HL Deb 06 November 1991 vol 532 cc213-5

2.46 p.m.

Lord Stoddart of Swindon asked Her Majesty's Government:

What was the real rate of interest in October 1990 and October 1991.

The Minister of State, Department of Transport (Lord Brabazon of Tara)

My Lords, there is no single definition of real interest rates. But one method is to divide the average three month interbank rate by the 12 month all-items retail prices index. On this basis, the real interest rate in October 1990 was 2.8 per cent. It will not be possible to calculate the figure for October 1991 until publication of the RPI on 15th November.

Lord Stoddart of Swindon

My Lords, I find it incredible that the Minister is unable to answer a simple question. Does he not agree that on the basis of the minimum lending rate minus the RPI the real rate of interest in October 1990 was 3.4 per cent? Bearing in mind that for October the inflation rate is likely to be 4.1 per cent. or less, the figure is likely to be 6.4 per cent. Does not the Minister agree that interest rates, rather than falling by 3.5 per cent., as claimed by the Chancellor, have risen by 3 per cent? Is that not the reason why the slump (as I prefer to call it) has been much deeper than it should have been, and why the Chancellor's prediction of an upturn is proving to be a mirage? Will the Minister advise his colleagues that interest rates should be cut immediately by 1 per cent., as has been demanded by the Director General of the CBI?

Lord Brabazon of Tara

My Lords, I did not give the noble Lord the figures for October 1991 because, as I said in my original Answer, they have not yet been published. Therefore it is impossible for me to give those figures. However, the noble Lord would perhaps like to hear me compare the figure of 2.8 per cent., which I gave for October 1990, with the figure of 5.9 per cent. for September of this year. The September figure is the latest available figure. The real level of interest rates has risen in the past 12 months, but in that time actual interest rates have fallen by 4½ percentage points. That means that Britain has real rates below those of France and close to those of Germany.

Lord Donoughue

My Lords, does not the Minister agree that such high real interest rates have persisted for the past eight years at a level higher than at any previous time since the war? That is one reason why the level of industrial investment is historically low, and it is why our manufacturing capacity is not able to support any sustained expansion.

Lord Brabazon of Tara

My Lords, I do not agree. The figure for October 1990 which I quoted was the lowest since 1982. I congratulate the noble Lord, Lord Donoughue, on his elevation—if that is the right word—to the Opposition Front Bench as spokesman on Treasury matters, on which I am sure we shall have plenty of opportunities to joust with each other.

Lord Stoddart of Swindon

My Lords, will the noble Lord now answer the other question which I asked him? Will he advise his colleagues in the Government that interest rates should now be cut by a full 1 per cent. in order that the economy can be kick-started into life?

Lord Brabazon of Tara

My Lords, interest rates will be cut when it is prudent to do so, when it is right in terms of our fight against inflation and when it is consistent with our obligations within the exchange rate mechanism.