Manufacturing Industry: Interest Rate Increase (Hansard, 11 June 1998)

§ Lord McIntosh of Haringey
My Lords, the Monetary Policy Committee raised interest rates in order to ensure that the Government's inflation target is met. I am sure that the House, manufacturers and businesses generally will agree that we must avoid the boom and bust policies of the past, since higher inflation today results in fewer jobs, lower growth and higher interest rates tomorrow.

§ Lord Evans of Parkside
My Lords, in thanking my noble friend for that reply, I ask him to recall the period 1979 to 1982 when the then new Conservative Government, in pursuit of a high pound and high interest 1150 rate policy, destroyed huge tranches of Britain's industry and created mass unemployment, particularly in northern England. Is my noble friend aware that Labour Government supporters such as myself are becoming anxious that the present Government appear to be following a similar high pound and high interest rate policy and that manufacturing industry is again beginning to feel threatened? Can my noble friend give me an assurance that Her Majesty's Government will do their utmost to ensure that Britain's manufacturing base is protected and the jobs of workers in industry safeguarded?

§ Lord McIntosh of Haringey
My Lords, I am indeed old enough to recall the period to which my noble friend refers. I also recall the period between 1988 and 1993 when a million jobs in manufacturing were lost. The Government will always be very conscious of the risks involved in higher interest rates. The present evidence is that, although manufacturing industry is not expanding, it is not in recession, and the forecasts for next year are encouraging.

§ Lord Clark of Kempston
My Lords, does the Minister agree that one of the main factors in the strength of sterling is the high base rate? As has been said, that high rate is threatening our export markets because, as far as overseas buyers are concerned, our goods are more expensive. Does the Minister further agree that the role of the Chancellor of the Exchequer is to oversee the whole of the economy of the country and that it is quite wrong of him to shrug off responsibility for the base rate to the Bank of England?

§ Lord McIntosh of Haringey
My Lords, the noble Lord makes two points. On the first point, it is undeniable that there is interaction between exchange rates and export performance. On the second point, the Government maintain control over both fiscal and monetary policy in the economy. They have devolved decisions on short-term interest rates to the Bank of England.

§ Lord Barnett
My Lords, I thought my noble friend said in his first Answer that we were concerned about the level of inflation today. Was he suggesting that the most recent ¼ per cent. increase in interest rates would affect inflation today, or was he telling us that, in practice, for some reason the Monetary Policy Committee is able to forecast that in two years' time inflation would be lower if interest rates were increased today?

§ Lord McIntosh of Haringey
My Lords, I was not quite suggesting that. What I suggested in my first Answer was that the Monetary Policy Committee raised interest rates in order to ensure that the Government's target for inflation was met. We shall see whether or not I am right in five weeks' time.

§ Lord Boardman
My Lords, does the noble Lord agree that changes in interest rates are bound to affect many aspects of the economy which are controlled by 1151 the Chancellor of the Exchequer? Does he therefore regret the change which the Government made last May, or does he have no confidence in the ability of the Chancellor, if he had control of interest rates, to protect us against inflation?

§ Lord McIntosh of Haringey
My Lords, the noble Lord puts forward a false syllogism. Of course the Government have confidence in the Chancellor to maintain control of all aspects of fiscal and monetary policy. There is no derogation from that in the fact that there has been a devolution of decision making on short-term interest rates.

§ Lord Razzall
My Lords, will the Minister accept that, having listened both here and in another place to the points made on "boom and bust" when this question is asked and answered, the implication of the Government's statement is that they are simply leaving the effect of interest rates and fiscal policy on manufacturing industry to the operation of the markets? Is not that a surprising stance for new Labour to take?

§ Lord McIntosh of Haringey
My Lords, far from it. In many ways the Government have been directly active in helping manufacturing industry. Such policies as lowering corporation tax rates, easing regulatory burdens on businesses, extending first-year capital allowances and the creation of new venture capital funds are all directly designed to help manufacturing business.

§ Lord Paul
My Lords, can my noble friend confirm that the Bank of England has knowledge of the condition of the manufacturing industry in mind when fixing interest rates and is not worried about inflation alone, which is distorted by the service sector?

