§ 2.39 p.m.
§ Lord Barnett asked Her Majesty's Government:
§ What is their policy for annual growth of GDP, with particular reference to the instructions given to the Governor of the Bank of England on inflation.
§ Lord McIntosh of HaringeyMy Lords, the Government's central economic objective is to achieve high and stable levels of growth and employment. The monetary policy objectives of the Bank of England, as set out in the Bank of England Bill, are,
(a) to maintain price stability, and (b) subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment".
§ Lord BarnettMy Lords, I am obliged to my noble friend for that Answer, but it is not quite what the Chancellor of the Exchequer wrote to the Governor of the Bank of England in his letter. He stated:
Without prejudice to this objective"—that is monetary policy—to support the Government's economic policy".If it is the Government's central economic policy to go for growth and higher employment, is not that coming second best to the monetary targets? Indeed, is that not 142 proven by the Chancellor's economic forecast for the rest of the century, which is well below 3 per cent? In those circumstances, would it not at least be an improvement if the central economic objective was on a par with a monetary target?
§ Lord McIntosh of HaringeyMy Lords, the difference between the letter quoted by my noble friend and the Bank of England Bill, which I quoted, is a matter of semantics rather than of real difference. As regards his second question, the Government believe that only within the context of a stable price policy and stable inflation is it possible to achieve the targets of growth and employment which are the ultimate aim of the Government.
§ Lord Mackay of ArdbrecknishMy Lords, would the Minister fly in an aeroplane in which there was only one instrument measuring only one factor of the plane's health and in which the pilot had only one lever with which to control one aspect of the plane's flight? I am sure that the noble Lord would not. Is not that exactly the same as asking the Bank of England to run the economy of the United Kingdom with only one measurement—namely, inflation; and only one instrument with which to do anything about the trim of the plane—namely, interest rates?
§ Lord McIntosh of HaringeyMy Lords, I would not wish to diminish the importance of short-term interest rates in macro-economic policy, but they are not the only element or the only instrument available to us. We have said that the Bank of England, with its responsibility for short-term interest rates, should act according to the Government's targets for inflation. However, as I said in response to the Question, it should also support the economic policy of Her Majesty's Government, including their objectives for growth and employment. I do not call that flying on only one instrument.
Lord Bruce of DoningtonMy Lords, is the Minister aware that in the United Kingdom unemployment is running at some 2,800,000? How do the Government reconcile their ambitions to reduce that figure to a more manageable level of 3 to 4 per cent. with pursuing policies which will produce exactly the opposite result?
§ Lord McIntosh of HaringeyMy Lords, I contest that view. The Government are pursuing many policies, notably their welfare-to-work policies, which are designed to decrease unemployment. Our policy towards investment is designed to make it possible for the private sector to create more jobs. Under those circumstances, we do not believe that a stable interest rate will act to increase unemployment. Quite the contrary—we believe that investment and sensible business decisions are more likely to occur under conditions of continued stable inflation rates.
§ Lord BoardmanMy Lords, are not this country's economic policies decided largely by two levers: one being the interest rate, which is now delegated to the 143 Bank of England; and the other being taxation, which is retained by the Chancellor? Does the noble Lord consider it sensible that there should be that division? Does it not show already that difficulties are arising for the Chancellor?
§ Lord McIntosh of HaringeyMy Lords, I am grateful to the noble Lord, Lord Boardman, for asking me that question because it enables me to point out that, although short-term interest rates have risen since May by 1.25 per cent. because of the decisions of the Bank of England, long-term interest rates have declined by nearly 1 per cent. as a result of the Government's wider macro-economic policies of pursuing longer-term stability. It is our success in convincing the markets that longer-term stability and low inflation is possible and will result from our policies that has led to that decline in long-term interest rates.
§ Lord Stoddart of SwindonMy Lords, does my noble friend agree that one of the obstacles to a higher level of employment at present is the high value of the pound, which is restricting our exports abroad? Under those circumstances, is it not foolish to increase interest rates when, in fact, they should be falling?
§ Lord McIntosh of HaringeyMy Lords, I do not believe that it is by any means clear from the evidence that the high level of the pound has resulted in a decrease in our exports, still less in a decrease in employment in our exporting industries. That might well be the case if it were to continue indefinitely, but the evidence at present is still by no means clear.
§ Lord EzraMy Lords, following on the question of the noble Lord, Lord Boardman, can we assume that there is close and continuing contact between the Governor and the Chancellor to ensure effective co-ordination between monetary and fiscal policy?
§ Lord McIntosh of HaringeyMy Lords, we can indeed be sure of that. It is among the provisions contained in the Bank of England Bill which is now before another place and which specifies the nature of that close relationship.
§ Lord Ewing of KirkfordMy Lords, does my noble friend agree that as the Government have been in office for only seven months, it is rather early to be passing those kinds of judgments on their economic policy? Does he agree with me that as well as instruments being important in flying an aircraft, the pilot is of equal importance? Those of us on this side of the House have absolute and total confidence in the pilot, in the form of the Chancellor of the Exchequer, and those judgments can be made at a later date?
§ Lord McIntosh of HaringeyMy Lords, I am grateful to my noble friend for those comments. I agree with him that it is premature to rush to adverse 144 judgments on the Government's economic policies. However, I am confident that it is not too early to say that they are moving in the right direction.
§ Lord RotherwickMy Lords, does the Minister agree with me that the high interest rates have made our currency so strong that the farming industry has had great difficulty in exporting grain? That has caused the income of farmers this year to suffer terribly.
§ Lord McIntosh of HaringeyMy Lords, while I always sympathise with difficulties in any sector of our economy, I notice that it is always the farming industry which comes to the fore in making complaints about any change in economic policy.
§ Lord McIntosh of HaringeyMy Lords, I thought that that would identify the farming interests in this House. I stick to my view that it is far too early to make any judgment that the existing level of interest rates has affected exports.