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Interest Rates

Volume 983: debated on Thursday 24 April 1980

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asked the Chancellor of the Exchequer what representations he has received from small businesses regarding high interest rates.

We continue to receive a number of representations from small business men on the current level of interest rates.

Does the hon. Gentleman agree that there is no apparent mechanistic link between money supply and inflation, or between the public sector borrowing requirement and inflation? Is it not the deliberate and disastrous policies of the Government, who pay lip service to small businesses, that are producing the abnormally high rates of interest that are smashing small business after small business? What are the Government going to do about it?

As I said in answer to an earlier question, the rate of interest has risen throughout the world by roughly the same amount. The whole world is facing the same inflationary problems. It is interesting to note that when the Government first took office the rate of inflation, as measured by the six months' annualised increase in the RPI, but excluding seasonal foods—which is generally regarded as the best measurement of the underlying rate of inflation—was 12·2 per cent. It is now 16·4 per cent. That is almost exactly in line with the increase in inflation rates worldwide over the same period. Similarly, countries worldwide have sought to contain the increase in inflation rates by monetary policies that involve, for the time being, a high rate of interest. Our intention is to bring interest rates down for the sake of small businesses, and others, as soon as it is safe to do so.

In general, are interest rates positive or negative in real terms?

That is an interesting philosophical question. Whether interest rates are positive or negative depends upon the expectation of inflation, and expectations differ. If we measure the current short-term interest rate against the current rate of inflation, interest rates are negative at present.

Apart from high interest rates, it is clear that small businesses will be seriously affected by the 6 per cent. decline in manufacturing output next year, which has become apparent from the cross-examination of officials before the Treasury Select Committee. Will the hon. Gentleman explain how the massive loss of jobs from medium and large companies is to be made up by small businesses?

I do not know what massive loss of jobs the hon. Gentleman is referring to, but he seems to have a certainty about the future which some of us lack. However, small businesses would be much more adversely affected by a resurgence of inflation, which is what would happen if the policies advocated by Labour Members were followed.

As lower differential interest rates for business are clearly impossible, would it not be a good idea to introduce a lower domestic rate of interest as soon as possible?

May I direct the hon. Gentleman's attention to the figures that were published on Tuesday showing the massive loss of jobs in the past seven months since the Government have been in power? Is he aware that his officials gave the view to the Treasury Select Committee that there will be a massive increase in unemployment over the next 12 months, and that no outside forecaster believes that unemployment will fail to reach 2 million within a year from now? Why is he so complacent about the consequences of his policies?

The real question is "Why is the right hon. Gentleman so impertinent? " Even if unemployment were to rise to 2 million, that would be a smaller increase than the increase in unemployment during his stewardship of the Exchequer.