§ 1. Mr. John Evans
asked the Secretary of State for Trade what effect he estimates the current £ sterling exchange rate is having on the level of the United Kingdom's exports.
§ The Secretary of State for Trade (Mr. John Nott)
First, Mr. Deputy Speaker may I, on behalf of right hon. and hon. Members, wish Mr. Speaker a speedy recovery from his minor illness.
Since domestic prices and costs, which are themselves influenced by the exchange rate, are reflected in export prices, it is difficult to make precise estimates. But, if the hon. Gentleman is interested in published theories on this subject, I recommend to him GES working paper No. 34, by Colin Mowl, entitled "Simulations on the Treasury Model".
§ Mr. Evans
May I add my commiserations to Mr. Speaker on his illness and wish him a speedy return to the Chair.
I do not think that I need read the paper to which the Secretary of State has referred. Will he confirm that export orders are now falling because of the rise in the level of the pound and that the consequences for employment in export manufacturing next year will be disastrous and will add to our already horrendous unemployment figures?
§ Mr. Nott
In the past month or two export volumes have begun to fall. Export volume is about 3½ per cent. up on the earlier year, but it is correct that in the past month or two export volumes have begun to fall. A high pound affects price competitiveness in the short term, but in the medium term it will greatly help domestic costs and domestic inflation, and that is the real key to industry's long-term problems.
§ Mr. MCCrindle
Just to keep the matter in perspective, will my right hon. Friend confirm that a high rate reduces the costs of some essential raw materials—not least oil—which have to be imported before manufacturers can turn their attention to export markets? Would it not be wise on the part of hon. Members on the Opposition Benches if they kept this matter in perspective a little more than they appear to have done so far?
Mr. J. Enoch Powell
Is it not a fact that at the present rate of exchange our exports are broadly covering our imports?
§ Mr. Eggar
Does my right hon. Friend agree that our exporters have done exceptionally well to keep up the current level of exports? Second, will he comment on the 3 recent study which revealed that the lack of competitiveness was 60 per cent. due to wage and general production costs and 40 per cent. due to exchange rate movements?
§ Mr. Nott
I agree that the success of British industry in exporting over the past two years has been remarkable, It has had a very solid achievement in spite of a high pound. As regards price competitiveness, it is correct that labour costs, which are the principal constituent—with the high pound — of competitiveness, have risen by about 36 per cent. since the third quarter of 1978.
§ Mr. Gordon Wilson
Will the Secretary of State admit that the international price of oil has some bearing on the value of the £ sterling? If that is the case, and if it is the case also that the international price of oil is due to rise fairly steeply, what action do the Government have in mind now to prevent a rise in the £ sterling, with its consequent adverse effect on future exports?
§ Mr. Nott
The price of oil has risen. I think that the pound is high for two reasons: first, because people overseas believe that this country has security of energy supplies, and, secondly, because people overseas are buying the pound as a result of their confidence in Her Majesty's Government's policies.
§ Mr. Cook
Is not the reality that since the third quarter of 1977 British exports have lost 50 per cent. of their competitiveness as a result of the rise in the pound in those three years? Can the Secretary of State inform the House of any single nation which, within a three-year period, has achieved a 50 per cent. increase in productivity? When will he stop referring the House to economic theory and do something to preserve British trade for which he is supposed to be responsible?
§ Mr. Nott
The hon. Gentleman is not correct in what he says. The high value of the pound has certainly had an impact on competitiveness in the short term, but an even greater factor in the short term affecting the price competitiveness of British industry has been our relatively high and rising labour costs which have far exceeded those of our competitors.
§ Mr. John Smith
Has the right hon. Gentleman had an opportunity to read the trenchant speech of his right hon. Friend the Member for Sidcup (Mr. Heath) in the Queen's Speech debate last week and the remarks made about himself in that speech? Does he recollect that the former Conservative Prime Minister said:I do not believe that any firm can cope with an increase of 30 per cent. in the rate of sterling over a period of 15 months." —[Official Report, 27 November 1980; Vol. 994, c. 919.]Does the Secretary of State defend the Government's record in respect of this rise? What plans have the Government to reduce it? What does he mean by the recession passing by? When will it pass? What is the medium term that we can look forward to?