Interest Rates (Hansard, 26 February 1981)

§ 8. Mr. Sheerman
asked the Chancellor of the Exchequer if he will consider taking immediate steps to reduce the high interest rates.

§ 11. Mr. Newens
asked the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.

§ 13. Mr. Latham
asked the Chancellor of the Exchequer if he will now take steps to lower the level of minimum lending rate.

§ The Chancellor of the Exchequer
(Sir Geoffrey Howe): I well understand the widespread desire, particularly in industry, to see interest rates come down. Since last summer, minimum lending rate has been reduced by 3 per cent. The Government will keep the level if interest rates under review, against the background of other developments in the economy.

§ Mr. Sheerman
When the Chancellor of the Exchequer thinks about the interest rate, does he consider that the experiment for two years with monetarism has been worth while, in the light of the terrible cost in lost jobs, industrial decline and all the other horrors that we have seen in these two years? When he makes a sharp cut in interest rates in the next few days, will he also admit the total bankruptcy of the policies of the last two years?

§ Sir Geoffrey Howe
I do not understand the reference by the hon. Member to the experiment in monetarism for the last two years, when monetary policy played a key part in the policies of the Labour Government and was constantly emphasised by the then Chancellor of the Exchequer.

§ Mr. Newens
In view of the heavy burden of interest repayments on industry, the crippling difficulties imposed upon home buyers, and the effects on the level of sterling, does not the Chancellor think that it is an absolute disgrace that he has stood by and done nothing while British industry has been increasingly destroyed and damaged, and more and more hardship forced upon the people of our country as a direct result of his policy?

§ Sir Geoffrey Howe
The hon. Member recites a number of the many reasons why lower interest rates are desirable. There are other reasons to be set alongside them as to why interest rates have to be maintained at a responsible level. As I have already pointed out, the rate has been cut by 3 per cent, since last summer.

§ Mr. Latham
Will my right hon. and learned Friend confirm that MLR is now clearly in excess of the real, underlying rate of inflation, and that if he takes into account, as I am sure he will, all the underlying economic factors, they must point to an early and significant reduction?

§ Sir Geoffrey Howe
It is true, as my hon. Friend points out, that measured against the substantial fall in inflation in recent months, interest rates have become more positive. That is one of the factors that we have to bear in 962 mind in considering future changes in minimum lending rate. As inflation has fallen, we have cut minimum lending rate, as I pointed out, by 3 per cent, since last summer.

§ Mr. Shore
Minimum lending rate is still at 14 per cent. If the rate of inflation is running at somewhere below 10 per cent., that is a vast discrepancy. Surely the Chancellor understands that for every 1 per cent, on MLR, British industry has to pay £350 million a year extra in terms of interest payments. With results such as that declared by ICI today—when even that firm has been running at a loss in the last six months—surely it is time that he acted. Is not the real reason why the Chancellor is not acting now the fact that he is waiting until the Budget, so as to have something pleasant to say among all the disasters that he will be announcing?

§ Sir Geoffrey Howe
I am grateful to the right hon. Gentleman for his tribute to the very substantial reduction in inflation. He puts the estimated inflation rate at substantially below the current year-on-year rate. As I have pointed out, that is one of the factors which have to be taken into account.

§ Mr. Squire
Will my right hon. and learned Friend recognise that the totally speculative and imaginative article in The Observer last Sunday was read with a lot of pleasure by many of us—particularly the expectation that interest rates are to be cut by 3 per cent.—and that the pleasure will be even greater if the rate can be brought down even sooner?

§ Sir Geoffrey Howe
I would not wish to diminish the pleasure that my hon. Friend derives from reading The Observer or any other newspaper.

§ Mr. Joel Barnett
If the Chancellor accepts the case for a cut in interest rates, does he think that it is due to his economic success, or is it due to economic failure?

§ Sir Geoffrey Howe
It has been clear from the outset that the reduction in the rate of inflation, along with the reduction in interest rates, is among the objectives that the Government are pursuing.

§ Mr. Eggar
Does my right hon. and learned Friend accept that the move towards monetary based control will inevitably bring with it increased volatility in interest rates? Is he happy to lose control of interest rates?

§ Sir Geoffrey Howe
That is one of the factors to be taken into account in considering the principle of moving to monetary based control, and the speed of such movement. It is undoubtedly the fact that interest rates which are more closely related to the market have something to be said for them.