Minimum Lending Rate (Hansard, 6 December 1979)

§ Sir Geoffrey Howe
The recent increase in interest rates was necessary to control monetary growth. The prospect for lower interest rates will depend upon the rate at which the growth of the money supply is reduced.

§ Mr. Winnick
Has the Chancellor heard City rumours of a further increase in minimum lending rate? Is it not clear that the present rate of 17 per cent. will lead only to more unemployment, recession, job stagnation and general economic decline?

§ Sir G. Howe
The hon Gentleman has been unusually perceptive. Until we have succeeded, by these and other means, in 593 getting inflation under control, the threat of higher unemployment, and all the woes that he described, will continue to exist and survive. We shall continue to pursue the right monetary policy until we have achieved those objectives.

§ Mr. Tapsell
Can my right hon. and learned Friend explain how it is consistent with the Government's undoubted intention to reduce the rate of inflation to issue Government stock that will pay an interest rate of 15 per cent. into the next century, instead of funding through short-dated issues?

§ Sir G. Howe
My hon Friend's suggestion is one of many that is considered from time to time. I am sure that he will understand that it is of crucial importance to maintain effective monetary control as part of the task of keeping inflation under control. That underlines the parallel importance of ensuring that public spending is kept under control.

§ Mr. Healey
Does the Chancellor agree with the Prime Minister that minimum lending rate cannot fall until public expenditure is reduced as a percentage of GDP? As the Chief Secretary admitted yesterday that public expenditure will increase next year as a percentage of GDP does he agree that minimum lending rate is more likely to rise than to fall next year?

§ Sir G. Howe
I shall not try to follow the convoluted analysis of the right hon. Gentleman. As he is asserting today that it is necessary to secure a more effective reduction of public expenditure to get minimum lending rate down, I welcome his support. That contrasts oddly with his assertions earlier in the week that he is in favour of a still higher public sector borrowing requirement.

§ Mr. Healey
The Chancellor must not try to brush off the views of his leader in that way. Those views—not mine I hasten to add—are that there is no chance of reducing minimum lending rate unless public expenditure is reduced as a percentage of GDP. The Chancellor is not achieving that. Does he agree with his leader?

§ Sir G. Howe
There are forums and places more appropriate than the present—

§ Mr. Healey
Answer.

§ Sir G. Howe
I shall answer the question if the right hon. Gentleman is prepared to listen. There are plenty of places in which the Prime Minister and I can exchange views about such issues and on which we express our total harmony with each other. The House is interested to know whether the Labour Party—and in particular the right hon. Gentleman—is advocating a greater reduction in public expenditure or, as appeared yesterday, increases in public expenditure.

§ Mr. Freud
Is the Chancellor aware that when premium bonds were launched, bank rate was 4½ per cent. and premium bonds paid 4 per cent. interest? Minimum lending rate is now 17 per cent. and premium bonds pay 5¾ per cent. interest. Is it not immoral to go on advertising premium bonds without telling the public what a lousy deal they are?

§ Sir G. Howe
I would not wish to cross swords with the hon. Gentleman on the subject of immorality. I acknowledge his point to this extent—

§ Mr. Kilroy-Silk
What does that mean?

§ Sir G. Howe
The existence of a gap between the interest rates payable is something that we should seek to close.

§ Mr. Freud
On a point of order, Mr. Speaker. I must ask the Chancellor to explain what he means by his remarks.

§ Mr. Richard Wainwright
Answer.

§ Sir G. Howe
I am astonished and surprised that the hon. Gentleman should be so sensitive to the preface to my remarks. I am confining my response to the question raised by the hon. Gentleman.