HC Deb 16 May 1991 vol 191 cc415-6
6. Mr. Fishburn

To ask the Chancellor of the Exchequer what is the estimated public sector borrowing requirement for this financial year; and what are the comparable figures for the United States of America and the average of all European Community countries.

Mr. Norman Lamont

The latest forecast is a public sector borrowing requirement of £7.9 billion, around 1¼ per cent. of GDP. Substantially larger fiscal deficits are expected in the United States and on average among European Community countries.

Mr. Fishburn

Will my right hon. Friend confirm that of the seven largest industrial countries, only Japan has a stronger fiscal position than Britain? Will he further confirm that to borrow 1 per cent. of GNP after some years of healthy surplus is altogether different from borrowing 6 per cent., as happened year after year under the last Labour Government?

Mr. Lamont

My hon. Friend is right. The fact that we have run a strong fiscal position has meant that we have been able to spend money on priority programmes. As my hon. Friend said, under the last Labour Government, the PSBR averaged 6 ¼per cent. of GDP. That is equivalent today to £40 billion. We have repaid debt of some £27 billion, enabling us to save £3 billion a year for the taxpayer —the equivalent of 50 new hospitals a year or 10 per cent. more on health care. The fastest growing part of the Labour party's public expenditure programme would be debt interest.

Mr. Campbell-Savours

Recognising the linkage between the public sector borrowing requirement and interest rates, why was it that in 1983 and in 1987, which were both election years, interest rates were at the bottom of the trough? Does the Chancellor intend to orchestrate another cut in interest rates, against the advice of the Governor of the Bank of England? If the right hon. Gentleman opposes that action, what does he intend to do?

Mr. Lamont

The hon. Gentleman is factually incorrect. The trough in interest rates occurred in 1988, not 1987. The hon. Gentleman ought to check his facts. There is no disagreement between the Governor of the Bank of England and myself over interest rate policy. Our position is that interest rates will be maintained in order to safeguard our position in the exchange rate mechanism, and we will have the flexibility to reduce interest rates as and when inflation comes down.

Sir Peter Tapsell

Will my right hon. Friend bear in mind that of all the unreliable statistics on which the Treasury has to pontificate, the public sector borrowing requirement is the most unreliable of all—as events have proved so many times in the past? It is always a mistake to base too much of the Government's economic policy on the current PSBR figure.

Mr. Lamont

My hon. Friend is right to point out that the PSBR is the difference between two very big magnitudes, and therefore is subject to enormous swings. However, our interest rate policy is not based on the PSBR. I think that the hon. Member for Workington (Mr. Campbell-Savours), was making the point that the PSBR has a consequential effect on interest rates.