Interest Rates (Hansard, 15 May 1986)

1. Mr. Andy Stewart
asked the Chancellor of the Exchequer if he will make a statement on the current level of interest rates.

§ 8. Mr. Ottaway
asked the Chancellor of the Exchequer what effect his Budget has had upon the level of interest rates.

§ 9. Mr. Hayes
asked the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
Base rates have been reduced by 2 per cent. since the Budget.

Mr. Stewart
I thank my right hon. Friend for that continuing good news about the economy, particularly as it benefits the Exchequer, industry and mortgage payers. However, at what level would interest rates be if the Labour party implemented its £24 billion of expenditure?

§ Mr. Lawson
If it were to implement the extra £24 billion of public expenditure we would have substantial increases in taxation, possibly a VAT rate of 41 per cent., excessive borrowing, interest rates much higher than they are today, and no doubt before very long we would be in the hands of the IMF.

§ Mr. Ottaway
Is my right hon. Friend aware that a survey carried out among business men by the Nottinghamshire chamber of commerce showed that what concerned them most was high interest rates? With, I hope, inflation following West Germany down to zero, resulting in high real interest rates, will he please do whatever possible to bring interest rates down as soon as possible to try to alleviate the fears of those Nottinghamshire business men?

§ Mr. Lawson
My hon. Friend is right. It is important that interest rates should be brought down as much and as soon as is prudent. The 2 per cent. reduction in interest rates already since the Budget has been accompanied by a reduction in the mortgage interest rate of 1¾ per cent., which will come into effect on 1 June, which, on its own, is worth some £3.60 a week to the man or family with the average outstanding mortgage.

§ Mr. Hayes
Now that Cabinet government has been restored, that we have a balanced ticket and that the winds of change are sweeping through the Treasury, will my right hon. Friend accept that any relaxation of the rules governing the spending of capital receipts by local authorities from council house sales would not significantly affect interest rates?

§ Mr. Lawson
No, my hon. Friend is wrong. That could have an effect on interest rates. However, I am glad to see from the earlier part of his question that he appears to be fully content with the present state of affairs.

§ Mr. Penhaligon
When, within the strategy currently being pursued, does the Chancellor expect British interest rates to be as much below the international average as they are currently above it?

§ Mr. Lawson
The hon. Gentleman is right in saying that our level of interest rates is higher than the general level in major countries overseas. The relationship between interest rates in Britain and overseas is not unconnected with the fact that labour costs per unit of output are rising much faster in Britain than in our major competitors. That is the major weakness in the British economy at present, and it is a job for management to take a better grip of its costs. We shall then be able to see benefits in competitiveness and in interest rates as well.

§ Mr. Evans
If interest rates are falling so well and everything in the garden is so wonderful, why does unemployment continue to increase? I cite the announcement this week that 1,000 jobs will be lost at Kodak, that another 1,000 jobs will go at British Caledonian, and, as we heard yesterday, the appalling loss of 3,500 redundancies in the shipbuilding industry.

§ Mr. Lawson
The hon. Gentleman should have listened a little more attentively to my answer to the hon. Member for Truro (Mr. Penhaligon) a moment ago. Unemployment is all part of the same problem. Labour costs per unit of output are increasing far too quickly in this country, which prices workers in many of our industries out of jobs, as we are not as competitive as our rivals overseas.

§ Mr. Latham
Will my right hon. Friend confirm that the welcome reduction in interest and mortgage rates will at least do something to offset the deplorable increase in domestic and commercial rates imposed by Labour and Liberal councils, including in our county of Leicester?

§ Mr. Lawson
My hon. Friend is right about the county of Leicester, which both he and I represent. There is considerable unrest about the level of rates imposed by the Labour-controlled council. The same problem exists in much of the country. I am grateful to my hon. Friend for his remarks about the considerable benefits to the economy as a result of the Budget and the consequent reduction in interest rates.

§ Dr. McDonald
By exactly how much will bank interest rates in Britain have to be cut if they are to fall to the same level as real interest rates in America, Japan, France and Germany, our main competitors?

§ Mr. Lawson
Although it is difficult to measure precisely or accurately real interest rates, they are slightly higher in this country than in most other major countries. A Labour Government might considerably reduce real interest rates in the same way as always—by letting inflation go through the roof.