The Liberal Democrats in Harrogate: Beith's policy on ERM survives attacks

THE FIRM stand taken by Alan Beith, the Liberal Democrats' economics spokesman, against devaluation of the pound and his unswerving commitment to European monetary union were subject to an unusually pointed challenge yesterday.

Mr Beith looked distinctly unhappy as the policy that he had just reiterated from the conference podium in a debate on the economy was condemned as 'fundamentally flawed'.

Ross Finnie, of West Renfrew and Inverclyde, said the determined anti-inflationary policy advocated by Mr Beith was simply aping the view of the Bank of England and the Treasury.

'If you take the figures from the 1980s, another 1 per cent off inflation is equivalent to another 2.3 per cent increase in unemployment. So when the Government reaches zero inflation and we are standing right behind them, we will have voted for 3 million people unemployed, and I don't accept that,' Mr Finnie said.

He argued that the UK had joined the exchange rate mechanism at too high a rate and it was 'a nonsense' to maintain it was sustainable. The Liberal Democrats, with the best pro-European credentials, should be arguing for a realignment of currencies within the ERM, Mr Finnie said.

Margaret Sharp, who stood for Guildford in the general election, said Mr Beith's repeated calls for early entry into the ERM narrow bands and the creation of a central European bank and a single currency were 'poppycock'.

John Major had taken Britain into the ERM at much too high a level with same economic consequences as Keynes had predicted after the government went back to the gold standard in 1926, she said. 'I am ashamed that our party is hinged to that same bandwagon at the moment.'

Ms Sharp said she believed in economic union and a single currency in the long run, but the economy was not in good enough shape to take it quickly.

Winding up the debate, Baroness Seear, who leads on economics for the party in the Lords, said the call for devaluation was a 'totally irrelevant and evil argument' and should be rejected. Interest rates would go up immediately because people would be afraid that one devaluation would be followed by another.

Representatives voted heavily in favour of Mr Beith's policy. He said talk of devaluation was 'dangerous nonsense'. If the pound was overvalued, it was against the dollar and current events were likely to help with that problem. There was little evidence it was overvalued against European currencies.

But Mr Beith warned that even with the cut in interest rates by the Bundesbank, the pound was not out of trouble. 'With prominent backbench Tories and Labour Shadow Cabinet members calling for devaluation, the Chancellor needs more than words to demonstrate that the pound is not going to follow the lira.

'He needs to be acting to secure central bank independence, showing greater commitment to entering the narrow bands as soon as possible, and putting resources into public investment to get the economy moving.'

Improving Britain's long-term trading performance was more about investing in education, training, research and transport infrastructure than some short- term financial fix, Mr Beith said.

(Photograph omitted)