asked the Chancellor of the Exchequer to what extent his policy to reduce interest rates will be affected by changes in United States prime rates of interest.
The Government's policy remains to allow interest rates to fall, as and when this is consistent with the requirements of domestic monetary control. Since my right hon. and learned Friend's measures last November, there has been a marked slowing down in the rate of growth of sterling M3.
I congratulate my hon. Friend and my right hon. and learned Friend on that achievement, but does my hon. Friend agree that the rate of interest that currently prevails in Britain depends to a considerable extent on the high level of prime rates of interest in the United States? Will he therefore concede that it is vital for the Government to continue to pursue their strategy of controlling public expenditure and sterling M3 in order to achieve the reduction in the rates of interest which we all recognise is desirable?
I agree entirely with the second part of my hon. Friend's observation.
Since the Chief Secretary, at least, is an agnostic in terms of monetary religion, and since he does not believe, and does not in fact know whether the Government's monetarist policies will lead to a reduction of inflation, what is the purpose of these monetary policies and high interest rates, which are merely destroying large sections of British industry?
The purpose of these policies is to bring down inflation. They will bring down inflation, and my right hon. Friend, far from not believing that, was among the first right hon. and hon. Members, on either side of the House, to emphasise the importance of monetary policy on the course of inflation.
I support the courageous strategy and policies of the Government—I congratulate all my right hon. and hon. Friends on the Treasury Bench—but does my hon. Friend agree that high interest rates are damaging to commerce and industry, particularly to new smaller businesses? Will he consider implementing a form of differential interest rate for commerce and industry, which I understand is practised by many countries with which we trade and which are our major competitors?
In a sophisticated financial economy such as ours, there is no practical means of insulating one sector of the economy—because there would inevitably be arbitrage—even if it were desirable to do so. We must concentrate on monetary measures which enable us to reduce interest rates generally. That is one of the main purposes behind the medium-term financial strategy. With regard to interest rates in Britain particularly, my hon. Friend knows that interest rates throughout the world have risen by as much as they have risen in this country over the past 12 months.
The Chief Secretary has wisely and publicly repudiated the crude theory on which Government policy was previously based. What changes will be made in that policy?
My right hon. Friend has a philosophic disposition, and his speeches reflect that, but that is no excuse for an observer as percipient as the right hon. Gentleman wilfully to misrepresent them.