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Mr. Matthew Taylor: The right hon. Gentleman and I appear to agree substantially on exchange rates, although we disagree entirely on at least some of the solutions. One of his colleagues asked me a question, so perhaps I can put the same question to him. What scale of devaluation of sterling would be appropriate? After all, it was 45 per cent. lower than the current level when it troughed after we came out of the exchange rate mechanism.
Mr. Redwood: Exchange rates are determined by market forces. I am not in the business of predicting what I would like to see, as the rates will depend on the market judgment at the time. However, I have set out an alternative general strategy to costs.
Mr. Redwood: Why does the hon. Gentleman not show a little humility and understand that Governments influence exchange rates, but do not control them? The Government have allowed a high exchange rate against the euro because of their mix of policies. I have just sketched a mix of policies that would produce a different level of exchange rate against the euro, but I am not in the business of predicting exactly what that level would be. That would depend on when the policies were introduced, how the markets reacted to them and other consequences.
Mr. Salmond: As a question of mine started this interesting debate, may I ask why, if the right hon. Gentleman believes that exchange rates are determined by market forces, he also believes that they are now too high? If he believes that they are too high--and I agree with him--he must have an idea of how high they are. Will he tell us, or do we have to persuade the right hon. Member for Charnwood (Mr. Dorrell) to ask him a question if we are to get an answer?
Mr. Redwood: Hon. Members are being rather obtuse. The combination of the level of the exchange rate and the costs imposed, partly by the Government, on British manufacturing mean that, in many areas, it cannot compete and is suffering deeply. It is crying out with anguish. I am suggesting ways in which the mix could be changed. Governments have power to influence the exchange rate, but cannot determine precisely what it will be from day to day, or even how it will end up once a policy is fully implemented. I am just urging the Government to try to do something. They must understand that if they do nothing about high tax, high regulatory costs and all the other things that they have imposed, as well as the high exchange rate, they will continue to preside over the collapse of British manufacturing.
Mr. Bercow: A few moments ago, my right hon. Friend referred to productivity. Is it any wonder that Government Back Benchers are so unaware of the decline in the productivity growth rate under their watch, given the
Mr. Redwood: My hon. Friend makes a powerful point. The Chancellor has never understood that he needs to do rather better on providing the conditions in which productivity increases. He must allow manufacturing to offset the massive devaluation of the euro and the big revaluation of the pound against European competitor currencies. The Chancellor has not taken part in that debate. Indeed, he has ignored it and pretended that it does not matter. He seems to have turned away from the problem of manufacturing industry being in a slump or recession in many areas.
The car industry is another subject on which I have spent a little time talking to people. There has been a litany of disasters. We know about Dagenham and the troubles there. Today, we have seen the sad closure of the Luton car plant. We have seen the retreat of BMW from Rover, and we know that there are several other large plants around the country where there are question marks or difficulties. We rarely get any attention or answers from the Secretary of State for Trade and Industry, who just waits for the problem to grab the headlines. He just waits for closures and redundancies to be announced, and then comes in and says, "Don't blame me, everybody. I'll find a few pence from the taxpayers' coffers to send a grant and hope that all will be well." He offers Elastoplast when great limbs of the British economy are being cut off as a result of the policies that he pursues.
Mr. Beard: How would the right hon. Gentleman reply to the chief executives of most motor car manufacturing enterprises, who would tell him that specifying a date on which we shall enter the European monetary union would bring great relief to their present position?
Mr. Redwood: I should love to meet someone who said that about entering at the current exchange rate. I thought that until now we agreed that the combination of costs and the exchange rate is suicidal for a lot of manufacturing.
Mr. Redwood: I know of no industrialists who are saying, "Please take us in now at the present exchange rate. We are suffering today, but we would love to guarantee that we suffer in perpetuity." Would the hon. Member for Bexleyheath and Crayford (Mr. Beard) like to explain to the House how big a devaluation he would like, how the Chancellor would secure it, how we could live in the ERM for two years at the new rate--as we would have to do at that new rate--and how that would make for prosperity in manufacturing? I should love to have an answer to those three crucial points.
Mr. Beard: Companies can presume that we may well be in the ERM at some date in the future, having satisfied the conditions that my right hon. Friend the Chancellor has laid down. That is very different from the position of the Opposition and the right hon. Gentleman, which would
Mr. Redwood: It does not disturb them at all. Business men look at the bottom line--at the balance between costs and revenue, and whether they will make money. The simple truth now is that, unfortunately, because of the Government, too many do not think that they can make money here, so when they have the opportunity they shift their activities and production elsewhere. That is the simple truth of business life and I am surprised that the hon. Gentleman does not know it.
I am not surprised that the hon. Gentleman cannot answer my three rather important points on entering the euro, but most people who want to enter the euro agree with the Liberal Democrat position. They want to enter at 10, 15, 20 or 25 per cent. below the current rate, but they must explain how to get there. Should we slash interest rates, print so many fivers and set off huge inflation? That would bring the exchange rate down. Is that a good idea? Could that then be held for two years? Our partners and, I think, Mr. Prodi himself have said clearly that we would need to meet the requirement of being two years in the exchange rate mechanism. Would that do us good? I seem to remember that last time we were in it, it had cross-party agreement but it was a loathsome policy that worked extremely badly. One party has apologised and it is a pity that the other two have not, because they were extremely keen on it at the time.
Mr. Matthew Taylor: The document that we published set out a number of tools that might be used, but the most important is to set a target and make it clear that the Government are working towards that as part of an entry process. We know that that can be effective, although not necessarily, which is why we elaborated some other options. We know that that is likely to be effective because that is precisely what those candidate countries for euro membership did in the run up to the launch of the euro. Because the markets believed that they meant it, they were able to sustain those rates on entry. That is one reason why we have not ducked the question of the range needed by the Government. Any Government serious about entry have to be serious about setting out the range on entry that they believe would be appropriate.
Mr. Redwood: I wish that the Chancellor would get as far in his thinking as the Liberal Democrat spokesman. The Liberal Democrats are trying to answer the question, but they have not succeeded. It is not enough simply to name a date and say where we would like to get to. Exchange rates often overshoot in both directions compared with where business men and certainly Governments would like them to be. To change the trend decisively, the policies that would have to be followed might have to be rather severe, and there might then be undershoot the other way, which would be difficult to handle. The Government need to take us into their thinking on that.
One of the scandals of the non-euro debate is that, from time to time, senior Government spokesmen tell the press that they will have a great national debate, or would like a great national debate, but they never appear. I have offered to debate with any member of the Government, high or low, bright or dull, in any studio, on any platform.