HL Deb 22 May 1980 vol 409 cc1029-33

3.8 p.m.


My 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 steps they propose to take to reduce the handicap now placed upon United Kingdom exporting industries by the combination of high interest rates, artificially high exchange rates and high inflation.

The MINISTER of STATE, TREASURY (Lord Cockfield)

My Lords, the Government recognise that United Kingdom industry generally is facing tough competition in both home and overseas markets. The best way that the Government can help industry is to stick to their policy of strict monetary control and reducing public sector borrowing. This is the only sure and sustainable way of reducing inflation and bringing down interest rates. But it is equally important that industry should restrain the increase in its own costs, and in particular that the level of pay settlements should be brought down to a more reasonable level.


My Lords, in thanking the noble Lord for that Answer, and in accepting his agreement with me about the importance of the problem, may I ask him whether he would not agree that all the figures that have been published so far, since the Question was set down—the figures for the inflation rate, the exchange rate, and the manufacturing production output—show that the position is worsening, not improving? While accepting that we have to control the volume of money, may I ask the noble Lord whether he would not consider this? If manufacturing industry today can solve problems like going to the moon, or world-wide communications satellites, is there not another way of controlling the volume of credit other than by this crude interest rate policy?


My Lords, British industry has shown remarkable success in facing the problems that confront it. Our exports today are better than they were in 1978, despite the difficulties to which the noble Lord refers. The biggest problem which faces industry, as well as ourselves, is the level of inflation. There s no other effective way to deal with this problem than the one which the Government are currently following.


My Lords, would the noble Lord care to explain to the House the mechanism by which the control of the money supply brings down the rate of inflation?


My Lords, this has been a matter of considerable debate in your Lordships' House. There is no doubt whatever, on the basis of the evidence, that an expansion in the money supply is followed in due course by a rise in the rate of inflation, and control of the money supply will be followed, again after a time-lag, by a fall in the rate of inflation. The rate of inflation from which we are currently suffering is very largely a reflection of the lack of control over the money supply during the dying days of the Labour Government, of a lack of control over public expenditure by the Labour Government and of an excessive public sector borrowing requirement by the Labour Government. These unfortunate effects cast a long shadow in front of them, but the time will come when we get out of that shadow.


My Lords, would the Minister not agree that the adverse balance of payments, the very high deficit on the budget and the current high rate of bank lending all make the suggested corrections of the misfortunes to which the noble Lord has referred untimely, and that they would be best corrected by higher production and lower or moderate wage agreements? Is he also in a position to state what proportion of the total national budget is eaten up by two points—unemployment pay and the amount paid on the national debt?


My Lords, I am most grateful to my noble friend for his support. As has been said in debates in your Lordships' House on many occasions, the real key to success lies in higher productivity, and this, I am sure, is supported by noble Lords on all sides of the House. It is also true that as long as pay settlements continue at their present level they will delay the time when we can get back to a lower rate of inflation. So far as concerns the two specific questions which my noble friend asked me, the level of interest payments on the national debt currently amount to about 6 per cent. of gross national pro duct; unemployment benefit, plus supplementary benefit payable to the unemployed, account for a figure of somewhat less than 1 per cent. of GNP.


My Lords, would the Minister agree with me that the present height of the exchange rate is due to a complex of circumstances, some of which must be regarded as favourable—for instance, the unexpected bonus of North Sea oil—and the natural expectations of investors at large with regard to that bonus? Would he further agree that on top of that there is a tendency to maintain or raise the present rate of interest which is more ambiguous, in that it is caused by the attraction of hot money by the present height of the interest rates? Without in the least wishing to contradict his general position on the inevitability of the control of the money supply, is this not—

Several noble Lords: Too long!


I have nearly finished, my Lords. Is this not a reason for continually wondering about whether interest rates can be reduced by other means of controlling the volume of credit?


My Lords, while I am most grateful to my noble friend for his very long supplementary question, I think I would make only two comments. The first is that the exchange rate, and the present high level of the exchange rate, is of course influenced by North Sea oil as well as by other factors. Secondly, a high exchange rate, while it poses certain problems for industry, also brings certain benefits to the country, because it keeps the price of our imports much below what they otherwise would be, and this in turn tends to lead to a lower level, not only of consumer prices but of wage settlements in the country. It also means that industry is able to buy its raw materials—which, of course, is a matter of very great importance—at much lower prices than it otherwise would.


My Lords, to revert to the original Question, if I may, is the Minister aware that one of the industries which is suffering in regard to the export trade is the gramophone record industry, and would he take this into account in not furnishing the playing of gramophone records for internal consumption so frequently as he does, and assist instead in the export of gramophone records?


My Lords, I am not such an expert, either on gramophone records or on repetitive statements, as the noble Lord.

The Earl of ONSLOW

My Lords, could the noble Lord explain one matter, after his very lucid statement on pay policy? With comparability and phasing, the increase in public sector wages has been an increase of 25 per cent. this year, I believe, in the actual money paid. Can he therefore explain what he is going to do to restrain public sector wages in the next pay round?


My Lords, with respect to my noble friend, I do not think the question of public sector pay settlements is within the ambit of the Question on the Order Paper.


My Lords, is the Minister aware that, in the light of the decision to give 31 per cent. to doctors and of the great increases given to dentists, you cannot expect trade unionists to accept a restraint on their wages in the light of the reduction in their standard of living caused by the high inflationary policy the Government are following?


My Lords, with respect, that question is even wider of the Question on the Order Paper.


My Lords, having heard what the noble Lord said in reply to the question put by a distinguished former chairman of the Financial Times, now sitting on the Cross-Benches, would the noble Lord care to comment on what the Financial Times says today, when they point out that the United Kingdom is now an attractive place for the foreign bond- dabbler"? Is it not a fact that if present trends continue we shall have a country which is booming for the bond-dabblers and means bankruptcy for the industrialists?


My Lords, I do not think that the first part of that commentary has anything at all to do with the Question on the Order Paper. The second part of the commentary is denigratory of British industry, and I should like to dissociate myself from it.


My Lords, can the noble Lord inform the House on when he is going to apologise for and withdraw all this nonsense that he has just spoken?


My Lords, I think that that is better classified under the heading of vulgar abuse than under the heading of intelligent comment.