---

Mr. Kenneth Clarke: Does the hon. Gentleman agree that we are even at the wrong parity against the dollar? People tend to argue that there cannot be any great problem, because our parity against the dollar remains unchanged. The American economy is outperforming ours. Its growth outstrips the European average and we are growing below the European average. Remaining at parity with the dollar without matching the US performance puts us at a disadvantage that other European countries are not suffering.

Mr. Taylor: The right hon. and learned Gentleman is right. The real lesson is that exchange rates are determined by speculators. Provided that they bet the right way today, they will make their money today. An economy needs a stable exchange rate, but the speculators who dominate the market in sterling need movement. They are getting that movement and making money, but they are putting hundreds of thousands--potentially millions--out of work.

The Financial Times on 5 May quoted Digby Jones of the CBI as saying that sterling was a major issue for tourism and farming, as well as manufacturing. He said:

I talk to a lot of businesses, and a lot are taking decisions either to look elsewhere, or not to do it at all . . . British companies are postponing investment projects or locating them in the euro-zone because of the strength of sterling.

On the other side, the comments of TUC general secretary John Monks have been echoed by many trade union leaders. On 4 May, he said:

the problems caused by the overvalued pound and the impact it is now having on manufacturing, exporters and the tourist trade will not go away. It cannot be right that neither the Government nor the Bank of England will take any responsibility for the exchange rate.

I agree with the comments of the hon. Member for Birmingham, Northfield (Mr. Burden) about the rescue bid for Rover and the Phoenix consortium, but there is no doubt that John Towers would find it far easier to make a success of the company if we restored a competitive exchange rate. He was reported on 12 May as saying so in very strong terms.

16 May 2000 : Column 190

In the past few days, a newspaper report said:

Nissan is threatening to switch production of its next Micra car away from the UK, raising the spectre of thousands more job losses in the battered motor industry.


The Japanese company, like other manufacturers, has found its profits savaged by the high value of the pound.

The most productive and efficient car plant in Europe cannot return a profit on low-margin smaller cars because it is impossible to outweigh the uncompetitive exchange rate through productivity. We live in a competitive environment, where every other country in the world is also doing its best to achieve maximum productivity.

Nick Reilly, the chairman and managing director of Vauxhall Motors and head of the CBI's economic affairs committee, has blamed the pound's strength for the troubles experienced by many companies. On 26 April, the Press Association reported him as saying:

We think there are sure signs of manufacturing slipping back into a recession.

In my part of the world, Toshiba has been questioned about rumours that it may halt production at its television factory in Plymouth. A spokesman said that there were no current plans to do so, but added that sterling's continued strength was

almost forcing us to close it.

These are terrible times for some of the most efficient businesses in the world. They have a lot of money to invest as long as they believe that there is chance of operating competitively in the reasonably near future. That is where there is a huge question mark over the policies of those on the Labour and Conservative Front Benches. The Conservatives want to postpone any decision on euro entry for five years. I do not know what "Save the Pound" means if they want to save it for five years. Either they want to save the pound or they want to think about it in five years. The Conservatives are guilty of exaggerating their position. They want to set aside any question of tackling the problems for five years, but the Government are also refusing to engage in the debate or take any material action.

The Conservative Front Bench position is somewhat confused. On 9 May, the shadow Chancellor was reported as saying:

We have to get used to the fact that a strong currency is not a bad thing. It is a reflection of a strong economy.

The former Chancellor, the right hon. and learned Member for Rushcliffe, clearly does not agree with that and it is questionable whether his Front-Bench colleagues do either. The hon. Member for South-West Hertfordshire (Mr. Page) has said:

Matters have been made worse by the weak euro vis-a-vis the pound.

It does not sound as though he thinks that it is a success story. It sounds as though he would like something done about it. He went on to say:

The latter's strength against the euro and the far eastern currencies--

interestingly acknowledging that there is a wider issue--

will make it that much more difficult for our shipbuilding companies to obtain orders.--[Official Report, Westminster Hall, 4 April 2000; Vol. 347, c. 169WH.]

Even the shadow Secretary of State for Trade and Industry asked in January what representations the Secretary of State makes on behalf of key industries and

16 May 2000 : Column 191

manufacturers in relation to the high pound. It is just as well that there is some confusion on the Conservative Front Bench, because the shadow Chancellor is wrong. Almost nobody in business or in the wider economy believes that we should regard the high pound as a mark of our success.

The Government are little better. They have acknowledged the problem since 1997. In July 1997, the then Economic Secretary to the Treasury, the right hon. Member for Airdrie and Shotts (Mrs. Liddell), said:

The Government share the anxieties about the exchange rate, but there are no short-term fixes.

In March this year, the Prime Minister said:

I too know the real problems the level of the pound causes.

In May, we were told in the Financial Times:

The Chancellor understood the "great difficulties" this was causing, particularly for manufacturing, but ruled out a "short-term fix".

I understand that, tonight, the Prime Minister will again acknowledge the problems of a high pound, but he has come up with a new argument. Now he says that doing anything about it would risk a return to instability in the economy. The irony of that is that sterling exchange rates is the one area in which there is instability in the economy. That instability is the cause of the problem.

I also notice that the Secretary of State for Trade and Industry said that he understood the difficulties and confirmed that the exchange rate must be part of the tests for the conditions of entry. That is a breakthrough, because we have never been able to get such a statement from the Chancellor of the Exchequer. It is good to know that the Government believe that, if we join the single currency, it should be at a competitive rate. The question is what they will do about it, and that is the issue that Liberal Democrats have sought to address.

Britain could have committed to joining the euro in 1997. When the first wave of members was announced, the conditions, including the exchange rate--then at DM2.78--were good for Britain. However, that opportunity has been missed. Now, we need an active strategy for reaching the point at which we could reasonably put the issue to the British electorate on terms that would allow British manufacturing industry to survive. Sterling is some 13 per cent. above the DM2.95 central rate when we were in the European monetary system, 21 per cent. above the rate at which the markets thought we were over-valued when we were ejected from the EMS, and some 52 per cent. above the rate of DM2.21 when the pound sank to its low in November 1995.

Things could be done to solve the problem. The most immediate action that the Government could take, without needing any change of policy and in line with the principles they have already announced, would be to say that they are actively looking to work towards the exchange rate conditions in which Britain could seek to join. They say that they want to allow the British people to make the decision and that they want to allow manufacturing to survive. The simple announcement of active progress and an indication of the exchange rate level they sought would in itself move sentiment in the market. We have evidence for that, because it happened in every single European country as they moved towards membership of the single currency. It worked for them, and it could work for us.

16 May 2000 : Column 192

Opportunities also exist for active intervention in the market, which would not risk losses but make a profit for the Government. The euro will not continue to fall indefinitely and the pound will not continue to go up indefinitely--if it does, we can write off manufacturing and much of the Government's economic policy--so if the Government chose to invest in European securities, they could buy them more cheaply. They would also make a profit in the long run and, in the mean time, that investment would help liquidity in the market.

We set up a team of top economists to look at the issue. They did so, not as Liberal Democrats, but as people who share our concern about the problem. It should not be us who are doing that, because the Government should take a lead on the issue. In the mean time, as a result of the Government's sympathy with inaction, some 240,000 people have lost their jobs in manufacturing since the general election.

---