Bank Rate Rise: Effect on Industry (Hansard, 20 July 1984)

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

§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, the effect of each 1 per cent. increase in base rates is to increase the net interest payments of industrial and commercial companies by about £250 million a year.

§ Lord Beswick
My Lords, does the noble Lord agree that this is a serious imposition upon industry? On the CBI estimate, it will mean another £500 million a year extra to industry. Has the noble Lord seen the Financial Times Marplan poll published this week which said that 66 per cent. of company directors say that the recent increase in bank rates would be damaging. or very damaging, to the economy? In these circumstances ought we not to find a much more sensible way of controlling the money supply?

§ Lord Cockfield
My Lords, I join with the noble Lord, Lord Beswick, in regretting the increase in interest rates. There is nothing between us on that at all. As he refers to the effects on industry, perhaps I may refer him to what Sir Terence Beckett, speaking on behalf of the CBI, in fact said. He said: The latest rise is unwelcome but inevitable in the circumstances. The underlying situation is one of good steady growth and low inflation. We are confident that this will reassert itself". As the noble Lord, Lord Beswick, knows, the immediate cause for the rise in interest rates was primarily the trend of interest rates in the United States of America. That, unfortunately, is something we cannot insulate ourselves from.

§ Lord Beswick
My Lords, I saw what Sir Terence said, and I know that Sir Terence tends sometimes to say, things which reflect the feeling of the Government. Would the noble Lord look at his own figures from the Central Statistical Office, which show that manufacturing output in this country at the beginning of this year, before the miners' strike started, was 11.5 1749 points below that of 1979 when this Government took over? In those circumstances is it sensible to impose this extra burden upon industry?

§ Lord Cockfield
My Lords, the noble Lord is now straying wide from the original Question.

§ Lord Stoddart of Swindon
It is relevant, though.

§ Lord Cockfield
Perhaps the noble Lord would kindly wait to hear the rest of the answer. The fact of the matter is that total output in this country is now higher, not lower, than it was in 1979. But the simple truth of the matter is that there are some matters which are outside the control of any government. We cannot insulate ourselves from what goes on in the United States of America. The United States of America accounts for 24 per cent. of the GNP of the world, and therefore it is one of the facts of life which must influence what goes on elsewhere.
The rise in interest rates in this country was not due primarily to domestic circumstances, over which we do have some control and where our policies have been directed to keeping interest rates down. The rise was primarily a reflection of what is happening in the United States of America. We have on many occasions over the last two years drawn the attention of the American authorities—and so have other Western leaders—to the deleterious effects of the large rise in American interest rates. In these matters there is nothing whatever between the noble Lord and myself. We both regret this rise in interest rates. The important thing is to ensure that, in so far as matters are within our own control, we follow the sort of policy which will keep rates down and not force them up.

§ Baroness Seear
My Lords, would the Minister consider that a moderate further fall in the value of sterling would do less damage to British industry than an increase in interest rates?

§ Lord Cockfield
My Lords, we are now moving from interest rates to exchange rates, but the fact of the matter was that the rise in interest rates was not the result of a policy decision to try to fix the rate of sterling at any particular point. We do not target the exchange rate. The rise in interest rates was due to the feed-through effects on the money markets of the rise in American interest rates.

§ Lord John-Mackie
My Lords, does the figure the noble Lord quoted include agriculture?

§ Lord Cockfield
My Lords, the Question relates to industry, but if the noble Lord's question is whether the output of agriculture has increased since 1979 I should have thought that it had increased substantially.

§ Lord Mulley
My Lords, while I appreciate the Minister's comment that we cannot insulate ourselves from external effects, would he not agree nevertheless that it is difficult to get people to invest in industry when they can earn such high sums by merely lending their money? Secondly, is not the interest rate a 1750 reflection of the low opinion held internationally of our own economic circumstances which results from our frittering away the oil revenues instead of spending them on good investments?

§ Lord Cockfield
My Lords, the latter part of the noble Lord's statement is quite incorrect. So far as the earlier part of his question is concerned, perhaps I may ask him to repeat it. He rather diverted me with his long diatribe.

