HC Deb 06 December 1979 vol 975 cc604-6

16. Mr. Ioan Evans asked the Chancellor of the Exchequer what international action is proposed to seek to reduce lending rates.

Mr. Biffen

It became clear at the IMF's annual meeting in Belgrade in October that there is now widespread international agreement on the central importance of reducing inflation and the need to adopt policies to achieve this. As these policies take effect, I would expect to see generally lower interest rates.

Mr. Evans

As the Government have increased MLR from 12 per cent. to 17 per cent., which is now a record high, will not they enter into discussions with other Governments to obtain general reduction in rates rather than competing with each other in putting up their rates, with this Government leading the way?

Mr. Biffen

I think that the hon. Gentleman will have to recognise that most of the countries in the Western world are seeking to contain the problems of inflation by essentially monetary means. Therefore there is, to some extent, bound to be a degree of competition between interest rates.

Mr. Tapsell

Before we embark on the extremely important task of international co-operation in these matters, will my right hon. Friend say what steps have been taken to investigate the reasons for the misleading advice which, presumably, Ministers received about the growth of the monetary aggregates in the October banking month? Do the Government aim to make their policies less dependent on these inherently unreliable forecasts?

Mr. Biffen

Neither the Chancellor nor I would seek to hide behind the shield of claiming that we had been badly advised. Advice was given in good faith and we acted on it. We stand by our actions.

Mr. Robert Sheldon

Does the right hon. Gentleman recall the promises made at the last general election to the small business? Is he aware that, whatever he does for the small business from now on, or whatever he has done for it in the past, will by no means compensate for the disasters that will be caused by the 17 per cent. minimum lending rate and the restrictive practices that he is now pursuing?

Mr. Biffen

I am well aware that high interest rates adversely affect the small business sector of the community possibly more than any other. That is one reason why we are determined to pursue our policies to ensure that there can be a reduction from the present levels as early as possible. We shall not prejudice our policy by panic and premature movement.

Mr. Body

Does my right hon. Friend agree that the more Governments around the world tend to borrow rather than tax, the more will interest rates tend to rise?

Mr. Biffen

That is a fair point.

Mr. Healey

Is it not the case that the reason why the original estimates of what would happen to the money supply have proved mistaken was that private bank lending to the private sector was not diminished by the 14 per cent. minimum lending rate introduced by the Government in June? There is no reason to believe that the 17 per cent. MLR will produce the necessary effect on private bank lending. That is borne out by the experience of other countries. Is it not the case that this Government, like others, will be compelled to resort to direct control of bank lending, as the United States is already doing to some degree and as France has done for a long time?

Mr. Biffen

Of course, time will reveal whether the confident assertions of the right hon. Gentleman will be validated. He argued earlier this afternoon that a severe recession is impending. It would be extraordinary if that did not have some impact on private bank lending.