HC Deb 27 October 1988 vol 139 cc443-5
5. Mr. Tom Clarke

To ask the Chancellor of the Exchequer if he will assess the impact of current levels of interest rates on the economy.

The Financial Secretary to the Treasury (Mr. Norman Lamont)

The full effects will take some time to come through, but we are already seeing a fall in new mortgage commitments.

Mr. Clarke

In the light of the 11 increases in interest rates since the Chancellor's Budget, and as that seems to be the only instrument the Chancellor is prepared to use to deal with the present crisis, what action will the Government take in the interests of those regions in Britain which did not experience overheating and which have to meet the growing industrial costs arising from increasing interest rates and to cope with the disincentive to exporting and industrial growth that the Chancellor's policies have brought about?

Mr. Lamont

All the evidence available from manufacturing industry and commerce is that investment is continuing, and will continue, at a high level in the regions, despite the increase in interest rates. Also, despite the increase in interest rates, the profits of British industry remain at their highest level for 20 years. That is the best hope for the regions as well.

Mr. Andy Stewart

Does my right hon. Friend agree that the Opposition do not seem to understand the elementary rules of economics—that for every pound borrowed, there is a pound lent—and that pensioners and small savers in Britain are receiving a higher income as a result of higher interest rates?

Mr. Lamont

Higher interest rates are good for savers. We wish to see consumption come down somewhat, and obviously we would like to see savings increase.

Mr. Nicholas Brown

The Government have probably added over £1 billion to industry's costs since May through high interest rates. Will the Financial Secretary admit to the House that the Government's high interest rates policy is hurting most those whom the Conservative party most purports to support—small business men, those with mortgages and the self-employed?

Mr. Lamont

Above all, what matters for British industry is that we should get inflation down. That matters more than a temporary rise in interest rates. Profits are strong in British industry and it is able to continue to finance investment from that source. The hon. Gentleman seems to be under the impression that industry finances its investment on overdraft on short-term interest rates. In fact, it is also financed through long-term borrowing, and our long-term interest rates have not moved nearly as much as short-term interest rates.

Mr. Marland

Does my right hon. Friend agree that the investment plans of emerging small businesses are often inhibited by high interest rates? Would he be prepared to consider once again a system of dual rates—one for consumption and one for investment—bearing in mind that one could link the investment borrowing to a company's VAT number?

Mr. Lamont

I do not believe that a system of dual interest rates is likely to be practical. Of course high interest rates affect small companies, but I must point out that the high profits made by industry at the moment apply to small businesses as well. The small business sector in our economy is doing better than it has for many years.