at all preoccupied with employment levels as far as one can tell.

When the Chancellor announced the new Bank of England set-up, he said that its chief obligation would be to keep inflation at 2.5 per cent. If Labour Members are right that he felt when he came to office that he had inherited from the Conservatives far too lax a monetary policy and that an inflationary danger was building up so that a 2.5 per cent. inflation target had to be announced, surely he must have understood the implications. If one suddenly introduces a 2.5 per cent. target at the beginning of an inflationary splurge--this is what Treasury Ministers are now trying to pretend that they thought--one is, in effect, asking the Bank of England to take severe monetary measures indeed, which will dramatically affect employment levels. It is worth remembering that the level of unemployment under every one of the five previous Labour Governments has been higher when they left office than when they took it, and I am certain that that will again be the case.


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