§ Q1. Mr. Ridleyasked the Prime Minister whether the Chancellor of the Exchequer's public speech to the Overseas Bankers Club in London on Government borrowing on 3rd February, 1969, represents Government policy.
§ The Prime Minister (Mr. Harold Wilson)Yes, Sir.
§ Mr. RidleyIs the Prime Minister aware that the Chancellor said that there would be no borrowing by the Government either this year or next financial 1915 year? Is he satisfied with a position where some £2,000 million of capital expenditure in the public sector is to be placed on taxation instead of being borrowed from the public? Surely this is wrong.
§ The Prime MinisterIt would not be appropriate for me at this stage, so close to the Budget, to comment on any of the questions raised by the hon. Gentleman.
§ Mr. DickensWhat estimate has my right hon. Friend made of the effect on the level of unemployment of today's increase in Bank Rate to 8 per cent.? Bearing in mind that British Bank Rate is on average 2 per cent. higher than the bank rates in other financial centres, should not my right hon. Friend take steps to stop the City of London being used as a centre for attracting short-term capital movements?
§ The Prime MinisterMy hon. Friend will no doubt be aware of the improvement in the seasonally corrected figures of wholly unemployed since August of between 90,000 and 100,000.
The statement issued today in relation to Bank Rate is relevant to both parts of my hon. Friend's supplementary question, and I refer him to it. The statement points out that the increase in Bank Rate is not related to foreign exchange questions as such but to the fact that the Chancellor's target of 98 per cent. for bank lending has, as will be seen from the figures now being published, been seriously exceeded, and therefore the increase is necessary for internal purposes.
My hon. Friend referred to international interest rates. He will recognise that the Euro-dollar three-month rate is 8.1 per cent., while American Treasury bills, having been raised one point, now stand at 61 per cent. Therefore, the British Bank Rate of 7 per cent. was different in relative values from what it was on previous occasions.
§ Mr. HeathWill not the increase in Bank Rate today also put a heavy additinal burden on the Exchequer for the cost of existing Government borrowing at home and overseas? Will the right hon. Gentleman confirm that, under his Administration, Bank Rate has stood at 7 per cent. or above for a longer period than at any time since the Bank of England was set up in 1694? Is the 1916 Prime Minister not really saying that the reason for this is, first, the attraction of the Euro-dollar market and its rates, which, under this Goverment, the Bank of England reserves cannot stand, and, secondly, the failure of the Government's economic policy, which is squeezing the private sector into bankruptcy?
Surely the answer to the situation is to accept that, however the Government do it, there must overall be a further reduction in Government expenditure.
§ The Prime MinisterI have not been back to 1694 but I readily concede that, in recent memory, this is the longest period for a 7 per cent. Bank Rate or above. But this, of course, is related very much to international Treasury bill rates. For example, when Bank Rate was 5 per cent. under the right hon. Gentleman in 1964, the United States Treasury bill rate was 3.5 per cent. It is now 6.1 per cent., which of course is the wrong relativity for British Bank Rate. We do not control the United States Treasury bill rate or the Euro-dollar rate.
The right hon. Gentleman suggests that we are pushing the private sector into bankruptcy. Obviously, he has not been studying the recent figures of profits of the whole of the private sector, which have risen very considerably indeed. I would remind him that many of the companies are so prosperous and profitable that they are able, for whatever reasons seem good to them, to send large donations to his party.
§ Mr. HeathThe Prime Minister must be aware that the reason why the clearing banks have not been able to carry out the Chancellor's directions, and reduce to 98 per cent. is that they know that they are bound, in so doing, to drive very large numbers of small firms, many of them important for the exports of this country, into bankruptcy.
§ The Prime MinisterThe right hon. Gentleman equally well knows that there is no difficulty about finding finance for exports—
§ The Prime Minister—and that, unlike the period when he was President of the Board of Trade, we have persuaded the banks to offer at long and medium term, for some years ahead, a very favourable 1917 rate of interest lending to the export firms. This is no reason why, with present money rates in Britain and all over the world, we should put private borrowers on overdraft, much of that even for speculative purposes on the Stock Exchange and elsewhere—[Interruption.]—rather than out of their private income. The right hon. Gentleman knows that it is possible to borrow money which at present is relatively cheap compared with the situation abroad.
§ Mr. Michael FootIs my right hon. Friend aware that on this side of the House we are much more concerned about the high level of unemployment than about the nonsense of squeezing the private sector into bankruptcy? [Interruption.] While we certainly welcome the fact that there has been a fall in the unemployment levels over recent months, and that the worst prophecies have not been fulfilled, will my right hon. Friend recognise that the figure from which the fall has taken place was very high indeed? Will he agree that the level of unemployment has been much too high for much too long and will he now, in answer to my hon. Friend the Member for Lewisham, West (Mr. Dickens), say what is the Government's calculation of the effect of these latest measures upon the level of unemployment?
