asked the Chancellor of the Exchequer if he will make a statement regarding the current level of exchange rates.
The sterling index at noon today stood at 73·2.
Does the Chancellor realise how much damage the present high rate of the pound is doing to our manufacturing industries? Is it the Government's policy to keep an artificially high pound as their only means of controlling inflation?
My impression, from a number of visits to manufacturing industries during the Easter recess and from reading very carefully the CBI survey of industrial trends for manufacturing industry, is that manufacturing industry is very well satisfied with the economic conditions at present. It is doing very well and I am very glad that it is. The one thing it dreads and fears is the possibility of a change of Government.It is well known that the Labour party—this came out from the report to the Treasury Select Committee of the hon. Member for Great Grimsby (Mr. Mitchell), who is a member of the Opposition Front-bench — is in favour of putting up corporation tax to 52 per cent. and of having a dramatic devaluation of the pound, as a result of which inflation would rocket back to the 27 per cent. it was when a Labour Government were last in office. That would be the worst possible thing for manufacturing industry.
Does my right hon. Friend agree that one of the main causes of the strength of sterling at present is the fact that the world financial markets are convinced that the Government will be re-elected? If there were to be a change in polls, with the possibility of a Labour Government or, even worse, a hung Parliament, is it not likely that there would be immediate pressure on sterling?
It is true, as my hon. Friend has said, that if there were to be a change of Government it would be an economic disaster for Britain. The massive confidence that there is worldwide in the British economy, which is demonstrated by the strength of the pound in the foreign exchange market and in a number of other ways, would evaporate overnight. Fortunately, that nightmare will not turn into a reality.
Can the Chancellor tell us whether he is now endeavouring to pursue the same exchange rate policy that he would if we were a full member of the EMS, and, if so, what is the advantage of doing that from outside?
I am happy to answer the right hon. Gentleman's question. As he will be aware, six of the seven Finance Ministers of the Group of Seven met in Paris in February, when we agreed that, having achieved a substantial realignment of currencies following the Plaza meeting in September 1985, it was now right to try to keep the major exchange rates roughly stable. That is what we are seeking to do, and the British Government's policy is in line with that agreement, which was reaffirmed in Washington when we had a meeting of the G7 at the spring meeting of the IMF. That is not only part of an international agreement which would be beneficial worldwide, but it is in the interests of British industry that that should be maintained.
Is it not clear that the recent co-ordinated efforts by my right hon. Friend and other Finance Ministers of the Group of Six have had considerable success in bringing exchange rate stability in recent times through the agreements to which he referred, and has that not been excellent not only for output in Britain but for exports and import substitution?
It has been, and, as I mentioned in the House yesterday in the course of the Finance Bill Committee stage debates—which the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was, unfortunately, unable to attend because he was busy expelling a black activist from the Labour party, but it is good to have him back today — yesterday's Financial Times headed its leading article about the United Kingdom "An island of success". However, despite the indications that we are successful, there are problems in the rest of the world which have to be addressed and it is of first importance that there should be a successful outcome of the meeting today between President Reagan and Prime Minister Nakasone of Japan.