HC Deb 15 June 1995 vol 261 cc883-4
9. Mr. Simon Hughes

To ask the Chancellor of the Exchequer what is his policy on interest rates. [27040]

Mr. Kenneth Clarke

Interest rates are set to deliver permanently low inflation and ensure that the present healthy recovery is sustained.

Mr. Hughes

Is not the truth somewhat different? Has not the Financial Times got it right when it says that the Chancellor has fudged policy on interest rates and that he is keeping interest rates down, stoking the economy and preparing for short-term tax cuts as his preferred solution?

Mr. Clarke

The hon. Gentleman has just arrived in the Chamber out of breath and did not hear the rather lengthy exchanges that have already taken place about all this. The inflation target is 2½ per cent. or less. I set monetary policy to achieve that target. Given that there are always unpredictable things from month to month, that policy will keep inflation between 1 per cent. and 4 per cent. We have set that target for the end of this Parliament and we are well on course to deliver it. Now we are going to sustain it throughout the next Parliament as well.

Tax cuts are a legitimate aim. To be a competitive economy, we need to continue to be a low-taxation economy. But we can do that only when spending is under control—it is being kept under control—and when it is in the interests of the economy we can then cut tax.

Mr. Mans

Does my right hon. and learned Friend agree that one way to ensure that interest rates are higher than necessary is to have no policy on inflation, no policy on public expenditure and no policy on taxation, like the Labour party?

Mr. Clarke

I rather imagine that if the hon. Member for Dunfermline, East (Mr. Brown) ever met the Governor of the Bank of England he would ask him for a quick little note on what monetary policy is for and how one ought to approach it. When the hon. Gentleman sets out his propositions and they are put alongside the spending promises of all his shadow colleagues, it is quite obvious that high inflation will be only one of the extremely bad consequences of having a Labour Government.

Mr. Foulkes

Is not it true that, on interest rates, the Chancellor pays more attention to the representations of Tory Back Benchers in marginal seats than to the Governor of the Bank of England? [Interruption.] Is not that more to do with his medium-term aspirations to be Leader of the Opposition than the long-term interests of British people?

Mr. Clarke

I take first and foremost the advice of the Governor of the Bank of England. I listen to the advice of my Back-Bench colleagues who understand economic policy and specialise in it. I do not get any advice from the Labour party because it does not seem to have any opinion on the subject. My policies have delivered the best record of inflation that this country has seen since the early 1960s. We are well on course to deliver permanently low inflation for the rest of the decade.