§ 3.15 p.m.
§ Lord BESWICKMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what assumption is made about the rate of inflation in the year 2000 when deciding interest rates on Government stock repayable in the next century.
§ The MINISTER of STATE, TREASURY (Lord Cockfield)My Lords, the Government have made no assumption about the rate of inflation in the year 2000.
§ Lord BESWICKMy Lords, can the noble Lord recall that on Tuesday, with a degree of emphasis, he said that the rate of interest would not come down unless and until the rate of inflation comes down? Are we to assume, because there 1392 have been two recent Treasury issues repayable in the next century, that they are assuming that the rate of inflation will not come down until the next century? May I ask the noble Lord whether he would not agree that it is something about which we should all be concerned that on these two recent long-term issues alone, raising between them something less than £2 billion, no less than £7,000 million will be disbursed in interest; and that £7,000 million in purchasing power with no extra production must mean a force towards inflation?
§ Lord COCKFIELDMy Lords, the noble Lord is not entitled to make any such assumption as is contained in the first part of his supplementary question. The terms of issue of a particular stock depend upon the Government's need to sell sufficient stock to fund the borrowing requirement and the acceptability of the terms to the people who are going to purchase those stocks. There is a substantial demand for long-term stock from the institutions and the Government need to take advantage of this demand.
So far as the noble Lord's second point is concerned, the best way of keeping down the burden of interest on future generations is to reduce the public sector borrowing requirement; and that is at the centre of the Government's policy. I am glad to hear that we have the noble Lord's wholehearted support of our policy in that direction.
§ Baroness WOOTTON of ABINGERMy Lords, would not the Minister agree that the acceptability of stock to the public very largely depends on the terms, and that the terms carry implications (because of the very high rates of interest that they now carry) about what the value of that interest will be in the next century?
§ Lord COCKFIELDNo, my Lords, they do not carry any such implications.
§ Baroness WOOTTON of ABINGERMy Lords, why, then, do the public buy them?
§ Lord COCKFIELDMy Lords, the public buy them because they think that in relation to the current rates of interest the stock represents a good buy. Perhaps I might remind the noble Baroness that 1393 the Government issue short-term stocks as well as long-term stocks and that the tap which ran out immediately before the tap to which the noble Lord, Lord Beswick, referred was the 1983 stock—and you cannot get much shorter than that.
§ Lord KALDORMy Lords, is the noble Lord aware that in the London Stock Exchange we possess a very efficient secondary market in gilt-edged securities and it is perfectly possible for the Government to fund the public sector borrowing requirement by issuing reasonably short-term or medium-term securities and leave the secondary market to satisfy the need of the insurance companies for long-dated maturities? My second question in this connection is that, since the noble Lord and his colleagues in the Treasury regard the role of inflationary expectations as so important in the process of inflation itself, how can he think there is no link between inflationary expectations and the maturing dates of the wholly artificial coupon stocks which are issued? They are bound to be counter-productive from the point of view of inflationary expectations.
§ Lord COCKFIELDNo, my Lords, the Government do not accept the noble Lord's analysis of the correct basis of management of new issues. If the Government were to attempt to raise all of their requirements by short-dated issues it would merely have the effect of driving up the rate of interest on the short-term bonds even further than the present level.
§ Lord AVEBURYMy Lords, if the contemplated yield is much lower than the rate of inflation indicates and the institutional investors' market is expecting the rate of inflation to come down within the period of the stocks, then, if their expectations are not realised, is it not incorrect to say that the burden of interest on future generations will be as substantial as has been maintained, because the Government will have perpetrated a fraud on these investors by paying them back in depreciated pounds?
§ Lord COCKFIELDMy Lords, the first part of the noble Lord's supplementary question is of course the complete answer to the noble Lord, Lord Kaldor. The coupon on the stock to which the noble Lord, Lord Beswick, refers was 13½ per cent., which is less than the current rate 1394 of inflation. This indicates that the markets have confidence in the Government's ability to bring the rate of inflation down, and I am glad to see that confidence shared by noble Lords opposite.
§ Lord SHINWELLMy Lords, could we have an assurance from the noble Lord that he is really interested in what is going to happen in the year 2000, or is he not feeling very well?
§ Lord COCKFIELDMy Lords, I would never attempt to emulate the noble Lord, Lord Shinwell, who is as fit and active today as when I first saw him cross the political spectrum when he won the election at Seaham Harbour. Nevertheless, I look forward to seeing the year 2000 and to see who is right about the rate of inflation.
§ Lord BESWICKMy Lords, the noble Lord has been insistent on disagreeing with a good deal that has been asked this afternoon. May we see whether there are some issues upon which we can agree? Do I gather that now, as on Tuesday, the noble Lord agrees that the whole of the borrowing requirement is required to pay interest on money that has already been borrowed? Secondly, does he agree with my arithmetic that £7,000 million will he dispersed in purchasing power on these two recent longterm issues? Thirdly, will he agree that as far as productive industry is concerned in this country, these rates of interest penalise them as far as on-costs are concerned, and make it almost impossible for them to export by creating an artificial exchange rate?
§ Lord COCKFIELDMy Lords, there is an arithmetical equality between the amount of public sector borrowing requirement and the amount of interest which is being paid. It does not necessarily follow that one is the consequence of the other, because it is equally arguable that the size of the public sector borrowing requirement is a reflection of the high level of Government expenditure generally. The noble Lord is trying to hypothecate particular items against other items. This is not really an acceptable approach. So far as the rate of interest generally is concerned, we recognise the burden that it imposes upon industry. We shall be only too glad to see when the rates of 1395 interest come down. The Government's policies are directed to this end and we are confident of success.
The MINISTER of STATE, MINISTRY of AGRICULTURE, FISHERIES and FOOD (Earl Ferrers)My Lords, we may not have exhausted this Question; but if we continue for another 10 minutes I doubt whether we will do so. Your Lordships may feel that we have given this Question a good run for its money, and perhaps it would be proper to move on to the next one.