Minimum Lending Rate (Hansard, 6 November 1980)

§ 1. Mr. Newens
asked the Chancellor of the Exchequer if he will make a statement on his policy on minimum bank lending rate in the current economic climate.

§ 15. Mr. Thomas Cox
asked the Chancellor of the Exchequer what plans he has to reduce the present level of interest rates.

§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
It is our firm intention that interest rates should come down from their current level as soon as circumstances make that possible, but the timing and size of any change will be governed by the requirements of the Government's monetary objectives.

§ Mr. Newens
Does the Chancellor accept that the present penal level of interest rates is imposing a catastrophic burden on industry and is making recovery impossible for many firms at any future date? Does he recognise that unless a cut of perhaps 4 or 5 per cent. is made in the minimum bank lending rate forthwith, he will have destroyed many industries and made recovery impossible?

§ Sir G. Howe
I do not accept the points put forward by the hon. Gentleman. As I have already said, it is our firm intention that interest rates should come down from their current level as soon as possible, but it would be foolish to believe that that would give rise to expectations of the kind that the hon. Gentleman has given.

§ Mr. Cox
Is the Chancellor aware that his present monetary policies are just not working? Does he not know that throughout this country industry is collapsing and that even the most loyal of Tory Party Supporters—Tory businessmen—are now deserting him? When will he start to fight for the survival, not the destruction, of British industry?

§ Sir G. Howe
The hon. Gentleman must appreciate that probably the single 1441 most important cause of difficulty for British industry has been the high rate of inflation and that one of the most significant signs of success of the Government's policies is the pace at which inflation is now coming down. When we came into office it was rising at about 14 per cent. a year over the preceding six months. It is now moving at about the same pace. The difference is that when we came into office the rate was high and rising and now it is on the way down. That is a firm sign of the success of the Government's policies.

§ Mr. Latham
If we are to have special factors every month, how will we ever get MLR down?

§ Sir G. Howe
There is no question of special factors every month. It is our firm intention that interest rates should come down as soon as that is compatible with the requirements of our monetary objectives.

Mr. Henley
Does not the Chancellor recognise that interest rates have now been at a record level in Britain for 12 months and that the only effect has been to push up the value of the pound and to force companies to borrow more to finance the cost of record interest rates? Does he accept the view, now widespread in the City of London, that he could cut interest rates by 4 per cent. without sending up the money supply one jot?

§ Sir G. Howe
I congratulate the right hon. Gentleman on his success thus far and express the hope that—[Interruption] The right hon. Gentleman might be generous enough to allow me to say that I express the hope that, for one reason or another, this will be the last time that he appears at Treasury Question Time in his present capacity.

§ Mr. Healey
Now answer the question.

§ Sir G. Howe
It is our objective and our intention to secure a reduction of interest rates as soon as that is compatible with the achievement of our monetary policies. But the right hon. Gentleman knows that a number of factors have to be taken into account concerning that. He also knows that it is not possible to dissociate entirely the level of interest rates from the level of inflation rates. He knows that there is a relationship between them in other countries, which is clear and evi- 1442 dent. He knows also that if one is considering the impact on the competitiveness of British industry, it is right to say that over the last 18 months competitiveness has been more damaged by high levels of pay settlements than by the level of the E. sterling.

§ Mr. Healey
First, may I reciprocate the compliment and express the hope that the Conservative lobbyists are right in saying that the Chancellor is due for the sack in the next few weeks because of the failure of his policies?
On the question of interest rates, will the right hon. and learned Gentleman answer the question that I put to him? Does he not accept the view, which is now widespread in the City, that he could cut interest rates by 4 per cent. without increasing the money supply? Also, does he accept the view expressed by his right hon. Friend the Prime Minister on Tuesday that the major factor now in crucifying British industry is the level of the exchange rate, due largely to the level of interest rates, which he refuses to reduce?

§ Sir G. Howe
The right hon. Gentleman has apparently yet again misunderstood what my right hon. Friend the Prime Minister said, because what she said was precisely the opposite. More than half of the loss of competitiveness since the beginning of 1979——

§ Mr. Healey
Answer the question.

§ Sir G. Howe:
—has been due to the level of pay settlements rather than to the level of interest rates. As to the other half of the right hon. Gentleman's question, interest rates have an effect over a period in lowering the rate of monetary growth and so lowering the rate of inflation.

§ Mr. Eggar
Is my right hon. and learned Friend satisfied with the current growth of borrowing by the corporate sector? Does he feel that this growth is in any way affected by the present high level of interest rates?

§ Mr. Healey
Listen to Nigel.

§ Sir G. Howe
It is, of course, possible, as I have already stated, that interest rates cause additions to company borrowing in the short run; but over the medium run and longer run the level of interest 1443 rates reduces bank lending by the corporate sector as by any other.