Interest Rates

HC Deb 06 April 1989 vol 150 cc324-5

5. Mr. Turner

To ask the Chancellor of the Exchequer what are interest rates in (a) Britain and (b) Japan.

Mr. Lilley

Three month market interest rates on 4 April were 13 per cent. in the United Kingdom, 9.8 per cent. in the United States of America, and 4.6 per cent. in Japan.

Mr. Turner

The Chancellor of the Exchequer has a reputation for straight talking. I do not think that we got straight talking in his answer to a question from the hon. Member for Macclesfield (Mr. Winterton). May I try again? In terms of the widely differing interest rates, how on earth does he expect British business to seek to reduce the balance of payments deficit? Will he give us a straight answer? He said that interest rates in Japan are 4.6 per cent., compared with 13 per cent. in this country.

Mr. Lilley

The level of profitability of British industry has been restored to levels which it has not seen for a long time, and it is so healthy that it is clear that British industry can compete.

Mr. Budgen

Is the Japanese economy a good example of what happens when Governments reduce interest rates too much? Is my hon. Friend aware that, when interest rates in Japan were reduced to their present low level at the beginning of 1987, the price of residential land was already the highest in the world by a long way and was increasing by 9 per cent. per annum? It then started to increase by 27 per cent. The price of land and that increase is a major cause of the social and political turmoil that Japan is going through at present.

Mr. Lilley

I am happy to say that my responsibilities do not extend to the Japanese economy. I am sure that my hon. Friend's remarks will be noticed there and that his concern for their current difficulties will be greatly appreciated.

Mr. Radice

Has the Minister noticed that the Government urge a strong yen to reduce the Japanese surplus, whereas in Britain they urge a strong pound to reduce our deficit? Which is the right course of action?

Mr. Lilley

It is clear that, in an economy such as ours, devaluation would largely feed increased inflation and would affect the value of the pound in the hon. Gentleman's pocket. Therefore, we believe that the exchange rate should not be allowed to depreciate. The Group of Seven Ministers reaffirmed the desire of the Finance Ministers of the leading countries to seek continued stability of exchange rates.

Mr. Hanley

Does my hon. Friend agree that if levels of personal savings were as high in Britain as they are in Japan and if levels of personal borrowings were as low in Britain as they are in Japan, interest rates might be much more in parity?

Mr. Lilley

My hon. Friend who, I am sure, does not share the view that I am responsible for the Japanese economy, makes a good point. We are anxious to see saving encouraged and borrowing discouraged, which is what higher interest rates achieve. I must point out that although personal savings have been low, there has been a good recovery in savings and investments by industrial companies.