HC Deb 02 November 1989 vol 159 cc284-5W
Mr. McLeish

To ask the Chancellor of the Exchequer if he will estimate(a) the impact of every 1 per cent. rise in interest rate on the costs to industry, (b) the estimated extra costs likely to have been incurred by industry in the period May 1989 to October 1989 as a result of interest rates rises and (c) the estimated costs to industry of the present interest rate level continuing for a period of three months, six months and 12 months.

Mr. Lilley

[holding answer 26 October 1989]: The estimated direct cost to industrial and commercial companies of a one percentage point increase in United Kingdom bank base rates is about £0.5 billion in the first year after the change, based on industrial and commercial companies' current holdings of assets and liabilities with variable rates of interest linked to United Kingdom bank base rates. The estimate takes no account of possible changes in net borrowing following a change in interest rates or of consequential changes in tax liabilities.

By comparison a one percentage point interest rate increase costs industrial and commercial companies far less than a one percentage point rise in pay settlements.

It is not possible to answer parts (b) and (c) without making assumptions about the actual responses to interest rates and changes in borrowing for any other reason. But the key point is that industry would suffer much more from a general rise in inflation than from interest rate increases.