HC Deb 14 November 1961 vol 649 cc181-2
25. Sir C. Osborne

asked the Chancellor of the Exchequer how much hot money is estimated to have come to London since the Bank Rate was raised to 7 per cent.; what rate of interest is being paid on it; what is the total cost to the country; if he will reduce the Bank Rate to 4 per cent.; and if he will make a statement.

Mr. Selwyn Lloyd

It is not possible to identify precisely and measure the flow of what is called hot money. I believe that much of the increase in the reserves since July has not been stimulated by interest rates but is due to other reasons.

I have no statement to make on Bank Rate.

Sir C. Osborne

If the increase in the money coming into the country is not stimulated by higher Bank Rates Why put higher Bank Rates there? Since high money rates obviously cause hardship at home, and since the increase in funds does not fool the Zurich bankers, why do not we bring the Bank Rate down?

Mr. Lloyd

With regard to my hon. Friend's first suggestion, if one were to do what he suggests and bring in an artificially low Bank Rate one would have to bring in also the whole apparatus of physical controls, and I do not believe that that is what my hon. Friend wants. With regard to the question of hot money, and so on, my hon. Friend knows only too well that there was substantial speculation against sterling. A good deal of what came in was not hot money but what is called leads and lags.

Sir C. Osborne

Since other finance centres can run their economies on very much lower rates of interest, why cannot we?

Mr. Lloyd

Because, as my hon. Friend is repeatedly pointing out, we have a very precariously balanced economy. [HON. MEMBERS: "Why?"] I will tell hon. Gentlemen opposite why and I am surprised that they do not know. We have very heavy obligations overseas by way of defence, we have very heavy obligations by way of aid and we also depend, to a very large extent, on our export trade.

Mr. Jay

But if the purpose of the 7 per cent. Bank Rate was not to attract money to this country, whatever was it for? Was it intended to deflate our economy for no purpose whatever?

Mr. Lloyd

As the right hon. Gentleman knows, the purpose of the Bank Rate is partly internal—to damp down demand—and partly external. It was part of a number of measures designed to protect the £, and that is in the interest of all sections of the community.