Lord Lamont: Yes, Britain benefited from getting out of the ERM, but we also first benefited from being in it

On the twentieth anniversary of Britain's departure from the Exchange Rate Mechanism, Lord Lamont, the Chancellor of the time, busts some myths about the episode and its aftermath.

(1) “Didn’t Britain lose £30bn of reserves during the ERM crisis?”

No.  There were many exaggerated estimates put around at the time.  When foreign exchange reserves are used to support a currency, the money is not “lost”, it is swapped for another currency.  Britain spent almost all its reserves as did countries like Italy, Ireland, Portugal, Finland, Sweden, Spain and France during the crisis.  The correct measure of the loss is the amount of foreign exchange reserves spent, divided by the percentage fall in the currency. In Britain’s case this came to about £3bn.  The reserves are not money that could have been spent on roads and hospitals, they are specifically for foreign exchange transactions. The “loss” on the reserves was made up in a few years as Sterling recovered its strength against other currencies.

(2) “A break up of the ERM was always inevitable”

Fixed exchange rate systems do not always break up. The ERM had existed since the early 1970s as a fixed but adjustable system of exchange rates.  There had been no crises throughout the 70s and 80s. What broke the system was German reunification which created a boom and raised interest rates throughout the ERM countries.  What is often forgotten, is that public support for joining the ERM in 1990 was widespread in the press and business.

(3) “Britain was ejected from the ERM”

Lord Lamont: A Lords elected by PR will give LibDems a huge, permanent, enhanced role in politics

By Lord Lamont of Lerwick.

A favourite quotation from Disraeli used to be that “if change is not necessary, change is unnecessary”.  Perhaps it rings a little complacent today.  We are all modernisers now.  But this common sense observation was simply a more elegant variant of the colloquial “if it ain’t broke, don’t fix it.”

The Coalition are about to embark on the massive undertaking of legislating to “reform”, come would say ”abolish”, the present House of Lords and replace it by a predominately elected one.  This project threatens to bring the mother of all Parliamentary battles, the gumming up of Parliamentary business, not to mention much bitterness in both Houses.  What a largely bemused public will make of it, remains to be seen.  People may not be so indifferent if politicians seem to be obsessed with their own concerns at the expense of discussing jobs and growth.

Few Conservative Ministers are openly enthusiastic about “reform”.  The main argument they put forward is that the Liberal Democrats need a win after their defeat on the AV Referendum.

The Liberal Democrats are understandably keen because in a bicameral system with proportional representation for the Lords, they would hold the balance of power possibly on a permanent basis.

But the key question ought to be; “Will the House of Lords do its job more effectively if it is directly elected as proposed by the Government under a system of proportional representation?"

Lord Lamont: George Osborne must stick to his deficit cutting strategy tomorrow - but it would be reassuring to hear that he has his sights set on tax cuts in the longer term

Lord Lamont was Chancellor of the Exchequer between 1990 and 1993.

Tomorrow, George Osborne introduces his first real Budget.  Journalists often write about the final touches being put to the Budget although most of the details will have been settled many weeks ago.  George will have spent the weekend reading the papers, trying to sort out in his mind, pure speculation from real leaks.  Regrettably these days – the rot started with Gordon Brown – quite a few details seem to be leaked, though no doubt George Osborne would like to surprise if he possibly can.

In many ways, the best Budget the Chancellor could introduce would be one that did nothing.  The Chancellor has courageously set out his strategy over five years, moving Britain back towards budget balance, largely through expenditure cuts but also with some tax increases.  The overwhelming important task is to stick to that strategy.

The Chancellor has little room for significant, so called, “giveaways”.  Borrowing is expected to come in £3 billion - £5 billion or so lower than previously forecast.  Alas, these sums, and even larger ones, are insignificant when put against the mountain of debt reduction the economy has yet to climb.  For this reason, he would be wise to “pocket” most of any reduction in Britain’s highly inflated borrowings.  Nonetheless, he is widely expected, given the sharp rise in oil prices to cancel the 1p per litre rise in the duty on petrol to come in on April 1st.

The Budget has been trailed as a “budget for growth” and is expected to include a revival of enterprise zones, the easing of planning permission in certain areas, a bonfire of red tape, exemption for small businesses from certain employment laws and measures of tax simplification including possibly even a start on the massive job of integrating national insurance and income tax.