§ Lord Mulley
My Lords, I assure the Minister that I can deliver as long a diatribe as he is capable of if he tempts me. He has been in business and I ask him how he can expect people to invest in, for example, the new issues that the Government intend to put on the market to sell off our own nationalised industries. How can he ask people to support that when they could receive more money by merely lending it to the banks?

§ Lord Cockfield
My Lords, the noble Lord will be surprised to know that I agree with his basic thesis. This is why our policies have been directed to getting interest rates down in this country. I am glad of his support for the Government's general financial policy.
At the same time, the earnings of industry have been increasing. Profits last year were up by 25 per cent. compared with the year before. The way to have a healthy expanding industrial section is to have a higher level of profitability and a lower level of interest rates. I entirely agree with the noble Lord on that point.

Lord Morris
My Lords, my noble friend suggests, and I am sure it is so, that it is not possible for the United Kingdom to insulate itself from the possible effects of what has happened in the United States of America. Would he not agree that it is therefore increasingly important to continue to put as much pressure as possible on the United States of America to be aware of the effects of their economic moves upon Europe as a whole?

§ Lord Cockfield
My Lords, I agree with my noble friend. We have on many occasions drawn the attention of the United States Administration to these matters.

§ The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)
My Lords, I am sure all your Lordships' Benches are enormously interested in listening to this exchange of views. On behalf of my noble friend the Leader of the House, who is not here today, I would remind your Lordships that we have breached our own Standing Orders to the tune of 16 minutes. We have, in fact, taken very nearly double the length of time that the Companion to Standing Orders recommends that Questions should last. May I therefore suggest that we take the question of the noble Lord, Lord Bruce, and then move on to other business?

§ Lord Beswick
My Lords, may I suggest that if the noble Lord wishes to control Question Time he should have got up earlier? It is not right to control the fourth Question and not the others.

Lord Bruce of Donington
My Lords, is the noble Lord aware that his statement that the Government have no target for exchange rates is one that will be received with considerable interest? Is he also aware that his own statement that the Government have no control over interest rates goes completely against the quite willing, disastrous and aggressive rise in interest rates in 1979? Further, if he says that the Government have no control over interest rates, can he state what justification there is for his right honourable friend the Chancellor of the Exchequer to express the view that the existing interest rates are only temporary? How can he know? Or does the word "temporary" imply that there might be a further rise in interest rates within a fortnight?

§ Lord Cockfield
My Lords, so far as the first supplementary question asked by the noble Lord is concerned, the statement that I made that the Government do not target the rate of exchange is one that has been made on numerous occasions by Government spokesmen and it represents the position.
So far as his second supplementary question is concerned, the noble Lord was endeavouring to place certain words in my mouth when he referred to controlling the rates of interest. The position is that Government policy has a very important influence on domestic interest rates. This is why we pursue the responsible fiscal and monetary policy that we do. Apart from that, there are external influences on the internal economy. If the noble Lord cares to turn up the budget speeches of the late Dr Dalton, who subsequently became a Member of your Lordship's House, he will find these matters spelt out very clearly some forty years ago.

§ Lord Belstead
My Lords, on behalf of the Leader of the House may I say that we are now within a minute of having taken double the length of time that Questions would normally take. Of course, I understand that the noble Lord, Lord Beswick, having asked the original Question, would like to ask the last question. Of course, I understand that. But there is no such right in the Companion to Standing Orders. The accepted custom in this House is that the noble Lord who asks the first question then asks the first supplementary and after that other questions are asked. But there is no right to ask the final question. Therefore, I feel that on this occasion this is the moment when we should pass on to other matters.
If the noble Lord, Lord Beswick, persists in asking his question, the noble Lord will of course be listened to with courtesy in the customary way of this House, but without sympathy.

§ Lord Beswick
My Lords, I heard what the noble Lord said: the reference is to "normally". Standing Orders are adhered to normally. Friday is a rather unusual day. Secondly, in this case the other Questions took up rather a long time and I suggest that it would not be right to adhere to the 20 minutes by squeezing out the final Question. I want to ask, if I may, without the sympathy of the noble Lord, does the noble Lord, Lord Cockfield, expect the recent rise in interest rates to have any effect on the flotation of British Telecom and British Airways shares in the near future?

§ Lord Cockfield
My Lords, that is a totally different question from what appears on the Order Paper.