Interest Rates (Hansard, 13 March 1986)

§ 2. Mr. Latham
asked the Chancellor of the Exchequer whether he will make a statement on the level of interest rates.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
Base rates have remained unchanged since 8 January.

§ Mr. Latham
As all the economic jigsaw pieces seem to be in place for an immediate and significant cut in interest rates, what is preventing such a cut? A cut in interest rates would be of great value to British business and to my right hon. Friend's counter-inflation policy.

§ Mr. Lawson
I am sure that there would be a benefit from lower interest rates, although one should not exaggerate the difficulties of the present level of interest rates. As my right hon. Friend the Chief Secretary said, the latest CBI monthly trends inquiry has shown the best combined response to output and prices since these figures were first collected. Of course, there is a difference between the United Kingdom and other countries, which have recently been able to reduce their interest rates. Those countries have benefited unambiguously from the fall in oil prices, whereas for Britain the effects have been inevitably more mixed. I think that the world trend can be nothing but helpful to this country.

§ Mr. Robert Sheldon
Is the right hon. Gentleman aware that the House knows of his partiality for announcing interest rate cuts at the time of his Budget statement? Is he further aware that hon. Members will be extremely disappointed if the interest rate cut is not considerably more than 1 per cent?

§ Mr. Lawson
The right hon. Gentleman has an extraordinary insight into my partiality, given that in none of my previous Budget statements did I announce a reduction in interest rates.

§ Sir William Clark
Does my right hon. Friend agree that a 1 per cent. cut in the base rate would not only be welcome, but would give industry a boost? Does he also 1066 agree that a 1 per cent. reduction in the amount of wage claims would reduce unit labour costs much more than would a 1 per cent. reduction in interest rates?

§ Mr. Lawson
My hon. Friend is right. It would reduce industry's costs by many times more. There is a further connection. As I told the National Economic Development Council in December, excessive wage increases put upward pressures on costs. It is essential to stop that cost pressure from leading to an upsurge in inflation. That inevitably means higher interest rates than would otherwise be required. There is a double benefit to industry from keeping firmer control on its pay costs.

§ Mr. Skinner
Is the right hon. Gentleman aware that the sky-high interest rates which this country has had to tolerate under this Government have resulted in City bankers being able to make massive profits, whereas the manufacturing side of industry and local government have suffered as a result? The people in Fulham will vote out the Tory candidate, not merely because of unemployment, but because of the double standards operated by the Government to look after their friends in the City and to hell with everyone else.

§ Mr. Lawson
I must tell the hon. Gentleman, whose knowledge of Fulham I suspect is not very extensive, that if there were ever to be a Labour Government—which there will not—and they put into effect their £24 billion increase in public expenditure, the effect on borrowing would be to raise interest rates far higher than they are at present.

§ Mr. Alan Howarth
Will my right hon. Friend confirm that the Labour party's policy of directed reflation—which is the latest entertaining euphemism to come from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) in an attempt to buy votes with a public expenditure addition of no less than £24 billion—would entail not only stratospheric interest rates but taxation rates even higher than under the Labour Government, a collapsing pound, souring inflation and truly catastrophic unemployment?

§ Mr. Lawson
My hon. Friend is very knowledgeable in these affairs, and his assessment corresponds precisely with my own.

§ Mr. Hattersley
On the subject of interest rates, will the Chancellor break the habit of a lifetime, be frank with the House, and admit the squalid fact that the inevitable reduction in interest rates is being held back in order to give a little shine to a Budget which would otherwise be very lack lustre?

§ Mr. Lawson
I am glad to note that the right hon. Gentleman is expecting a reduction in interest rates. Not so long ago he told the House that there was bound to be an increase, but that did not happen.

§ Mr. Hattersley
There was one.

§ Mr. Lawson
The right hon. Gentleman is wrong again. As I have said, interest rates have remained unchanged since 8 January, but since 8 January the right hon. Gentleman has confidently predicted that there would be an increase. He was wrong then, and he is always wrong.