HC Deb 15 November 1984 vol 67 cc784-5
9. Dr. Marek

asked the Chancellor of the Exchequer what has been the average level of real interest rates :since May 1979; and what was the average level of real interest rates during the previous five years.

Mr. Ian Stewart

There is no precise practical definition of real interest rates.

Dr. Marek

I cannot really thank the Minister for his non-answer—he could have done better. Does he accept that, because of need or policy, the Government have had a high level of interest rates since they took office? We have often heard the Chancellor say that interest rates are set to fall.

What is the difference between Britain and Germany, which, under a Conservative Government, has an economy which is generally run much better than Britain's, and whose interest rates are only half of Britain's?

Mr. Stewart

It so happens that during the 1980s real rates of interest in the United Kingdom have tended to be below those in Germany and the United States. Precise calculations are not possible, as it is necessary to make estimates of future inflation. Under the last Labour Government the average annual rate was 15 per cent. Under the previous Consevative Administration the average decreased to 10 per cent., and it is much lower now. That is the best way in which to reduce real and nominal interest rates.

Mr. Hordern

As the level of interest rates was rather higher under the last Labour Government than it is now, is not the effect of the supplementary question of the hon. Member for Wrexham (Dr. Marek), on which he is to be congratulated, to draw attention to that Labour Government's appalling record on inflation and to my right hon. Friend's rather good record in this respect?

Mr. Stewart

My hon. Friend is right. I have no doubt that companies in industry and commerce would greatly prefer lower interest rates and lower inflation than higher interest rates and higher inflation under a Labour Government.

Dr. McDonald

If the Minister is unable to define real interest rates, how can he provide interesting comparisons with Germany? Is it not a fact that whatever interest rate is chosen and whatever definition of real interest rate is selected, the rate was zero or negative under the previous Labour Government and has been strongly positive under Conservative Administrations since 1979? Will the Minister accept that this has been detrimental both to house owners and manufacturing industry?

Mr. Stewart

I was asked a precise question by the hon. Member for Wrexham (Dr. Marek), to which I gave a precise answer. Inflation was much higher under the last Labour Government than it has been under the Conservative Government. I am sure that industry and investors prefer to have lower rates of inflation and lower interest rates. Lower real rates of interest cheat savers and deny investors a proper return on their investment. If the record which the hon. Member for Thurrock (Dr. McDonald) is claiming for the Labour Government, whom she supported in the 1970s, suggests that it is better to have high rates of inflation and negative real rates of interest, I profoundly disagree with her.