Government Stock: Interest and Repayment (Hansard, 1 April 1981)

§ Lord Beswick
My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.

§ Lord Cockfield
My Lords, the Government's expenditure plans, set out in Cmnd. 8175, cover the next three financial years. The debt interest figures are total payments and figures for payments on individual stocks are not separately identified. The stock is not redeemable until 1996 except under special circumstances outlined in the prospectus. The question of capital repayments does not therefore arise.

§ Lord Beswick
My Lords, does that not rather indicate that the Minister's noble friend is right when he referred to this indefinite and unquantified commitment in the future as being a time bomb? While in the case of the index-linked pensions in the public sector the state, ultimately, is the guarantor, may I ask the noble Lord, when the state itself is index-linking, who guarantees the guarantor?

§ Lord Cockfield
No, my Lords, I do not agree with the noble Lord. So long as a Government are prepared to follow policies which will bring down the rate of inflation there is no time bomb here at all. In the case of an index-linked bond, the liability is, in fact, fixed in real terms. What is not fixed is the amount of the liability in terms of money of the day. In the case of conventional securities, the cost is fixed in terms of money of the day, but it is not fixed in real terms.

§ Lord Beswick
My Lords, I am grateful to the noble Lord for emphasising that the return on these bonds is guaranteed in real terms. But how can a nation creditably guarantee a return in real terms when its national gross product is stagnant or, indeed, reducing?

§ Lord Cockfield
My Lords, if the noble Lord would care to give further thought to this matter, he will perceive that a bond yielding 2 per cent. indexed is likely to prove cheaper in the long run than a conventional bond bearing a high rate of interest, provided that the Government concerned follow the policy that the present Government are following of reducing the rate of inflation. I am prepared to accept that under a different Administration the situation might be very different, but that is something from which we would all wish to be preserved.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that under any Administration what is now being done is to guarantee the extra expense of the index without being able to guarantee the stabilisation of inflation? If we are eventually left with both, which we cannot completely rule out, then we shall be in greater trouble than we are now.

§ Lord Cockfield
My Lords, I am well aware of my noble friend's point. Nevertheless, the issue of this bond underlines the determination of the Government to press their policies for the reduction of inflation through to a successful conclusion.

Lord Paget of Northampton
My Lords, would the Minister agree that there is not one Government in the world who have not had the reduction of inflation among their objectives? Would he agree that those Governments do not differ in their intention, but only in their performance; that this Government have had a singularly poor performance—well below average; and that the vital question in these circumstances of who guarantees the guarantor is very relevant indeed?

§ Lord Cockfield
My Lords, the Government's record in this matter is, in fact, a good one and not a poor one. The rate of inflation has been brought down sharply and is continuing to fall and, in the medium-term, will fall further.

§ Lord Alport
My Lords, may I take it from what my noble friend has said that the Government, in fact, now guarantee that during the course of their term of office they will reduce inflation?

§ Lord Cockfield
My Lords, my noble friend is trying to read more into this matter than the issue of one single indexed bond justifies. If he will turn, however, to the medium-term financial strategy, which is set out in the Budget Red Book, he will see set out there the plans of the present Government to bring the rate of inflation progressively down in the medium-term.

§ Baroness Gaitskell
My Lords, when will the day come when the rate of inflation will come down and the rate of unemployment will also come down? So far that has not happened.

§ Lord Cockfield
My Lords, the noble Baroness seems to be unaware of the facts. The rate of inflation has fallen sharply; as the economy recovers—as it will do—the rate of unemployment in due course will come down, too. One of the more important factors here is to ensure that wage settlements are within a level that industry can sustain.

§ Lord Mackie of Benshie
My Lords, is the Minister really saying that the success of this issue depends on having a Conservative Government until 1996? Is that what he is saying?

§ Lord Cockfield
My Lords, I would very much look forward to having a Conservative Government until 1996, but I would hope that the good example that we have set would lead any successor Government in fact to follow the same policies.

§ Lord Hankey
My Lords, are the Government aware that this index-linking experiment is regarded as a matter of great interest by the institutions and that pension funds are already taking a close interest in purchasing it?

§ Lord Cockfield
My Lords, I am grateful to the noble Lord for his remarks. The issue has been greatly welcomed by the institutions.

§ Lord Leatherland
My Lords, would the noble Lord agree that when the present Government took office the inflation rate was 8 per cent., and although it may have been falling a little in recent months this Government lifted the rate of inflation up to 18 per cent. a few months ago?

§ Lord Cockfield
My Lords, the position, as I have explained in your Lordships' House on many occasions, is that at the time of the general election the underlying rate of inflation, measured on a six-month basis, was 13 per cent. and rising. The rate of inflation is now below that level and falling.