§ Lord McIntosh of Haringey
My Lords, the Bank of England Act, which came into force on 1st June, specifically requires the Court of the Bank of England to ensure that the Monetary Policy Committee has available to it information on economic trends, both regionally and by sector, therefore including manufacturing business. I can therefore give my noble friend the assurance for which he asks.

§ Lord Gisborough
My Lords, manufacturing business is one thing, but is the noble Lord aware that in the farming industry the pound is causing total chaos? Farming incomes are now zero and it will not be long before many farms are emptied because nobody will be able to afford to work them.

§ Lord McIntosh of Haringey
My Lords, the Government are aware of the difficulties caused to agriculture by a strong pound. Many of the actions I described in response to the question from the noble Lord, Lord Razzall, apply also to farming.

§ Lord Randall of St. Budeaux
My Lords, does my noble friend agree that, on balance, nobody wants to see high interest rates? Does he agree also that this is a 1152 question of making the right short-term decisions to ensure that we get long-term stability in our economy, which is vital to investment, productivity and jobs?

§ Lord McIntosh of Haringey
My Lords, my noble friend puts the issue concisely and accurately. For over a year the Chancellor has been seeking to persuade the people of this country of that point, with a considerable degree of success.

§ Lord Mackay of Ardbrecknish
My Lords, does the Minister join me in welcoming back to our midst my noble friend Lord Clark of Kempston?

Noble Lords
Hear, hear!

§ Lord Mackay of Ardbrecknish
My Lords, will the Minister take on board the anxiety raised by his noble friend—an anxiety shared by many of us? Big and small companies in Scotland are not facing a boom or bust; they are facing a bust. Perhaps I may highlight a tiny one. In a remote part of what used to be my constituency, a company called Mountain Technology was founded when I was a Member to manufacture ice axes. From that small company eight jobs have been lost in a new massacre of Glencoe—I have little doubt but that the noble Lord will remember Glencoe. According to the managing director on closing down the firm, apart from the mild winters—for which I cannot blame the Government—the problem has been that sales abroad have been non-existent for the past year.
Will the noble Lord take on board the concerns of manufacturing industry? Does he accept that there is a relationship between the difficulties manufacturing industry face with the high pound and high interest rates? Firms could perhaps cope with the high pound if they had low interest rates, but they cannot cope with both.

§ Lord McIntosh of Haringey
My Lords, I know which side my clan was on at Glencoe; I am not sure on which side was the noble Lord's clan, or indeed whether we were on the same side. Of course I have great sympathy for the eight people who lost their jobs at Glencoe. But the noble Lord is carrying his practice of arguing from the particular to the general to unprecedented extremes. It is true that the connections he suggests exist. But it is also true that the Government are aware of them and have been promulgating policies to deal with them ever since they came to office.

§ Lord Peston
My Lords, is my noble friend as puzzled as I am by the comments of the spokesman for the Opposition? Does he recall that there was a time when the Conservative Party was in favour of sound money? One might have expected therefore that they would be in favour of giving operational independence 1153 to the Bank of England in order to pursue monetary policy in order to keep inflation under control. Is my noble friend as mystified as I am by the fact that they have adopted my role of old-fashioned Keynesianism, while I adopt what I take to be their role of old-fashioned monetarism?

§ Lord McIntosh of Haringey
My Lords, I try to keep to a minimum my comparisons between this Government and the previous administration. But my answer to my noble friend is that I am no longer surprised by anything that the Opposition Front Bench does.

§ Lord Evans of Parkside
My Lords, in view of the almost universal criticism of the Bank of England's Monetary Policy Committee increasing the base rate to 7.5 per cent., will he and his ministerial colleagues consider altering the balance of the committee by having more members with knowledge of industry and fewer academics on the committee?

§ Lord McIntosh of Haringey
My Lords, I shall cause great difficulty in the ranks of Government Back-Bench supporters if I take sides as between manufacturing industry and academics. Both have a role to play and the Chancellor is conscious of the importance of manufacturing industry when he makes appointments to the Monetary Policy Committee, just as he is when he insists that the Monetary Policy Committee should have proper information about developments in manufacturing industry.