asked the Chancellor of the Exchequer what effects he estimates the present sterling exchange rates are having on the level of United Kingdom exports.
It is difficult to distinguish the effects of exchange rate changes from other influences on the United Kingdom's export performance. Others include the fact that United Kingdom wage costs have been rising more rapidly than those of our major competitors, and the recurrent exposure of our manufacturing industry to bouts of industrial disruption.
Is not the Chancellor aware that partly, at least, as a result of his exchange rate policy there has been a staggering decline in the competitiveness of British manufacturing industry following the May election? Far from his policy producing a virtuous circle it is producing a vicious circle of high unemployment, high inflation, and closures in manufacturing industry.Is he denying that none of his policies has had, or can have, an effect on the exchange rate?
I am aware of the problems being faced by some parts of the British exporting industry. Those difficulties do not arise so much from the level of the exchange rate as from deep-rooted structural problems. There are no short cuts to improving our trading performance. As experience in Britain and in other countries has shown, depreciation provides no more than a short-term benefit to exporters and has a long-term cost in higher inflation.
Is my right hon. and learned Friend aware of the fallacious arguments put forward in favour of an artificially low rate of exchange? Does he not agree that it has a substantial advantage in terms of the cost of imported raw materials for many industries? Is it not the case, in many instances, that it is impossible and extremely expensive to try to influence centrally the rate of exchange?
I agree entirely with the last point made by my hon. Friend. Import costs have been rising substantially during the past 12 months. Input costs to British industry last year rose by 27 per cent., which was three times as much as in the preceding year. That was due largely to rising oil prices. Had the exchange rate been depreciating at the same time the position would have been worse.
Does not the Chancellor know—if he does not, he will discover it from the Secretary of State for Industry—that the overwhelming factor facing British industry in markets at home and abroad is that the exchange rates have risen together with an increase in wage costs? A major reason for that are the excessive interest rates in this country. The proof of that is what happened this week when the gap between American and British interest rates began to narrow and the sterling rate dropped 2½ cents in a day.
Of course relative interest rates are one of the factors that can influence relative levels of the exchange rate. The right hon. Gentleman's experience when he was at the Treasury should have taught him that there are deep-seated underlying causes of our industrial decline which his five years in office failed to remedy.
Of course there are many factors which for 100 years have been responsible for the relative decline in British industry. The point that I am putting to the right hon. and learned Gentleman, which is the point of the question, is that the excessive strengthening of sterling over the past 12 months is a major factor in accelerating the decline of British industry. It arises largely from the excessively strict monetary policy supported ineffectively by excessively high interest rates.
The right hon. Gentleman again understands the causes very clearly. In so far as interest rates in this country have an impact upon the exchange rate of the pound sterling, I hope that he will support us in our determined policies to reduce the size of public sector borrowing and public sector spending.
Does my right hon. and learned Friend agree that it is important for the well-being of the British people that our exchange rate should be kept in some sensible relationship with the international competitiveness of British industry?Does he recall that when Germany and Japan were faced with similar problems as a result of an inflow of foreign funds they took direct action to discourage such inflows? Can consideration be given to similar action being taken by Britain?
I fully understand the concern of those in exporting industry to see the exchange rate at a level with which they can cope effectively. It is affected by a number of different factors, including the success of our monetary policy. That is why it is so important that we succeed in our fundamental objectives.My hon. Friend will remember that the experience of other countries to which he has drawn attention, on inflow controls suggests that such measures have not often been effective in solving problems caused by a high exchange rate.