Interest Rates (Hansard, 21 June 1989)

§ 15. Mr. McAllion
To ask the Chancellor of the Duchy of Lancaster what is his estimate of the cost to industry of recent rises in interest rates.

§ Mr. Newton
Bank base rates have risen by one percentage point in 1989. The estimated cost to industrial and commercial companies of such an increase is about £0.4 billion in a full year.

§ Mr. McAllion
What is the point of the DTI running a £12 million publicity campaign to raise industry's awareness of 1992 when at the same time the Treasury's high interest rates policy is undermining any investment boom that the Minister thinks that he sees, and crippling 331 the long-term capacity of British industry to compete? In recent months, as we have seen, the Chancellor has been prepared to sing a different song and to stand up even to the Prime Minister. When will the Minister stand up for British industry and take on the Chancellor in the interest rates battle?

§ Mr. Newton
The latest survey of manufacturing industry's investment intentions suggests a further rise of some 15 per cent. in the present year, following a rise of about 15 per cent. last year. That reflects the continuing financial strength of British companies. I have here, and would read out if I had time, a string of investment projects in the hon. Gentleman's own city which, as he must know well, have been announced in recent months or are already going ahead.

§ Mr. Gow
If interest rates were reduced as the Opposition recommend, would not domestic inflation increase and the value of sterling diminish, and would not that in itself add to inflation?

§ Mr. Newton
I see no reason to quarrel with my hon. Friend's analysis. He has made the point well that the real threat to the future of British industry would be a resurgence of inflation, taking it back to the levels run consistently by the last Labour Government.

§ Mr. Campbell-Savours
What factors does the Minister believe will lead to a reduction in inflation, and what is going on now that will result in such a reduction?

§ Mr. Newton
The damping down of the pressure of domestic demand, which is the objective of the Government's policies, has, I think, been acknowledged —for instance, in a number of recent surveys and speeches by the CBI—to be having an effect, not least in the much slower rise in factory-gate prices, which will feed through to the retail prices index in due course.

§ Mr. Hind
My right hon. Friend will no doubt agree that, given the 15 per cent. increase in investment in this country, it ill behoves the Opposition to give us lectures on advances and investment in industry when their own leader, when asked by Mr. Naughtie on BBC radio whether they had any answer to the problem of inflation, replied that he had no such answer. We recognise that interest rates present the only way of curbing inflation.

§ Mr. Newton
Yes, I agree with my hon. Friend.

§ Mr. Gould
In view of the continuing damage done to British industry by the Chancellor's attempt to buck the markets through high interest rates, what representations has the Secretary of State for Trade and Industry made to him on the subject?

§ Mr. Newton
The hon. Gentleman refers to "the continuing damage to British industry". I invite him to explain why we now have a dramatically greater investment boom, a dramatically greater improvement in productivity and a dramatically greater improvement in output than when the Administration that he supported left office. That is the strengthening of the British economy that has taken place.