Biffen tells ministers to cut value of pound

MINISTERS WERE warned yesterday by their former Cabinet colleague, John Biffen, not to dance around the European exchange rate mechanism 'as though it were some totem', and advised to cut the value of the pound to help industry.

'A system of fixed exchange rates on a Community basis is the apex of centralism,' Mr Biffen, a former Leader of the Commons, said.

If the EC was moving towards decision-making by member states - John Major's concept of subsidiarity or 'minimum interference' - then Britain should be 'master of its exchange rate' and able to lower interest rates, he argued, during a Labour-initiated debate on the recession.

The debate also produced a witty attack by Gordon Brown, Labour's trade and industry spokesman, on Michael Heseltine, President of the Board of Trade, over the apparent erosion of his ambitions and powers.

The 'interventionist tiger of the rubber-chicken circuit', who had argued in his 1987 book Where There's A Will for a stronger DTI and greater Cabinet seniority for its head, now had full power to reorganise the desks in his department but could not begin to contemplate an industrial strategy.

One hundred days of Mr Heseltine's presidency, which started with his determination to expand the National Economic Development Office with himself in charge, had ended with its abolition. Responsibility for the film industry had passed to David Mellor, Secretary of State for National Heritage.

To the amusement of Edward Leigh and Neil Hamilton, Department of Trade and Industry ministers, both members of the Thatcherite No Turning Back group, Mr Brown contrasted Mr Heseltine's former interventionist plans with events since his appointment. 'The king of the jungle is now just a worn fireside rug . . . there essentially to be walked all over.'

Rejecting Labour's call for Government action to promote investment in industry, training and the regions, Mr Heseltine said the idea that a dramatic increase in his department's spending would fix the recession and get the nation miraculously back to work was a delusion. 'I would merely be recycling the taxes that someone else would have to pay or keeping interest rates higher than they would otherwise be.'

On the exchange rate, he criticised those who wanted to ease the anti-inflationary pressures - interest rates - by transferring the strain to the pound, realigning it within the ERM. 'Siren voices' had advanced the course of devaluation many times since the war, he said. 'The problem for us was that every time we let the pound take the strain we encouraged domestic inflation to erode any temporary competitive advantage that we had achieved.'

Mr Biffen said a bank base rate of 10 per cent was 'profoundly high' for the economy. Output was static and there was clear evidence of considerable spare capacity. A 'modest' cut would ease industry's costs and be 'highly relevant' to Mr Heseltine's policy. Refusal to act because of the ERM would create the kind of difficulties Labour had in the 1960s when it was 'crucified' by having to keep to fixed exchange rates.