HC Deb 21 March 1985 vol 75 cc976-7
14. Mr. Weetch

asked the Chancellor of the Exchequer if he will make a statement on the recent rise in interest rates and their effect on industry.

Mr. Ian Stewart

Without the rise in interest rates there would have been a risk of a return to inflationary conditions, threatening the prospects for industry and for continued growth.

Mr. Weetch

Is the Economic Secretary aware that the minimum lending rate of 13.5 per cent. is a major constraint on British industry and commerce and stands four square in the way of any substantial industrial expansion? Does he agree that, with an inflation rate of 5 per cent. and a minimum lending rate of 13.5 per cent., real rates of interest in Britain are about the highest that they have ever been in the past 50 years? What are the prospects for interest rates coming down so that British industry might have a less crippling rate for the price of money?

Mr. Stewart

I am glad to be able to say that interest rates are now lower than when the hon. Gentleman tabled his question. British industry has been doing very satisfactorily. Interest rates should fall because he is keeping a grip on inflation and on borrowing. Those are the words of Sir Terence Beckett of the Confederation of British Industry.

Mr. Phillip Oppenheim

Does my hon. Friend agree that the best way to keep interest rates low is to reduce the competition for scarce funds from the public sector and allow the private sector to create jobs by spending more money?

Mr. Stewart

I have no doubt that my hon. Friend is correct to point out that the higher budget deficit which is involved in higher public expenditure places a strain on interest rates and therefore causes damage to the private sector.

Mr. Haynes

Does the Minister not realise that the people sitting on the Treasury Bench are absolutely useless, except for the Lord Privy Seal and the Whip? Is he aware that his Government are hitting industries in my constituency in two ways, because a number of them are dependent upon contracts in the public sector, and at the same time he is banging up interest rates? They are still going to be laying people off, and yet they say that they are a Government who create jobs for people so that they can work. What is he going to say about that?

Mr. Stewart

I am going to tell the hon. Gentleman that inflation destroys jobs and that the policy of this Government is to maintain monetary conditions which continue to bring down inflation.

Mr. Beaumont-Dark

Does my hon. Friend agree that the Budget at least gives great encouragement to the banks to lower their interest rates because of financial rectitude? Was he not disappointed by the timid approach of the banks in cutting interest rates by only 0.5 per cent.? Is it not time that the banks stopped making their money out of home industry and losing it overseas, and instead reduced their interest rates at home?

Mr. Stewart

I was glad to see that the banks reduced their base rates, and that, of course, has now been validated in the markets. If and when conditions are such that monetary constraint can be maintained at lower levels of interest rates, that will be very welcome.

Mr. Campbell-Savours

Is the Minister convinced that if interest rates were to be reduced by 1 per cent. that would have a detrimental effect on the dollar-sterling exchange rate?

Mr. Stewart

The dollar-sterling exchange rate is influenced by many factors other than the level of sterling interest rates because it is measured against many other currencies as well. I believe that we should maintain short-term interest rates in this country at the level required to deliver the monetary conditions and the pressure against inflation, which is Government policy.

Mr. Forth

Does my hon. Friend share my sense of mystery as to how Opposition Members can praise the United States approach to budget deficits as an explanation for growth but be unable to recognise that the United States economy can still flourish with the differential between money and the real interest rates of the United States economy?

Mr. Stewart

There are many contradictions in the Opposition's interpretation of financial affairs in the United States. We must all recognise that the large deficits in the United States have caused problems for many other countries and may well cause problems for the United States as well.

Mr. Wainwright

In view of the public uncertainty and concern about the Government's policies on interest rates, will the Economic Secretary elucidate the bald but very pregnant sentence in his right hon. Friend's Budget speech in which he said, without explanation, that he was increasing the provision in public expenditure figures for future years for debt interest?

Mr. Stewart

I thought that that was very clearly expressed by my right hon. Friend. It was a realistic assessment in the light of current projections for interest rates. If interest rates turn out to be lower than we have projected, we shall all be very glad about the public expenditure consequences of that. But, since it is the prime purpose of our monetary policy to maintain monetary conditions to bring down inflation, we have to accept that that has a cost in interest rates as well.