§ 1. Mr. Wareing
To ask the Chancellor of the Exchequer what effect changes in private borrowing have had on the economy during the past five years.
§ The Chief Secretary to the Treasury (Mr. David Mellor)
A number, including notably a means between 1986 and 1989 for companies to finance a 43 per cent. increase in investment—the fastest growth in investment since the war.
§ Mr. Wareing
Is not the Minister being rather complacent? Is not it true that net personal savings as a percentage of disposable income, which is an important barometer, have fallen from 13 per cent. in 1979 to 5 per cent. last year and that that is reflected in the outstanding consumer credit of £50 billion, much of which has been expended on manufactured goods that were imported by this country because of the inadequacy of British manufacturing industry under the Tory Government to furnish that demand?
§ Mr. Mellor
It is certainly true that there was a fall in the savings ratio, but we must consider the rates of inflation that prevailed in those two years. The savings ratio for first three quarters of 1990 was back to 8.8 per cent. and is on a rising trend. With regard to credit and demand, the hon. Gentleman failed to take account of the fact that household credit is overwhelmingly for mortgages. He also failed to give us credit for a crucial development: although between 1974 and 1979 consumption rose at seven times the rate of investment, between 1981 and 1989, investment rose at double the rate of consumption, therefore financing plenty more local production for demand to go into.
§ Mr. Budgen
Does my right hon. and learned Friend agree that when the savings ratio is running at about 5 per cent., it is a clear sign of an excessive boom, such as occurred between 1986 and 1988, but when it is running at 8.8 per cent., as it is now, that is a clear sign that domestic and national indicators point towards a further cut ill interest rates?
§ Mr. Mellor
I thought for a moment that my hon. Friend was going to ask me a question with which I could wholeheartedly agree, but he spoilt the effect somewhat towards the end of his comments. He is aware of our policy and he knows that we will bring down interest rates when it is compatible with our position within the ERM band and when other circumstances permit.