Medium Term Financial Strategy (Hansard, 6 February 1990)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
Yes, my Lords.

§ Lord Donoughue
My Lords, I thank the Minister for that intriguing reply. Since the latest in the long line of monetary benchmarks announced by the Government —MO —is proving unaccommodating and running well above the target range set in the last Budget, and, since inflation, both the RIP and the underlying rate which the Government tend to prefer are running well ahead of Treasury forecasts, does the Minister agree that an honest and logical application of the medium term financial strategy—should the new Chancellor be able to find it —would involve higher interest rates and higher taxation, or both?

§ Lord Henley
My Lords, no. My right honourable friend has made it clear that interest rates will remain as high as is necessary for as long as is necessary to achieve the required effect in bringing down inflation.

§ Lord Hailsham of Saint Marylebone
My Lords, is it not possible that the noble Lord, Lord Donoughue, meant RPI and not RIP as he said?

§ Lord Henley
My Lords, I think that my noble and learned friend is correct.

Lord Bruce of Donington
My Lords, is the noble Lord aware that there exists an impression, which is not confined entirely to this side of the House, that the Government are far less concerned with the medium term financial strategy than they are with the medium term election strategy?

§ Lord Henley
My Lords, I think that that concern is more appropriate for the other side of the House than for my side. We remain committed to the objectives of the medium term financial strategy and, as I stated, interest rates will remain as high as is necessary for as long as is necessary.

§ Lord Ezra
My Lords, as we are on the subject of medium term strategies, are the Government contemplating the introducton of a medium term 703 industrial strategy, bearing in mind the need to widen our industrial base and make it more efficient so that we can compete more effectively when the enlarged European market comes into operation?

§ Lord Henley
My Lords, that question goes very wide of the Question on the Order Paper. I repeat: bringing down inflation is the Government's top priority.

§ Lord Jay
My Lords, will the noble Lord explain why until recently we were told that we were enjoying an economic miracle but we are now told that things are so bad that we must have 15 per cent. interest rates indefinitely?

§ Lord Henley
My Lords, we do not have to have interest rates at 15 per cent. indefinitely. I said that interest rates will remain as high as is necessary for as long as is necessary to achieve the required effect in bringing down inflation.

§ Lord Stoddart of Swindon
My Lords, the noble Lord did not tell us exactly what the medium term financial strategy was. Does he agree that the medium term financial strategy —as it appears to us —means higher interest rates, higher prices and lower production? Is not that to be the effect of the medium term financial strategy?

§ Lord Henley
No, my Lords. Perhaps I may quote from the Financial Statement and Budget Report of 1989–90, published last March: Since its inception in 1980, the MTFS has provided a nominal framework within which the Government pursues its objective of bringing down the rate of inflation".

§ Lord Williams of Elvel
My Lords, does the noble Lord accept that my noble friend Lord Donoughue was right when he said that the Government should declare RIP to the medium term financial strategy? In fact, it has been abandoned by the Government. There is no medium term financial strategy, despite what they say. Will the noble Lord come clean and admit that that is the Government's position?

§ Lord Henley
My Lords, I thought that I had made myself perfectly clear. The objectives of the medium term financial strategy and the central role of monetary policy in reducing inflation remained unchanged throughout the 1980s.