§ 14. Mr. Beaumont-DarkTo ask the Chancellor of the Exchequer if he will state the medium-term interest rates in the United Kingdom, Germany, the United States of America and Japan.
§ Mr. Norman LamontAt close on 27 February, five-year Government bond yields were 10.1 per cent. in the United Kingdom, 8.5 per cent. in Germany, 7.6 per cent. in the United States and 6.4 per cent. in Japan.
§ Mr. Beaumont-DarkDoes my right hon. Friend accept that, because of the cost of the reunification of Germany, which is costing hundreds of billions of deutschmarks more than the Germans said it would, and the fact that Germany will not allow inflation, German interest rates, which affect us all, are about 2 per cent. higher than they would have been without the reunification costs? May there not come a time when—so that our interest rates can come down—Germany should go in for a system of realignment of its deutschmark rate, not just against the United Kingdom currency, but against Europe's currencies so that fairness prevails and we have proper and sensible lower interest rates, as we would have had without reunification?
§ Mr. LamontI am sure that my hon. Friend will understand that I cannot comment specifically on the realignment of the deutschmark. It is true that the reunification of Germany has imposed considerable costs on the German economy. It has pushed up interest rates and inflation and has also led the German Government to increase taxes. As my hon. Friend said, that has immense implications for monetary policy in all European countries.
§ Mr. Chris SmithHow on earth can British business and British industry compete in an increasingly challenging world when they face interest rates that are substantially higher than those of our major competitors? When will the Government realise that placing such exclusive reliance on high interest rates to control demand may control demand eventually, but it may also cause severe harm to the supply side of the economy?
§ Mr. LamontBritish business men will not be able to compete unless we have a level of inflation that is competitive with that of Germany, the United States and 1111 Japan. Inflation matters much more for competitiveness than interest rates alone and, as is often pointed out, a 1 per cent. reduction in interest rates is of less significance to business than a 1 per cent. reduction in labour costs. There are many things within the control of businesses, but the key must he to get inflation down.
§ Sir Ian LloydThe Chancellor will know better than most that there is a constant search for the explanation of differences in comparative economic performance. What significance does he attach to the fact that last year, for the first time ever I believe, expenditure on research and development in Japan exceeded investment in new plant?
§ Mr. LamontI am not familiar with the figures cited by my hon. Friend, but it is true that high industrial expenditure—high expenditure in relation to turnover by firms—is a vital ingredient of economic success. That has been a feature of the Japanese economy for many years.