Interest Rates (Hansard, 29 January 1985)

§ Mr. Ian Wrigglesworth (Stockton, South)
Mr. Speaker, I should like to ask the Chancellor of the Exchequer the question of which I have given him prior notice. As you know, Mr. Speaker, the Labour party has—[Interruption.]

§ Mr. Speaker
Order. I called the hon. Member to ask a private notice question. It is only fair that he should be heard. I cannot hear.

§ Mr. Wrigglesworth
Mr. Speaker, the Labour party has illusions of adequacy. [Interruption.]

§ Mr. Speaker
Order. The hon. Member should ask the private notice question that he gave to me.

§ Mr. Wrigglesworth
If I may be allowed to do that, Mr. Speaker. I should like to ask the Chancellor of the Exchequer the question of which I have given him prior notice—if he will make a statement of the current level of interest rates.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
At noon yesterday, following a rise in market interest rates, one of the clearing banks raised its base rate from 12 per cent. to 14 per cent. The Bank of England raised its dealing rates by a corresponding amount when it dealt in the bill market at 12.15 pm. The other clearing banks followed within the next hour or so.
Yesterday afternoon I gave evidence on these and related matters at considerable length to the Select Committee on the Treasury and Civil Service, under the Chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins), which I understand will be reporting to the House shortly.

§ Mr. Wrigglesworth
Is the Chancellor aware that the Government's "outstanding" record, to which his hon. Friend the Member for Winchester (Mr. Browne) referred earlier, is the highest level of unemployment since the 1930s and now the highest level of real interest rates since Britain came off the gold standard in 1931? Is he aware that the Government bear a very heavy responsibility for that record because they have been responsible for the uncertainty and confusion about exchange rate policy, because they have taken no action on oil prices or the rate of depletion of our North sea oil, as his hon. Friend the Member for Winchester also pointed out, and because the international markets are reflecting their lack of confidence in the non-oil sector of our economy?
Will the Chancellor now make clear exactly what the Government's exchange rate policy is, at what level he expects to keep the pound and whether he is prepared to take action on oil prices or on the rate of North sea oil depletion? Is he aware that if he does not do that he and his colleagues will be causing the people of this country to pay the price of the Government's own incompetence and blind devotion to economic dogma?

§ Mr. Lawson
The hon. Gentleman should know perfectly well that no Chancellor is ever prepared to comment on market tactics and matters of that kind which would benefit only speculators and others and would be of no benefit to our country.

§ Sir Peter Tapsell (East Lindsey)
Will my right hon. Friend bear in mind that those who dominate the exchange 154 markets of the world are seldom, anyhow in my experience, much preoccupied with the British public sector borrowing requirement; and that until we apply our minds to their practical concerns rather than to our own theoretical shibboleths we are unlikely to be able to restore sterling to its proper level in world exchange markets?

§ Mr. Lawson
My hon. Friend is a much travelled man with great experience of financial operators throughout the world. Nevertheless, in my experience, there is and always has been considerable concern in the markets, among finance ministries and indeed within the IMF, as some Opposition Members will recall, about the public sector borrowing requirement of this and other countries and about the budget deficit of the United States, a matter about which my hon. Friend himself has expressed concern in the past.

§ Mr. John Maxton (Glasgow, Cathcart)
As the Bank of England is now intervening to protect the pound, and as the Chancellor has restored minimum lending rate and is prepared to co-operate with other economies to protect the pound against the dollar, does he still hold to the dogma that free market forces should be allowed to operate?

§ Mr. Lawson
Of course free market forces will operate. It is one of the illusions of right hon. and hon. Members on the Labour Benches that by a wave of a wand they can abolish free market forces. As I have said on a previous occasion, the decision taken by the Finance Ministers of the five major industrialised countries of the Western world a fortnight ago in Washington was that the time had come when it would be appropriate from time to time to intervene in a concerted way in the foreign exchange markets. [HON. MEMBERS: "Oh."] That was of course fully in line with the Williamsburg declaration which was signed some time ago.

§ Mr. Speaker
Order. These are hardly laughing matters.

§ Mr. David Howell (Guildford)
On the influence of the crude oil price on sterling, would not my right hon. Friend agree that the status of sterling as a petro-currency can be and probably is being very much exaggerated? Might we not do better to free ourselves completely from involvement in trying to fix the international oil price and to withdraw the price-fixing function of the British National Oil Corporation?

