HC Deb 29 January 1981 vol 997 cc1067-8
13. Mr. Foulkes

asked the Chancellor of the Exchequer whether he will give consideration to the introduction of a tax on interest payments to foreign holders of sterling debt as a means of disengaging the domestic interest rate from the exchange rate.

Mr. Lawson

I do not believe that a tax of the kind proposed by the hon. Gentleman would achieve the effect that he seeks.

Mr. Foulkes

With overseas investors getting, effectively, a return of about 15 per cent., is not such speculative investment pushing up the pound even further, to the detriment of United Kingdom exporters? Will the right hon. Gentleman reconsider his answer and introduce a real interest equalisation tax, as in Switzerland and West Germany, which would bring in revenue and help exporters?

Mr. Lawson

The Swiss and West German examples that the hon. Gentleman quotes were not, in practice, effective. Such a measure would be even less effective in this country, with our sophisticated financial markets and the difficulties produced by the existence of double tax agreements and the doctrine of sovereign immunity. Furthermore, it is not at all clear how much interest rates affect the exchange rate. For example, at present the level of interest rates in the United States is considerably higher than it is here.

Mr. Dykes

Can my right hon. Friend say what proportion of the monetary aggregates is represented by net inward flows on current and capital account?

Mr. Lawson

It depends on where those net inward flows go. Inward flows as such do not necessarily add to the monetary aggregates at all.