Interest Rates (Hansard, 27 June 1996)

§ 6. Mr. Pawsey
To ask the Chancellor of the Exchequer if he will make a statement on his policy for interest rates. [33410]

§ Mr. Waldegrave
Interest rates are set to achieve the inflation target of 2½ per cent. or less.

§ Mr. Pawsey
I thank my right hon. Friend for that reply. Does he agree that low interest rates and low inflation are the prerequisites for any successful economy? Will he further agree that both conditions are currently in place, which is probably why the British economy is outperforming our principal competitors in Europe? Would he care to say what would happen to the economy if the policies of the Opposition, especially the social chapter, were implemented?

§ Mr. Waldegrave
To quote Aneurin Bevan, we do not need to look in the crystal ball, we can read the book in relation to the Opposition's policies. When they were running the economy, they achieved 27 per cent. inflation. When the Organisation for Economic Co-operation and Development reported on Britain in 1979, among its many criticisms of our economy was the fact that inflation was rising to 11 per cent. again. In its report this year, it says that the United Kingdom has … become a more flexible and less inflation prone economy. That is the achievement that we must maintain against the Opposition's damaging policies.

§ Mr. Sheldon
I welcome the reduction in interest rates and offer my congratulations to the Chancellor on his relationship with the Governor of the Bank of England, which is a pretty suitable one at present; but will he bear it in mind that the amount of research and development has declined during the past few months, a serious aspect, and that plant and machinery expenditure needs to be much higher? To deal with the shortcomings of the Government's economic policy, particular attention must be given to some form of capital allowances for plant and machinery in particular.

§ Mr. Waldegrave
One of the most satisfactory features of the last period—indeed, since 1979—has been the increase in the efficiency of capital investment, which is increasing faster in Britain than in other countries. It is also very satisfactory that in the last recession Britain did not cut its investment or its research and development as much as in previous recessions. Those are both good signs for the long-term health of the economy.

§ Mr. Hawkins
Does my right hon. Friend agree that it is a great triumph for Conservative policy that interest rates are now at a historic 30-year low? Will my right hon. Friend contrast that with the position in Germany, where industrialists are making it clear that they now realise that Germany's commitment to the social chapter is costing it hundreds of thousands of jobs? The leader of 455 the Labour party, in his recent visit to Germany's BDI, the convention of German industry, made it clear that he was still committed to the social chapter. His views are the views of failed old Germany's social democratic socialism.

§ Mr. Waldegrave
It was indeed a comic scene when the Leader of the Opposition, having gone to Germany to tell the German Chancellor that he would sign up to everything in Europe, then had to listen to a speech by Mr. Heinkel—during which, I believe, he made his excuses and left—in which Mr. Heinkel paid warm tributes to the British economy. It would have been better if the Leader of the Opposition had stayed and listened.

§ Mr. Andrew Smith
Does not interest rate policy depend critically on sound public finances? As the Chancellor has admitted that there was a mistake in his Budget calculation of tax revenues, as this year's borrowing races ahead of the Government's forecast, and as the right hon. Member for Wokingham (Mr. Redwood) warns in an article in Public Finance tomorrow that the Government have borrowed an extra £100,000 million during the past three years, is it not high time that the Chief Secretary quantified the mistake that was made in the Budget forecast, came clean with the House and started to tell us the true state of the public finances, and accepted the case that Labour has put forward for an independent audit of the books before the Budget in November?

§ Mr. Waldegrave
It will do the hon. Gentleman a great deal of good to learn economics from my right hon. Friend the Member for Wokingham. I am glad that he is reading his articles with attention. They are a very different kind of economics from those that he used to believe in. It will do him good to read my right hon. Friend's speeches. If the hon. Gentleman wants to look at public finances, he should first explain why, under the Labour Government—the only thing by which we can judge him—in every year on average, public borrowing was higher than it has been under the Conservative Government.

§ Mr. Olner
My hon. Friend the Member for Oxford. East (Mr. Smith) was at school then.

§ Mr. Waldegrave
The hon. Gentleman was indeed at school, learning the wrong economics which I am now glad to find that he is correcting by reading my right hon. Friend's speeches.