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Welsh Economy

Volume 981: debated on Monday 17 March 1980

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asked the Secretary of State for Wales how many representations he has received about the impact of the current exchange rate of the £ sterling on the Welsh economy.

I have received no specific representations on this matter; but some exporting firms in Wales have certainly commented on the effects of a strong £ sterling on their overseas business.

Does not the present unrealistically high exhange rate make it very difficult for the products of Welsh manufacturing industry to be exported, and does it not mean that cheap foreign imports can compete unfairly in the domestic market with the products of Welsh industry? Has my right hon. Friend drawn the attention of the Chancellor of the Exchequer to this?

I am sure that my right hon. and learned Friend the Chancellor of the Exchequer is as aware of the benefits and disadvantages of the present level of the exchange rate as anyone. But it follows from what my hon. Friend said about cheap imports that the same applies to cheap raw materials for our manufacturing industries. There are benefits to be obtained as well as some disadvantages.

Whatever may be the damage caused by the current level of the exchange rate the real damage to the Welsh economy is created by the Government's monetary policy. Is it not now time to relax that policy, otherwise whole sections of Welsh industry will be decimated?

No. The real damage to the economy was caused by the overspending and excessive borrowing of the previous Government that this Government are having to put right. Today's interest rate is the direct result of the economic policies pursued by the previous Government and their Treasury team in which the right hon. Gentleman was a leading participant.

Is the Secretary of State aware, however, that there are factories that have closed primarily because of the effect of the exchange rate? I think of SCM in my own constituency. Is he aware of the devastating effect that the exchange rate is having on manufacturers of consumer goods, such as washing machines, and others? Surely, the loss in terms of export of these manufactures is far worse than the benefit of the raw materials which are imported more cheaply.

I have said that there are advantages and disadvantages. I do not question that some companies with large export businesses are finding their competitive position very difficult at present, even if they manage substantial improvements in productivity. As I have said, however, it is important that we should have cheap imports for our manufacturing sector, and this has an effect on the inflation rate. These are matters which my right hon and learned Friend the Chancellor of the Exchequer will take fully into account in framing his Budget.

At a time, however, when Welsh industry is feeling the impact of interest rates and of the high rate of sterling, how does the Secretary of State justify the fact that 50 per cent. of those workers who previously were in areas which enjoyed full development area status or special development area status in Wales will lose that benefit, while in Scotland it is only 1 per cent. and in the North of England it is only 25 per cent? Let not the right hon. Gentleman tell us that the others have intermediate area status, because the Government have so reduced the incentives there that the status is meaningless.

Of course, 94 per cent. of the working population of Wales will continue to receive regional aid because they live in assisted areas. We are concentrating help where it is most needed. It is relevant to the points which are being put to me about high interest rates that we should reduce public expenditure in this as in other sectors.