Interest Rates

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 27th June 1991.

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Photo of Austin Mitchell Austin Mitchell , Great Grimsby 12:00 am, 27th June 1991

To ask the Chancellor of the Exchequer what is his estimate of current interest rates in Britain and other EC countries and the margins charged by banks to small businesses.

Photo of John Maples John Maples The Economic Secretary to the Treasury

Three-month sterling inter-bank rates today are 114 per cent. Broadly comparable rates in other EC countries vary from 9 to 19 per cent. The margins charged by banks to small businesses vary widely.

Photo of Austin Mitchell Austin Mitchell , Great Grimsby

It is clear that British interest rates are insanely high for a country that is in the depths of a recession, but it is also clear that, despite the Chancellor's friendly chats with the bank directors, nothing much will happen about margins until interest rates fall substantially. Why does not the Chancellor admit the truth and say that he cannot do anything about interest rates because the Prime Minister took us into the exchange rate mechanism at an overvalued rate last October? When he is accused of GBH on the British economy, he can plead either "guilty but insane", or "not guilty because the Governor of the Bank of England is running the country".

Photo of John Maples John Maples The Economic Secretary to the Treasury

I hope that the hon. Gentleman's colleagues on the Opposition Front Bench were listening to that because sitting behind them is the authentic voice of the Labour party, which always has been and probably always will be in favour of devaluation.

Photo of Mr John Townend Mr John Townend , Bridlington

Is my hon. Friend aware of the extent of the pain suffered by small businesses due to lack of demand and high interest rates? Is he aware that many industries are still as flat as a pancake? Does he agree that the Treasury forecast that there will be economic recovery in the second half of this year is beginning to look over-optimistic and that any recovery will be slow and weak and will not help much before the beginning of next year? In view of the Government's success in reducing inflation, which perversely increases real interest rates, is there not a window of opportunity for reducing interest rates quickly and giving some benefit to small businesses?

Photo of John Maples John Maples The Economic Secretary to the Treasury

My hon. Friend the Member for Bridlington (Mr. Townend) has always been an advocate of sound money, and I am sure that he agrees with and understands the Government's priority for getting on top of inflation. That is why we have had to keep interest rates high. However, interest rates have been reduced substantially in the past few months. There are signs that the recession is coming to an end and I see no reason to alter our forecast that there will be a recovery in the second half of the year.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

What precisely was the outcome of the Chancellor's chats with the chairmen of banks? Has he, for example, persuaded them to show the rates of interest charged to small businesses on their bank statements? Does the Minister recognise that the root of the problem is that the banks do not face sufficient competition in their dealings with small businesses in the way that they do in the personal sector?

Photo of John Maples John Maples The Economic Secretary to the Treasury

There may well be a lot in what the hon. Gentleman says. As he knows, we all regard the way in which small businesses are treated by the banks as a matter of great concern. My right hon. Friend has asked Treasury officials and the Bank of England to look into the matter and investigate the facts. We are still waiting for the results of that inquiry.