§ The Prime MinisterWith regard to the first point, what we are concerned about on this side of the House—and, I think, on all sides of the House—is sufficiently to squeeze excessive production consumption in the home market to get a much bigger increase in exports. [Interruption.] The right hon. Gentleman the Leader of the Opposition has found his voice at last—I have been trying to get him up for three weeks—on something other than the Tate Gallery. I know that the right hon. Gentleman is concerned about that. He might take a little time off, after all his gloomy speeches, to say something about the increases in exports brought about by the private lending squeeze. With regard to the estimates of future unemployment, it is not possible to give a figure here—
§ The Prime MinisterThe last distinguished figure to make an estimate on future unemployment was the right hon. Gentleman who said it would be, not 1918 might be, 750,000 last winter. In fact the February figure was under 600,000.
§ Mr. Boyd-CarpenterIs it not a fact that the clearing bankers warned the Chancellor at the time that the 98 per cent. target was wholly impracticable? Is not the present situation, therefore, the fault of the Government in persisting in trying to operate it this way instead of encouraging the public sector.
§ The Prime MinisterWe have not yet had from right hon. Gentlemen opposite what are their proposals for reducing—[Interruption.] It is very easy to have slogans about Government expenditure—[Interruption.] If I am asked about public expenditure, it is easy to have these slogans. All we have had from the right hon. Gentleman was a cut in development area expenditure and an increase in food prices. The banks made it clear that it would be difficult; they did not make it clear that it would be impossible. When the right hon. Gentleman sees the figures, and they will be published either today or tomorrow, he will feel that the rise in lending to the private sector has been excessive, even compared with those warnings.
§ Mr. BarnettIs it not clear that this increase in Bank Rate has been caused by the central bankers refusing to comply with the requests of my right hon. Friend the Chancellor? Does it mean that we are to accept that the central bankers can dictate to the Government the economic policy they should pursue or are we now to leave the central bankers at their present bank lending level?
§ The Prime MinisterI think, from what my hon. Friend says, that he was referring to the joint stock banks, not the central bankers abroad. It is certainly the case that they have not got down to the 98 per cent. target and there has been an increase. I would refer my hon. Friend on all the points he has raised to the statement made by the Bank of England today about the increase in Bank Rate.
§ Mr. Iain MacleodDoes the right hon. Gentleman recall that only yesterday the First Secretary of State, at that Box, was painting the clouds with sunshine and giving us an account of how things were going so well in the economy? Does he not realise that for about the fiftieth time 1919 this has been followed by a disastrous announcement on behalf of the Government? Would he please try to coordinate, to get some little consistency between Her Majesty's Economic Ministers on the prospects for this country?
§ The Prime MinisterThe right hon. Gentleman, who claims to speak with authority on financial matters, will know that it would be impossible for any Government to ignore the movement of overseas international interest rates. The right hon. Gentleman, who likes to blame everything on us, will hardly think that we are responsible for a rate of 61 per cent. in the United States. If, by any mischance, he becomes Chancellor of the Exchequer, he would have to deal with this. With regard to the statements of my right hon. Friend yesterday, all were justified. I remember the right hon. Gentleman, after eight years in office as Minister of Labour, boasting of the fact that unemployment would not rise above 650,000—after eight years in office!
§ Mr. HefferWould my right hon. Friend agree that every time there is an increase in Bank Rate this has a very serious effect on the employment of building trade workers? Will he further agree that the level of unemployment is still much too high and that the time has come to operate a different interest rate for the building of houses and so on, as we promised in our Labour Party manifesto?
§ The Prime MinisterMy hon. Friend will be aware that unemployment has fallen very considerably. I certainly agree with him that unemployment has, over a considerable period now, been too high. With regard to mortgage rates, he will be aware of the legislation passed by this House on option mortgage rates. He will also be aware of the sharp fall in unemployment in the development areas—which the Leader of the Opposition's policy would have made impossible, through cutting expenditure on investment grants.
§ Mr. GrimondWill the right hon. Gentleman confirm, contrary to some opinions expressed, that medium and small firms in the private sector give considerable employment, sometimes in areas where it would be difficult to find any alternative? While it may be 1920 necessary to impose squeezes, there is no doubt that they fall unduly hardly on these small firms. Would he look into the possibility of varying these methods so as to reduce the burden on these firms?
§ The Prime MinisterThe right hon. Gentleman will be aware that many studies have been made, suggesting that the effect of interest rates on industrial productivity and employment facilities is not quite so great as has been thought in the past. He will also know that in the kind of areas that he has in mind, the development areas, there has been a very remarkable improvement in the position. He will know that under this Government, we are now spending—and this helps a lot of small firms, many of them exporting firms—in the development areas at the rate of £260 million a year, as against about £18 million a year under the party opposite.
§ Sir C. OsborneThe Prime Minister will remember that the Chancellor of the Exchequer said that in 1967–68 the Government had to borrow £1,300 million. For the next year he said that there should be no borrowing and that for the next year there would be a surplus. Does he stand by those two promises?
§ The Prime MinisterYes. I understand that my right hon. Friend still takes the view that the statement which he made in this speech was correct so far as that was concerned, and the hon. Gentleman will have noted the statement of my right hon. Friend a week ago today when he gave the figure of prospective Government expenditure for next year, which is one of the principal determinants of the borrowing figure.