§ Mr. Lawson
My right hon. Friend is correct in saying that markets attach excessive importance to the value of North sea oil in our economy as a whole, sizeable though it is. Indeed, there is an idea that we are almost a one-commodity economy, whereas in fact oil and gas account for about 5 per cent. of gross domestic product and only 8½ per cent. of our total tax revenues. The price of oil is set by the market, not by BNOC.

§ Mr. Tony Benn (Chesterfield)
In view of the Chancellor's statement that public expenditure levels may have played some part in the fall of the value of the pound, could it be that world markets do not share his view that the £5 billion spent on fighting the miners was a worthwhile investment? Taking into account the fact that, since the fall in the value of the pound, not a single pit in Britain is uneconomic, would it not be wise for the Government to settle with the miners, who are responsible for building so much of our industrial future?

§ Mr. Lawson
The right hon. Gentleman's paranoia is well known. The Government are in no sense fighting the miners. They are supporting the working miners and the coal industry.

§ Mr. Nigel Forman (Carshalton and Wallington)
Is it not true that one of the unfortunate but inevitable consequences of the rise of interest rates by more than four percentage points in recent weeks has been to add more than £1,000 million to the costs of British industry? Will my right hon. Friend therefore pay attention to the strong arguments for taking action in the Budget directly to reduce the costs of industry and so to help to offset that adverse effect?

§ Mr. Lawson
I shall take note of what my hon. Friend has said when I make my Budget judgments and frame the Budget. It was with this in mind that I abolished the national insurance surcharge in last year's Budget. However, I think that my hon. Friend is basing his calculation of the effect of interest rates on industry on an assumption that may well not be correct — the assumption that the present level of interest rates will remain in force for a full year.

§ Mr. Richard Wainwright (Colne Valley)
Now that sterling has fallen to a relatively realistic exchange rate with the deutschmark, will the Chancellor embark on negotiations with a view to joining the exchange rate mechanism of the European monetary system?

§ Mr. Lawson
As the hon. Gentleman knows, that is a matter that we keep continually under review. I do not think, however, that recent events have changed the balance of the argument one way or the other with regard to joining the exchange rate mechanism of the European monetary system.

§ Mr. Neil Hamilton (Tatton)
Does my right hon. Friend recognise that one of the major features of the speculation against the pound in recent weeks has been the fear that the Chancellor may be getting soft on inflation and in particular that his control of the wider monetary aggregates may be rather too loose? Is not the prescription required to steady the market's nerves, therefore, the reverse of that suggested by many hon. Members? Should we not keep firm control of public expenditure and concentrate on increasing demand for industry's products through tax cuts rather than cutting costs in other ways?

§ Mr. Lawson
I agree very much with the thrust of my hon. Friend's remarks.

§ Mr. Gordon Wilson (Dundee, East)
Does the Chancellor realise that, whether he likes it or not, the international financial world regards the pound sterling as a petro-currency? Is he aware that the policy that he as Secretary of State for Energy and his predecessors followed, of aggressive over-production, is now undermining the value of oil in the world market and is leading to the problems that he is encountering, especially higher interest rates? Will he contact OPEC to see what he can do with it to keep the value of oil stable? He will find that that is beneficial to the United Kingdom economy.

§ Mr. Lawson
North sea oil has been one of the great successes of the British economy in the past few years. The policies that we have pursued have considerably assisted that success, which has led to the creation of many jobs in Scotland in the oil industry and in the offshore supplies industry.

§ Mr. Nicholas Soames (Crawley)
Does my right hon. Friend agree that the public find it difficult to understand why the Opposition, whose stewardship of the pound sterling has been nothing short of an unmitigated disaster, take such pleasure at the pound having a rough ride? Does he agree that reactions of this type do not help stiffen the currency in international markets?

§ Mr. Lawson
My hon. Friend is right. He will be aware that, against the EMS index, the pound sterling is higher today than it was when we took office in 1979.

§ Mr. Roy Hattersley (Birmingham, Sparkbrook)
Will the Chancellor take this belated opportunity to remove some of the uncertainty which still prejudices the pound and therefore interest rates? Will he make it unequivocally clear that he has now abandoned the policy of allowing the pound to float freely?

§ Mr. Lawson
The policy of the Government under my predecessor and me has been that the sterling exchange rate is always taken into account in assessing the correct financial policy at the time.